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Historical and Social Science Perspectives on the Role of Risk Assessment and Science in Protecting the Domestic Economy: Some Background

G. EDWARD SCHUH

Humphrey Institute of Public Affairs, University of Minnesota

There is hardly any policy problem on this nation's agenda that does not require the collaboration of the social sciences, the biological and natural sciences, and engineering to devise suitable policy choices for society. The design of policy is essentially the design of institutional arrangements for our society. That cannot be done effectively without the participation of multiple disciplines.

Although the need for multidisciplinary collaboration might be obvious once one gives the problem a moment's thought, it is not an easy objective to achieve. Differing perspectives on important problems make it easy to fall into disciplinary stereotyping and quarreling that can be quite counterproductive. It takes a special effort to understand the specialized language we all tend to use and to understand the perspectives offered by disciplines other than our own. Yet both efforts are needed if we are to capitalize on the insights offered by various disciplines. The search for understanding the perspectives of other disciplines can in particular be hard intellectual work.

Both our students and the public deserve the best we can give them from multidisciplinary collaboration. Students who can observe and participate in multidisciplinary endeavors will develop open and inquiring minds. On policy issues, the public will gain insight into the complex and complicated world in which policy is shaped. Moreover, our citizenry will benefit from the best that science can offer in policy alternatives from which to choose. In effect, although



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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference 1 Historical and Social Science Perspectives on the Role of Risk Assessment and Science in Protecting the Domestic Economy: Some Background G. EDWARD SCHUH Humphrey Institute of Public Affairs, University of Minnesota There is hardly any policy problem on this nation's agenda that does not require the collaboration of the social sciences, the biological and natural sciences, and engineering to devise suitable policy choices for society. The design of policy is essentially the design of institutional arrangements for our society. That cannot be done effectively without the participation of multiple disciplines. Although the need for multidisciplinary collaboration might be obvious once one gives the problem a moment's thought, it is not an easy objective to achieve. Differing perspectives on important problems make it easy to fall into disciplinary stereotyping and quarreling that can be quite counterproductive. It takes a special effort to understand the specialized language we all tend to use and to understand the perspectives offered by disciplines other than our own. Yet both efforts are needed if we are to capitalize on the insights offered by various disciplines. The search for understanding the perspectives of other disciplines can in particular be hard intellectual work. Both our students and the public deserve the best we can give them from multidisciplinary collaboration. Students who can observe and participate in multidisciplinary endeavors will develop open and inquiring minds. On policy issues, the public will gain insight into the complex and complicated world in which policy is shaped. Moreover, our citizenry will benefit from the best that science can offer in policy alternatives from which to choose. In effect, although

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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference a multidisciplinary approach takes time and effort because of the need to understand each other's language and alternative perspectives, our social product will tend to be higher if we take this approach. HISTORICAL PERSPECTIVE ON PROTECTIONISM Before providing a historical perspective on protectionism, it is useful to first provide a brief outline of the benefits of international trade. Economists tend to be the ones who articulate the benefits of international trade. These benefits tend to be subtle and not always directly observable, whereas the costs in terms of displaced workers and perceived effects on the distribution of income are more explicit and observable. The easily observable benefits of international trade are the expansion of consumer choices and the reduction in prices of goods and services it brings. An important example of this occurred when the United States was flooded with imports of automobiles from Japan. The United States was fortunate that protective measures against imports at the time were quite low. U.S. automobiles were not keeping up with the quality of automobiles from Japan and Germany, and they were expensive in comparison. Imports expanded quality opportunities for U.S. consumers, and at a lower price. That is the means by which increases in per capita incomes come about. The experience with Japanese automobiles teaches us another lesson. Recent developments in economic theory have linked international trade to economic development. Trade is not only an important means of bringing new technology into a country, but it forces domestic economies to modernize and thus lower their cost of production, again benefiting consumers with declines in the price of consumer goods. In recalling what happened in the case of automobile imports from Japan, it did not take many years for U.S. automobile companies to catch up on the technology that the U.S. consumers wanted imbedded in their automobiles. Moreover, in a relatively short period of time they were also able to modernize their production practices, so they became more competitive with imports. Ultimately, jobs were saved here at home, but in a way that contributed to economic growth and development. This points to another aspect of international trade worth noting. Economic growth benefits from an expansion of trade in part because the foreign exchange increased exports earn can be the means of financing a higher rate of economic growth and development. But the benefits will tend to be much broader. International trade enables individuals to benefit from an international division of labor that is based on specialization and on the unequal distribution of resources around the world. By making more efficient use of the world's scarce resources, everyone participating in that division of labor has their standard of living raised. The exceptions, of course, are those most damaged directly by the trade, which will be discussed below. In regard to the historical perspective on protectionism, if one goes back in time, tariffs were the primary barriers to trade. Moreover, many, if not most,

