Understanding global public goods

Globalisation has highlighted the need to take a closer look at challenges, from reducing pollution to tightening disease control, whose consequences are shared across the world. But if we are to make best use of such global public goods, we need to understand how they work and how to measure them.

In recent years there has been an increase in activities that spill over national borders, known as transnational or global public goods. The unfolding tragedy of the AIDS epidemic is an instance where a disease with local origins has created consequences worldwide. Likewise, the Internet, which offers instant global communication, can be exposed to tremendous harm from hackers and the spread of insidious viruses. Acid rain, resulting from sulphur and nitrogen pollutants, respects no borders as emitted particles travel for up to a week before deposition, often in another country. We live in an era where global warming, ozone-shield depletion and financial instabilities place risks on an ever-integrating world. Since the collapse of the Soviet bloc inter-state wars have given way to intra-state civil wars and such localised conflicts require a greater peacekeeping capacity by the international community.

Such global effects can be good or bad; they are described as public goods because of the broad nature of their impact. Any breakthrough in treating AIDS, or any reduction in sulphur and nitrogen pollution, helps people everywhere. But a chemical or biological bomb in an underground of a capital city can alert a nation to a political grievance half a planet away, and lead to billions of dollars being spent on measures to counter such attacks.

There has been an increase in global and transnational public goods, and our awareness of them in recent years for several reasons. For a start, new products and technologies are increasing the number of activities with cross-border or global effects. A classic example of this is chlorofluorocarbons (CFCs) and related compounds used for refrigeration, propulsion, and cleaning. They depleted the stratospheric ozone layers, thus leading to greater ultraviolet radiation exposure worldwide. And as methods for identifying cross-border issues, such as carbon accumulation in the atmosphere, improved, so did our awareness of the global aspect of these problems.

Another reason is the proliferation of smaller states following the collapse of the Soviet Union. That means more borders, and therefore a greater incidence of the effects of public goods spilling over national boundaries, whether air pollution or cleaner river water.

At the same time, market globalisation has brought the realities of some foreign labour standards and financial practices closer to home: if news spreads that popular brand-name clothes sold in US stores are being produced by child labour in poor countries, sales can fall and public pressure mount for improved conditions for the developing country workers.

The media clearly facilitates awareness of transnational spillovers. In fact, media reports about the ozone hole in the mid-1980s helped mobilise nations to conclude the Montreal Protocol on reducing CFC emissions.

Common challenges 

But being aware of cross-border and global effects is not enough; the challenge is actually to increase the benefits and reduce the costs. To achieve that, we need to understand the different types of public goods, and define who is producing them, who is benefiting and who is paying.

Curbing global warming is perhaps the most difficult current challenge. The world’s nations were able to reach agreement to curb emissions of CFCs that were depleting the ozone layer at least partly because everyone clearly understood that the problem and the gains would be shared by all, with no real losers. This is not the case with global warming. Significant action is needed by many countries. Efforts by just a few large industrial nations would probably be only a short-term fix, because as emerging and less-developed countries grow and increase their energy appetite, greenhouse gas accumulation will accelerate. Moreover, myriad activities from agriculture to mining add to global warming, so no one area of activity can be targeted to reduce emissions easily.

And the process of climate change remains poorly understood, which fosters inaction. The United States is not convinced that the benefits of emissions cuts would be enough to justify the costs. Elsewhere, some farmers in higher latitudes may actually benefit from global warning by gaining a hotter, wetter, and longer growing season. So, unlike other pollution problems, where there are only losers, climate change offers the prospect of winners, which also leads to inaction. Another argument that inhibits decisive reduction of greenhouse gases is the fact that action taken and paid for today is unlikely to have a noticeable consequence until many decades into the future. Most policymakers are not sufficiently farsighted or altruistic towards future generations to worry about the long run. The lack of progress on global warming reflects these difficulties.

Clearly, for transnational and global public goods to make sense, we need to be able to measure them. “Aggregation technology” is used to find out how individual contributions influence a good’s overall effect. The most common way is to use summation technology, as for measuring CFCs, since the total reduction is simply the sum of each nation’s reduced emissions, with the gains equally shared by all.

But other cases are more complex. In the case of acid rain, for instance, a weighted sum applies because the influence of one nation’s cutback on other nations’ pollution depends on location, wind patterns, and the pollutant’s airborne time.

From weak link to best shot

Then there is the “weakest link” scenario. Preventive measures to contain the spread of a disease transnationally, for example, are only as effective as those in the country exercising the least care. If one country has weak disease control, for instance, all countries pay the price. Even boosting measures in other countries will not add to the total benefit. This is why richer, more capable countries may help poorer ones fund measures to curb the spread of threatening diseases.

At the other end of the scale is the “best shot” scenario, in which the overall quantity of the public good equals the quantity of the largest individual provision level. In searching for a cure for diseases such as AIDS or malaria, the research team expending the largest effort is most likely to succeed. Once a cure is found or a discovery is made, additional efforts become redundant. But best-shot public goods can present co-ordination problems between nations. Take superconductors, for instance. It makes little or no sense building several superconductors in different countries, given their complexity and high cost. One will probably do, but for that, its location and funding have to be co-ordinated. Resources may have to be pooled between countries, such as with Europe’s fusion reactor project. Under best shot, supply efforts should be concentrated where the prospects of success are greatest, although if potential suppliers have equal likelihood of success, then multiple providers may make sense, as in the case of the hunt for a cure to major diseases. With the best-shot approach, there is a rationale for assisting the efforts of the richer nations or forming a partnership among diverse participants to help the most likely candidates to succeed.

Global public goods are a key feature of the new international policy landscape but there is no single blueprint for supplying them. So to think sensibly about provision of global public goods, about sharing their benefits and controlling the costs, we must realise that the different types of public goods imply different incentives for action.

* Todd Sandler is the Robert R. and Kathryn A. Dockson Professor of International Relations and Economics at the University of Southern California.

References

• Eds. Kaul, Inge; Grunberg, Isabelle and Stern, Marc A., Global Public Goods: International Cooperation in the 21 st Century, Oxford University Press, 1999.

• Sandler, Todd, “Global and Regional Public Goods: A Prognosis for Collective Action”, Fiscal Studies, Vol. 19, August 1998.

• Sandler, Todd, Global Challenges: An Approach to Environmental, Political, and Economic Problems, Cambridge University Press, 1997.

• For relevant papers see: http://www-rcf.usc.edu/~tsandler/index.html

©OECD Observer No 228, September 2001 




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