If you are wondering how the plastic bag ban and the images of London in the 19th century and today are linked, we will come back to it in just a while. But before that:
The fiscal year 2016/17 budget of Nepal has called for a ban on the use of plastic and polypropylene bags in an effort to curb environmental pollution, improve human health, environment and urban beauty. Its implementation would mean that all manufacturers of plastic bags are required to shut down their operations altogether.
The manufactures on the other hand, and expectedly so, have expressed disappointment at the “sudden and unexpected” decision by the government and have suggested that there is a greater economic cost associated with this move which the government has failed to visualize. This leaves us with a very important question. “Does the economic cost outweigh the environmental cost?”
The economic cost of this move is undeniably very high. The restrictions on the use of plastic products have a huge impact on the survival of more than 30 plastic factories in the Morang-Sunsari Industrial corridor. These industries operate with a collective capital investment of over Rs. 5 billion in machineries and equipment, and directly support the livelihoods of more than two thousand families. A large number of workers having skills in making plastic bags will be unemployed until they acquire new skills and get new jobs. There will therefore be greater frictional unemployment.
With all the hue and cry about the environmental impact of plastic all over the world, the plastic industry has become an easy target for the government which is desperate to show that they are getting some work done. It is clear that the government has not done any homework whatsoever to support this decision.
- What about the investments?
Let us begin with the economic alternative the government has proposed to the entrepreneurs who have already invested in the industry. “A waiver of VAT on import of machinery and only 1% import duty for people wishing to switch to other industries.” But what about the Rs.5 billion already invested in the industry? Most of the investors are already indebted to banks and other financial institutions to operate these factories. We have not yet thought about concrete steps to help these entrepreneurs to repay the loans and recover their investments.
- Everybody is becoming worse off
In a market, new innovations and technologies replace the old and outdated ones. Like in the current case of plastic ban, it also puts a lot of pressure on the existing workforce. People lose jobs when machines replace them. This act as a signal to the people that are laid off that their skills are no longer in demand in the market and therefore they need to invest in acquiring new sets of skills and get new jobs. However, when this happens, the efficiency and the productivity of the system also go up. (For example, when an electric harvester is used for harvesting crops instead of having 10 people work on a field for days). In that case, it would be a case of creative destruction.
In this case of plastic ban, however, people are being laid-off, factories are being shut, investments are being compromised, and yet, we do not see a more efficient system in place that is going to replace all these factors. The society, on the whole, only becomes worse off with this policy.
- Economic growth or environment
There will still be a big support for the notion that the environment conservation is a far greater cause. But then, historically, economic growth, especially for societies that are already poor to begin with, has come at the cost of the environment (be it vast deforestation for agriculture, or the coal-backed industrial revolution). It is after a society gets to a certain level of economic development that they can now think about preserving the environment. This is also the phase where the society can now invest in new technologies that are more environment-friendly, or create such technologies.
As Johan Norberg explains in his ‘In Defense of Global Capitalism’, prosperity creates awareness and instills ‘a sense of responsibility that makes environmental protection easier in a wealthy society’. He argues, that ‘poorer countries are too preoccupied to lifting itself out of poverty to bother about environment at all’. Further he argues ‘progress of this kind, however, requires the people lives in democracies where there are able and allowed to mobilize their opinions’.