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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference tariffs were imposed as a means of generating revenue to finance the government. Protection as we understand it today was not the main objective. During the Great Depression of the 1930s, tariffs grew in importance as a protectionist measure. They became large and pervasive. Almost every nation was using them for that purpose. When the General Agreement on Tariffs and Trade (GATT) was created at the end of World War II, its main focus was on the reduction and eventual elimination of tariffs, and specifically on the reduction of tariffs on manufactured products. As the GATT became successful in lowering that kind of protectionist barrier to trade, however, another form grew in importance—nontariff barriers. Nontariff barriers to trade take many forms, one of which is sanitary and phytosanitary (SPS) barriers. Although SPS standards may be justified in some cases, they tend to be an important nontariff barrier to trade in many other cases. This particular form of trade protectionism is especially pernicious because of the lack of transparency in their implementation. They are not visible to consumers, and political support for them can be mustered with little opposition. Moreover, it is difficult for consumers to understand the technical issues even when they are transparent. For example, prior to the North American Free Trade Agreement, the United States had a nontariff barrier on imports of fruits and vegetables from Mexico to the effect that any trace of soil on the imports was grounds for a barrier to importation. How were consumers to know that the issue was whether "night soil" (human waste) had been used in the production of the commodity rather than the presence of soil per se? An important issue to be sorted out in examining trade policy is whether the standards to be considered are a garden variety of economic protectionism or whether there are more serious issues at root. In today's world the protectionists tend to hang their arguments on two sets of issues. The first is food safety, in part from new biotechnology innovations. This concern about food safety has come in a number of forms, ranging from the bovine somatotropin (BST) hormone in milk, to Escherichia coli, to mad cow disease, to the use of hormones in the feed for beef cattle, to irradiation of food. The food safety issue has arisen in part because of the globalization of sources of food supplies through international trade and, in part, because of rapid technological progress, which is producing innovations in the production and processing of food. Both of these pose real threats to food safety. The second issue is the perception that international trade is causing the distribution of income to become more highly skewed or unequal as trade expands. This issue deserves some attention because the failure to deal with the problem of labor adjustment is often what drives the search for nontariff barriers as a means of protection. At the same time, however, more attention could usefully be given to what happens to the absolute income of the poor as trade is liberalized. This is a rather neglected issue, despite its importance. An important means of dealing with the food safety issue is to be able to make a proper assessment of the risk from these external food supplies and the

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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference design of policies to protect the consumer from dangers that are potentially inherent in such products. A PERSPECTIVE ON RISK ASSESSMENT Although the collaboration of biological and natural scientists with social scientists is important in almost all dimensions of international trade policy, it becomes especially important in making risk assessments and designing risk management strategies. The biological and natural scientists have important contributions to make in assessing the technical dimensions of the risks, and social scientists need to take their assessments into account. The social scientists contribute important insights when they estimate costs and benefits of the innovations or risks, and the biological and natural scientists need to understand the social scientists' perspectives. One important issue in making risk assessments and in designing policies to manage that risk is that there appear to be cultural differences in perspectives toward risk. For example, Europeans seem to be much more averse to some food safety issues, such as hormones, than are Americans. Americans, on the other hand, are more averse to carcinogens. If these differences are real and significant, the next issue is whether international trade regulations should take such differences into account. Moreover, there is the issue of how they should be taken into account. An important empirical issue in this context is that in the post-World War II period, the Europeans have been much more protectionist toward their agriculture than has the United States. The issue thus becomes whether what is perceived as a food safety issue is not just a subterfuge for plain old economic protectionism. There is a great deal in the literature to assure us that different people have different tastes for risks. A study done by the North Central Farm Management Committee in the 1950s showed that beef producers, for example, tended to have a greater taste for economic risk than producers of commodities such as the grains, for which price stabilizing government programs were in effect (Halter, 1961). Similarly, common observation tells us that many people are willing to gamble at unfair odds, which means that they are willing to take the risk even though they know the chances are good that they will lose. On the other end of the perspective, we know that some people are willing to insure against some kinds of losses, whereas other people will not insure against the same losses. Professors Friedman and Savage clarified some of these issues many years ago. They showed, for example, that it would be rational behavior for people to gamble at unfair odds for possible gains that would change their socioeconomic status. Similarly, they would pay to insure against losses that would lower their socioeconomic status (Friedman and Savage, 1948). An important issue is whether the rules of trade need to take account of the risks to the food supply posed by new technology in the production and distribution system, and if they do, then how should these risks be taken into account? That is, how should the rules be structured and defined?

