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Changing the adversarial paradigm.

Here is what it will take to develop a real working partnership between business and government.

Corporate environmentalism, eco-efficiency, sustainable development, green technologies, market incentives, and responsible care are all terms heard in today's corporate boardrooms almost as commonly as they are in the offices of the Sierra Club or the U.S. Environmental Protection Agency. There is an emerging consensus that business must play an important role if society is to achieve its environmental goals.

This new perspective marks a significant departure from the traditional view that without strong government intervention, corporate executives would ravage the environment in order to improve their profit margins. The implication was that businessmen were inherently insensitive when it came to the environment. Today, this situation has changed dramatically.

Many companies have adopted aggressive environmental initiatives in the belief that protecting the environment is not only being a good citizen but, in many instances, it is good business. As Frances Cairncross, environmental editor of The Economist, pointed out in her book Costing the Earth, well-managed companies in the 1990s tend to be environmental leaders. The problem is that our laws and regulations have not caught up with these changes. Further, there are groups within and outside of government that have a strong self-interest in resisting the move to a more cooperative business-government relationship.

Businesses throughout the world are reexamining their strategies and their behavior. The Keidanren, the senior business coalition in Japan, has adopted an environmental charter, the chemical industry associations in the United States and Europe have embraced Responsible Care programs to promote continuous improvement in environmental health, and Stephan Schmidheiny's Business Council for Sustainable Development -- a group of approximately 40 major corporations -- published "Changing Course," which outlined a new sustainable direction for business in protecting the health of the planet.

The Clinton-Gore administration enthusiastically seized upon these changes and has trumpeted "green technologies" as a major plank in its economic development policies. Task forces, conferences, workshops, and consortia -- all extolling the potential benefits of "green technologies"-- have popped up around Washington at a startling rate.

Senior administration officials vociferously embrace the theme that strict environmental regulation will not hurt business -- in fact, it will lead to an even healthier economy. They point to cases of companies that invested in pollution-reducing measures and found their productivity and competitiveness dramatically improved. A new era is dawning, they claim, in which we no longer will have to make choices between jobs and a clean environment. We can have both.

Three Themes

Before getting too euphoric, it may be useful to step back and attempt to sort out the various themes that are being tangled together in today's environmental rhetoric. There are three that merit particular attention:

1) The societal and private costs of realizing environmental goals may be significantly lower than previously anticipated;

2) U.S. companies can gain competitive advantages through aggressive environmental initiatives;

3) There is enormous potential for technological and structural changes that can simultaneously improve our environment and our economic health.

While, as I will show, there is validity in these themes, none of them adequately addresses the need to develop a working partnership between business and government.

In 1988, former Senator Timothy Wirth from Colorado and the late Senator John Heinz from Pennsylvania issued a report entitled "Project 88." The primary author of this report, Professor Robert Stavins of Harvard's John F. Kennedy School of Government, argued that the cost of meeting certain pollution goals could be substantially reduced if government would move away from its insistence on command-and-control regulation and embrace the greater use of market incentives. This theme was echoed by other groups, including the Environmental Defense Fund, and embodied in the allowance trading system outlined in the Clean Air Act Amendments of 1990. Today, there is almost universal support for the use of market incentives, not because of any intrinsic love of economists or economic theory but because these programs can substantially reduce the cost of meeting environmental goals.

Market incentives tend to work better with some environmental problems than others. For example, localized problems that have an immediate impact on public health are not good candidates for the use of market incentives. Further, the costs of administering, monitoring, and enforcing market-based incentive systems can be high, and these, too, must be weighed in designing programs.

Improving Competitiveness

The notion that some companies can gain competitive advantage through aggressive pursuit of environmental programs is true. If a company improves its productivity and lowers its costs of doing business, and its competitors do not, its competitive position is improved. Further, society is likely to demand more investments in environmental improvements in the future, not less. Companies that position themselves to meet these future demands may be able to accrue certain competitive advantages. Companies such as 3M, Dow, Monsanto, and Du Pont have discovered that pollution prevention programs can improve the productivity of their facilities while reducing air and water emissions.

There are, however, companies that will not do very well in an era of strict environmental standards. It is hard to argue that the coal industry will prosper in an era of strict air pollution standards. It is also difficult to see how the U.S. oil refining industry is going to come out on top if the government imposes even more rigid hazardous waste disposal requirements. Some of these companies are among the largest employers in the U.S. and represent substantial portions of the economic activity in certain regions.

