BOOKS
Environmental Laws and Global Competition Reviewed by James L. Regens
Over the past 20 years, a new international economic problem of great concern to both public and private decisionmakers in the U.S. has emerged. The apparent decline of America's competitive position in the world economy, widespread anxiety over its deterioration of basic industries, and growing uneasiness about the nation's potential to maintain its preeminence in high technology have come to figure more and more prominently in political debate. In certain cases, the decline of productivity and lack of competitiveness were inevitable. Markets cannot be maintained indefinitely no matter how much one might desire such a state of affairs. Some countries are simply more capable of utilizing an abundance of lowwage labor or exploiting indigenous, readily accessible raw materials. Moreover, just as rapidly industrializing nations like South Korea or Brazil want to build domestic capacity and attract manufacturing operations, more established industrialized countries such as the U.S. and Japan confront the challenge of maintaining the level of innovation necessary to sustain high-technology industries as well as keeping a critical mass of basic industries sufficient to support current levels of employment. An emerging consensus among economists supports this scenario, which former West German Chancellor Helmut Schmidt in a 1974 article in Foreign Affairs characterized as the "struggle for the world product/' But many legitimate, in fact urgent, questions have been raised about the effectiveness of both governments and markets here and abroad in shaping a response to the challenges of external competition and internal economic change. Differentials in the relative stringency of environmental regulation and its consequences for industrial
Evidence linking the investment decisions of multinational firms with pollution regulation remains elusive "Pollution and the Struggle for the World Product: Multinational Corporations, Environment, and International Competitive Advantage" by H. Jeffrey Leonard, Cambridge University Press, 32 East 57th St., New York, N.Y. 10022, 1988, 254 pages, $39.50
production is one obvious area of controversy. Some observers argue that declining competitiveness is attributable to government interference in the economy whereas others claim that poor investment strategies are the culprit. It certainly is true that business activity in the U.S. and other western nations has become increasingly subject to regulations pertaining to environmental protection as issues such as the extraction of natural resources, the location of industrial facilities, and the disposal of toxic wastes have appeared on the political agenda. The two positions need not be mutually exclusive because both may influence economic performance.
As a consequence, the compliance costs associated with environmental regulation might be a significant factor in determining the competitiveness and location of industries involved in international trade. Two related hypotheses have been offered in the scholarly literature as well as the popular press to explain how environmental regulations would influence comparative advantage in industrial production. The first focuses on economic activity patterns in the so-called core industrialized countries. Presumably, these more advanced industrial nations would adopt stringent environmental standards, making it increasingly expensive for multinational firms to build and operate facilities in North America, Western Europe, and Japan. This would divert resources there to nonproductive uses, push pollution-intensive industries out of the core countries, and encourage multinational corporations to follow an industrial flight strategy to compete for market shares. The second hypothesis is a logical corollary of the first. According to this perspective, the "periphery" of newly industrializing countries would tend to adopt less stringent environmental as well as other regulatory constraints on industrial production. In their zeal to achieve economic development, developing nations are viewed by many policymakers, business leaders, labor union officials, academics, and environmentalists in the more advanced industrial nations as likely to become pollution havens. That is, those countries would use their less stringent or nonexistent standards to attract multinational corporations and thereby increase their domestic industrial capacity. The combined effect would tend to push industrial production out of the core industrial countries and pull it toward Eastern Europe, Asia, Africa, or Latin America. But what empirical evidence exOctober23, 1989 C&EN
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Books ists to support such speculation? In "Pollution and the Struggle for the World Product: Multinational Cor porations, Environment, and Inter national Comparative Advantage/' H. Jeffrey Leonard, director of the International Development Pro gram of the Conservation Founda tion, addresses this salient economic and political question and claims to find no examples of healthy, tech nologically advanced companies that have decamped to developing countries to escape stringent envi ronmental regulations. Leonard's study grew out of his doctoral dis sertation in political science at Princeton University and, not sur prisingly, in places still reads like a dissertation. Fortunately, that is not a serious shortcoming, although readers not well versed in the litera ture of political economy may need to pay especially careful attention to the introductory chapters, which summarize theories of international trade and its limitations.
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