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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference Much of the literature on risk assessment and management is based on microdecisions involving such things as the introduction of a new drug or the establishment of a power plant—interventions that affect a limited number of people and under generally unique or special conditions. An intervention in trade policy, however, usually affects a much larger number of people, with a wide variety of individual circumstances. How should we proceed under these circumstances? U.S. policy on these issues has for the most part argued that the trade rules should be science based. I do not believe this argument goes far enough. The role of the biological and natural scientists, and of engineers, is also to help establish the probability distribution of the risks. They also have a contribution to make in understanding the consequences of the threat to food safety. Whether the consequence be death, a serious health problem, or something relatively mild, the information is crucial. The general tendency is to think that biological and natural scientists should be involved in quantifying such risks because they are objective in evaluating the risks. And within a wide range of circumstances they are. However, we need to recognize the limitations of this objectivity. For example, the very way a question is framed may introduce bias into the analysis, perhaps by focusing the question too narrowly for policy purposes. Similarly, even the assumptions behind the statistical analysis can lead to bias in the analysis. For example, the assumption of the null hypothesis as used in risk analysis contains an implicit bias because it places a greater burden of proof on those who would avoid or limit a hazardous activity, presuming these activities are safe until proven otherwise. There is also the point that, in the final analysis, science can never be an adequate basis for a risk decision. Risk decisions are ultimately public policy choices. In the case of food safety, these choices ultimately depend on the trade-offs among the groups that are affected and others in society, the value of life and interpersonal comparisons of utility. Unfortunately, losses that one individual experiences can be compared with the benefits others realize only under rather limited circumstances. That is what ultimately brings the political process into play. Despite these caveats, the calculation of the technical risks is the logical starting place to define policy and new institutional arrangements. The next step is to determine the costs and benefits of the particular intervention under consideration. It is easy for an economist to believe that is his or her bailiwick. Obviously, they should have many of the technical skills to make such an analysis. However, the biological and natural scientists, and other social scientists, have much to contribute to identifying who benefits and who pays the costs. Still another part of the analysis is to know something about the distribution of those benefits and costs, which of course, will ultimately influence the significance of the benefits and costs. Are just a few people going to be affected? Or will either or both the benefits and costs be widely distributed in

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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference society? That may influence the nature of the rules ultimately established. Sociologists have much to contribute to the analysis of the distributional issue. Unfortunately, these distributional issues have, for the most part, been ignored in the past. The emerging environmental justice movement in the United States is beginning to give them more attention. More detail on environmental justice can be found in the Institute of Medicine publication, Toward Environmental Justice: Research, Education, and Health Policy Needs (1999). The important problem for the design of policy interventions is that technically we know very little about how to compare the costs and benefits across members of society. That is where political scientists come into play. They should be able to assist in designing policies that are politically acceptable and enforceable. Another important factor is the role of culture in the design of policies. Such things as the desire for individual freedom, the role the citizenry see for government in their society, and related issues must be understood. Americans, for example, tend to elevate individual freedom to a high value. Europeans, on the other hand, often seem to be less concerned with individual freedom and tend to think more in terms of the common good. Similarly, different people have different tastes for policy mechanisms. Europeans seem to have little distaste for taxes, and in the United States we seem to have a serious distaste for them. There are two related issues. The first is the role of lay people in the assessment of risks and in the design of policy. Ultimately, the design and acceptance of policy is a political issue. Experts have much to offer on the technical side, but they by no means have a monopoly on knowledge. Lay people can help force the discussion onto relevant issues, and they often bring specialized knowledge to the table. (The 1996 National Research Council's report, Understanding Risk: Informing Decisions in a Democratic Society, calls attention to the value of lay knowledge.) The involvement of lay people takes time, however. Finally, there is the importance of information and of informing the body politic on the issues. Transparency in putting the appropriate knowledge before the body politic is an imperative in a democratic society. Sound policy—policy consistent with the desires of society—can be obtained only if the citizens are informed on the issues. The importance of this issue can be seen by a recent newspaper article on the BST hormone and milk. The article reported that some 85 percent of the milk sold in the Twin Cities area (Minneapolis/St.Paul, Minnesota) was now produced by cows being treated with this hormone. The article marveled at the ease with which the hormone became widely used given the controversy when it was first discussed. The question that begs asking, however, is how many consumers knew whether their milk was actually produced with that treatment or recalled the controversy surrounding its use?