The problem with the hypothesis that companies gain strong competitive advantage from aggressively pursuing environmental programs, either on their own or spurred by government regulation, is that it has never been rigorously tested. There has been a dearth of research in this area, and thus many of the arguments back and forth are based on pure conjecture rather than fact. Hopefully, this situation will change over the next several years.

Certainly there are technologies that have a potential for both meeting the market tests and improving the environment. It is also fairly certain that many of these are underutilized either because consumers are not fully informed of their benefits or because there simply has not been a market for these technologies. The policy question is how to bring these technologies into the marketplace.

Unfortunately, the usual method is to provide targeted incentives in which government officials pick the technologies that they believe will be winners and then subsidizes them. We have only to look at the U.S. Synfuels Corp. to find an example of the disastrous results of some government subsidy programs.

If the market for cleaning up the environment is growing to a level of around $200 billion per year, why isn't that growth a sufficient incentive to spur investment? Most industries would be overjoyed at the prospect of such a growth market.

The Real Problem

The real problem is that environmental laws and regulations have not caught up with the emerging recognition of the merits of letting industry loose to solve our environmental problems. Instead, laws and regulations reflect the strong distrust of the corporate structure (one could also argue that they reflect the strong distrust of EPA as well) and therefore they have the effect of locking in existing technologies. It takes three to five years to change a law, and even longer to change the mind-sets of the government officials who now must radically change their perspective. For example, Molten Metal Co. in Cambridge, Mass., has developed a process to take certain hazardous waste streams and separate out the various elements in the stream, many of which can then be reused. At the time this article was written, the company was entering its 19th month of attempting to get an operating permit for a demonstration plant. State environmental officials could not determine whether its facility was a recycling or a disposal facility and were reluctant to regulate it as the former and have it turn out to be the latter.

Because, inherently, there is a risk that new technologies will not operate as planned, there is a built-in bias within government regulatory agencies against them. Invariably, tension arises between government agencies, which promote such technologies, and the regulators that permit them. Meanwhile, literally years can go by between the time when an application is filed and when the facility is fully permitted.

Where are the people with the technical expertise and experience who can identify the opportunities for effectively and efficiently reducing pollution and environmental destruction? Are they hidden away in EPA or in state environmental agencies? In most cases, the answer is "no." Such expertise lies within the engineering, finance, strategic planning, and management divisions of the private sector. To unleash these talents will require three changes.

To Unleash the Talent

First, and foremost, government must begin to trust business. The adversarial paradigm needs to be replaced with one that is more akin to the European model in which there is much closer cooperation between business and government. The level of distrust and contentiousness that dominates environmental policymaking in the U.S. is simply not present in Europe. Yet, one would be hard pressed to argue that the result is less environmental protection.

Second, where feasible, incentive systems should be adopted to meet societal goals. The combination of an adversarial relationship between government and business and command-and-control regulations is not working. Government should spend less time micro-managing and more time establishing goals and standards and monitoring, overseeing, and enforcing those goals and standards.

Third, regulators should provide business with the regulatory flexibility to demonstrate new technologies. The reality is that some of these technologies will fail. However, nothing will be achieved if government insists on a "trial and guarantee success" policy and prohibits a "trial and error" policy for private R&D projects.

The attitude of the business community to the environment is changing. The question is, will government be willing to respond and provide the policy context to accelerate these changes or will it remain stuck in the old adversarial paradigm -- and thus play into the hands of those vested interests, both private and public, that are resistant to these changes?

Henry Lee holds three positions at the John F. Kennedy School of Government at Harvard University: Executive Director of the Environment and Natural Resources Program, within the Center for Science and International Affairs; Senior Research Fellow in the Center for Business and Government; and Adjunct Lecturer in Public Policy, Before joining the school in 1979, he spent nine years in Massachusetts state government as Director of the state's Energy Office and Special Assistant to the Governor for environmental policy.
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Title Annotation:Leadership in Environmental Initiatives
Author:Lee, Henry
Publication:Directors & Boards
Date:Sep 22, 1993
Previous Article:The ecological imperative for business.
Next Article:How to reshape environmental policy.

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