He found that resource use and discharges began to decline rapidly in those nations with competitive markets, even as economic growth, continued. In contrast, during the same two decades, consumption and environmental disruption were rapidly increasing in the USSR and European socialist countries even though their economies slowed down and eventually stagnated.5 Bernstam's conclusions are borne out by other studies as well. Gene Grossman and Ann Krueger examined air quality in urban areas of the developed and developing world. The basic point is that countries must be rich before they can be clean. As societies become wealthier, they attach a greater value to environmental quality.
Ecological prosperity is a luxury that only developed nations can afford.
Trade enables countries to become richer, and, as the studies suggest, this in turn reduces pollution. Another interesting finding of the Bernstam study was that the strictness of government environmental regulation does not correlate with the drop in pollution. If anything, he writes, there is a slight negative correlation. Far more important in determining emission levels is an economy's incentive structure. Thus, as we discuss markets and trade within North America, we should consider using markets in natural resources to foster incentives for environmental stewardship.