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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference THE IMPORTANCE OF ADJUSTMENT POLICIES Despite all the benefits associated with international trade, some groups in society are often disadvantaged by it. The more aware and active among these groups are the ones who lobby for protectionist interventions, and these interventions often take the form of SPS standards. To the extent that such standards are motivated by protectionist aims, the key to addressing them is to alleviate the pressure for intervention. This can best be done by adjustment policies that help those who are disadvantaged to shift to alternative employment—whether it be members of the labor force or owners of private capital. The structural and sectoral adjustment loans implemented by the World Bank and the International Monetary Fund in the 1980s are examples of attempts to deal with these problems at the international level. The structural adjustment loans tended to provide balance of payments support while changes in policy were implemented, thus cushioning the stress that is inevitable in policy reform. The sectoral adjustment loans were designed to facilitate the reallocation of resources to the tradable goods sectors, thus helping to accelerate the adjustment process and by that means reduce the pain and suffering entailed in reorganizing the economy implicit in the adjustment process. These adjustment policies could have been made more humane by the judicious use of food aid to support targeted feeding programs directed to low-income urban consumers and workers. These are the groups who tend to be most disadvantaged by the rise in food prices associated with the realignment of currency values and other reforms that were such an important part of the policy reforms. A remaining challenge is to design domestic labor adjustment policies that are politically acceptable and which help displaced workers shift to alternative employment. Where geographic mobility is required to gain alternative employment the financial and psychic costs can be important, to say nothing of the need for new skills. Unfortunately, domestic political leaders are seldom in favor of losing their political base through out-migration and thus tend not to favor such policies. CONCLUSIONS There are two important aspects of designing policies that we should not lose sight of as we continue with our work into the future. The first is that we can expect the globalization of our economy to continue to grow apace in the future. It has been rooted in rather basic and far-reaching technological revolutions in the transportation, communication, and computer sectors of our economy that have dramatically lowered the cost of international trade and substantially increased the scope of markets. Moreover, these revolutions have hardly yet reached the previously centrally planned economies, or the developing countries where 80 percent of the world's population live.

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Incorporating Science, Economics, and Sociology in Developing Sanitary and Phytosanitary Standards in International Trade: Proceedings of a Conference Second, the key to sound policy in the future is for all of us to be doing the analytical research needed as the basis of policy design. This analytical work will be no better than the multidisciplinary collaboration that we are able to develop and our willingness to involve lay people in our discussions at all levels. REFERENCES Friedman, M. and L.J. Savage. 1948. The Utility Analysis of Choices Involving Risk. The Journal of Political Economy. August. Vol. LVI(4):279–304. Halter, A. 1961. Utility of Gains and Losses. Pp. 128–139 in G.L. Johnson, A. Halter, H. Jensen, and D.W. Thomas, eds. A Study of Managerial Processes of Midwestern Farms. Ames: Iowa State University Press. IOM (Institute of Medicine). 1999. Toward Environmental Justice: Research, Education, and Health Policy Needs. Washington, D.C.: National Academy Press. NRC (National Research Council). 1996. Understanding Risk: Informing Decisions in a Democratic Society. Washington, D.C.: National Academy Press.