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Economic growth and the environment.

To anyone who reads the newspaper and follows contemporary political controversies, the interests of economic growth and environmental protection must appear antipodal. Some environmentalists, such as Paul Ehrlich, have called for a halt to economic growth in the interests of the environment. The link between economic growth and environmental destruction seems obvious and intuitive. Heavy industry provides jobs but also produces air pollution, water pollution, and hazardous wastes. New construction destroys natural habitats and pollutes watersheds. Even farming employs pesticides and fertilizers that pollute the water.

While the association between growth and pollution is obvious, economic wealth has other, more subtle effects on the environment. For example, economic growth increases the demand for environmental protection by government and private action. While many are uncomfortable viewing nature as a "product," it is rather clear that environmental protection at least shares the characteristics of a luxury good. Extensive polling demonstrates that those citizens who place the highest value on the natural environment are those who are financially secure. A glance at the membership of leading environmental organizations makes this connection fairly obvious. The poor and minorities are not necessarily unconcerned with the environment, but they tend to have more pressing, even desperate, needs than those for green space.

As the wealth of this nation has increased, so has the demand for environmental protection. There was no Environmental Protection Agency (EPA) until recently. While EPA action has increased considerably in the past two decades, environmental protection has fluctuated with the economic fates. Environmentalists are aware that contributions and other participation are tied to the economy and drop in recession. So is government action. For example, in 1990 California environmentalists proposed an ambitious initiative to be submitted to the voters under the colloquial name of "Big Green." Given the popularity of environmentalism in California, its passage was initially treated as a given. Business groups began complaining about the cost of the initiative, though, and the California economy slipped into recession. After mulling these economic concerns, California voted down Big Green.

Economic growth also produces a supply-side environmental benefit. Profitable businesses are better able and more willing to invest in environmental protection, even beyond that required by government. When consumer spending is high, markets develop for products perceived as environmentally safe, such as organic produce. New technologies have consistently provided greater environmental protection than did old technologies. Even such a classic environmentalist as Barry Commoner has urged that technology holds much of the answer to the problem of pollution.

The environmental case for economic growth is persuasively made in a recent fascinating book by Martin Lewis, entitled Green Delusions. Lewis argues that the dramatic claims of "eco-radicalism" are actually a threat to nature. He notes, for instance, that the old-fashioned, "natural" fuel of wood is enormously polluting and destructive, far worse than coal, which in turn is much worse than natural gas or nuclear power. Lewis makes the case for what he calls Promethean environmentalism, grounded in technological development and economic growth.

The environmental benefits of economic growth are visible around the globe. The greatest air pollution problems are not found in major developed nations but in cities such as Beijing, Tehran, and Mexico City. The world's greatest water pollution problems are found in India and Latin America. Mexico's recent environmental protection initiatives have occurred coincident with economic growth and the desire for greater international trade with the United States.

I performed a simple statistical analysis of the connection between the economy and environmental health in the relatively advanced European member nations of the Organization for Economic Cooperation and Development. I first discovered that wealth correlates with government policies for the environment. Arthur D. Little has ranked the environmental protection policies of European nations into tiers. The nations in tier one, with the strictest pollution controls, had an average per capita income of over $12,000. The countries in tier three, with the weakest environmental policies, had an average per capita income of under $6,000. These policies also apparently translated into effective pollution control. In the 1970s and 1980s, richer nations actually had reductions in major air pollutants. I found that an additional $1,000 in per capita income correlated with an additional 3.5 percent decrease in carbon dioxide emissions and a 2.7 percent decrease in sulfur oxide emissions. Clearly, we can have a healthy economy and environmental protection.

This is not to say that all forms of economic growth are necessarily beneficial. Some buildings and some industries are environmentally destructive and lack compensating economic benefits. However, nations with a strong economy are best able and most willing to restrict those unnecessarily harmful activities.

Some conservative economists make the opposite argument--that environmental protection costs will cripple U.S. economic growth. Indeed, a variety of studies have estimated that EPA and Occupational Safety and Health Administration (OSHA) regulations have caused a certain decrease in productivity over recent decades. Again, it seems obvious that imposing costly pollution control requirements on companies certainly will not benefit business.

Environmental regulation does not necessarily compromise the economy, however. First, the economic benefits of environmental protection are clear. Recent studies suggest that particulate pollution in the United States is causing thousands of deaths and untold episodes of illness, resulting in unnecessary health care costs and lost work days. Second, a market exists for environmental protection. If worldwide growth produces a greater global demand for pollution control technology, there are plain national benefits in being at the forefront of environmental protection. Business professor Michael Porter has suggested that environmental regulations actually enhance this nation's competitiveness. In 1979, the nation spending by far the greatest portion of its national product on environmental protection was Japan. Obviously, Japan's economy did not suffer unduly in the ensuing decade.

Of course, not all environmental regulation is economically benign. Some rules provide minimal environmental benefit at considerable economic cost. The problem, then, is not environmental regulation per se, but unwise regulation. Once we recognize that economic growth and environmental protection go arm-in-arm, some of the conflict over pollution control may abate. Environmentalists and industry may work together to promote these twin goals.

Frank B. Cross Associate Professor of Business Regulation University of Texas at Austin
COPYRIGHT 1993 University of Texas at Austin, Bureau of Business Research
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Author:Cross, Frank B.
Publication:Texas Business Review
Date:Oct 1, 1993
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