Economics and the environment
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Opponents of strict environmental regulations argue that costly regulatory requirements increase inflationary pressures and decrease productivity, causing a drain on economic growth. They cite macroeconomic analyses, which invariably show modest but perceptible adverse economic impacts. Macroeconomic projections treat these end-of-pipe environmental expenditures solely a s costswithout considering any offsetting benefits. Hence, these higher costs apparently are incurred without a concomitant increase in productivity. Lower productivity leads to lower economic growth and hence lower GNP. In addition. the environmental expenditures increase inflation as goods become more costly. As long as environmental expenditures are treated only as costs, macroeconomic analyses will show them creating negative impacts. We should not, however, draw conclusions based on the accounting conventions used to derive gross national product, particularly because they are incapable of taking the benefits of environmental control into account. If the benefits of lower health costs, less absenteeism, higher crop and fish yields, and less material damage were captured in National Income accounts, the impact of environmental expenditures would look much different. Some environmental benefits, however, simply cannot be measured. For example, the preservation of certain species may be hard to evaluate. But the current generation has accepted as an ethical obligation the stewardship of the planet
for future generations. An example of this acceptance is the response to the phenomenon of global climate change. Mature adults will not benefit in their lifetimes from the indirect costs they incur to curb global warming, yet most of the developed world is making commitments to curb greenhouse gases. Traditional economic analysis also often overstates the costs of complying with environmental standards. By using current technology as the basis for estimating future costs, these analyses fail to take into account technological change and innovation by the private sector. In fact, when private companies face the real world of environmental limitations, they often change processes and substitute inputs. Some companies, such as 3M,have found that reducing pollution can be generally profitable. Another approach to evaluating the impact of environmental expenditures is to compare the economic strength of strictly regulated countries with that of countries having weaker standards. In general, there is a positive correlation between high environmental standards and high per capita income. For example, the countries with relatively tight environmental standardsGermany, Japan, the Netherlands, and Sweden-also are relatively rich. Sweden, for example, has one of the highest per capita GNP levels in the world and perhaps the tightest environmental requirements. This correlation does not necessarily mean that tough environmental standards stimulate economic wellbeing. It is more likely that environmental concerns arise chiefly in technologically advanced societies, where people can afford the luxury of environmental amenities. But the correlation does prove that high levels of economic activity and environmental improvement can coexist. In fact, environmental regulations can stimulate a wide range of husiness opportunities, including scientific consulting, sale of pollution
0013-936X191/0925-1685$02.50/00 1991 American Chemical Society
control equipment, process innovation, development of sensors, and application of information systems. In his hook Competitive Advantage of Nations, Michael E. Porter, a Harvard Business School professor, argues that countries with the most rigorous environmental requirements lead in exports of environmental products and services. As European nations and Japan tighten their environmental standards, they are developing markets for new technology-challenging the United States in many markets that it previously dominated. Potential overseas markets, particularly in developing countries and Central and Eastern Europe, are a tremendous business opportunity to those companies that are technologically sophisticated and aggressive. These qualities initially must he developed by meeting the environmental requirements in the home country, a prerequisite to developing a strong global position. In short, there is no reason to helieve that strict environmental controls are inconsistent with economic well-being and competitiveness. In fact, firms in nations with tough standards have a competitive edge. They have already made some of the capital investments, are finding ways to eliminate wastes, and are developing exportable technologies and skills. The economic argument in the United States should not be focused on how pollution control affects the domestic economy. It should he focused on how we can create a framework for technological innovation to solve our problems more efficiently and effectively and then to actively propel this innovation into global markets.
Alvin L. Alrn is director and senior vice-presidentfor energy and the envimnment for Science Applications International Corp., a supplier of h i , techno1og.v products and services related to the environment, energy, health, and national securitv.
Environ. Sci. Technol.. Vol. 25, No. 10. 1991 1585
