VIEWPOINT
Facing the Challenges of a Service Economy The environmental impacts of the large—and growing—service-based sector of the U.S. economy are poorly characterized. JIM
SALZMAN
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hen our pollution control statutes were drafted in the 1970s, smokestack sources sat squarely in these laws' regulatory crosshairs. The archetypal problems these laws were designed to address— a dirt-streaked factory shrouded in smoke, leaking effluent, churning out drums of waste—still resonate today, evoking the classic environmental problems of our economy. But what if this vision of environmental threats has become largely irrelevant? What if we have transformed from a manufacturingbased to a service-based economy? This is no idle speculation, for the service sector now dominates America's economy, supplying more than three-quarters of our gross national product (GNP) and four-fifths of our employment. Over the past few decades, manufacturing's relative economic importance has dramatically declined (a phenomenon known as "deindustrialization"). In 1970, roughly one in four workers was employed in manufacturing. By 2005, not one in eight will be. Over the same period, employment in services has correspondingly increased—and not just in flipping burgers. Most often, the jobs have been knowledge-based, marking a shift from materialprocessing to information-processing activities. Just think of the transformations of Pittsburgh and Cleveland from dirty centers of steel and chemical production to hubs of clean high-tech services. What are the environmental implications of this transition? Does the rise of services pose important 5 1 2 A • DECEMBER 1, 1999 / ENVIRONMENTAL SCIENCE & TECHNOLOGY / NEWS
new challenges, or perhaps powerful opportunities, for environmental protection? More surprising is that scant consideration has been given to these questions. Whereas literally thousands of articles and studies have explored the implications of smokestack industries for environmental law and policy, a mere handful have considered the service sector. Perhaps it is assumed that services are clean, that they have an insignificant impact. These assumptions bear close scrutiny, however, given services' increasingly powerful role driving economic activity in developed countries. In fact, a number of commentators have argued that the rise of services is part and parcel of a transformation toward sustainable development, presaging a significant shift from the manipulation of materials to the processing of information. Their thesis, in part, is that services are displacing and substituting for manufacturing activity. Intuitively, this makes sense. After all, as Amory Lovins, Ernst von Weizsacker, and others have persuasively argued, at a basic level, people don't want products; they want the services that products provide. They don't want light bulbs; they want light. Think of e-mail replacing letters, envelopes, and postal mail, telecommuting replacing commuters and traffic congestion, genetically e n g i n e e r e d crops r e d u c i n g the n e e d for pesticides. More services and fewer smokestacks ought to mean less pollution and less environmental impact. © 1999 American Chemical Society
Brad Allenby, one of the leading thinkers in the field of industrial ecology, has argued that the substitution of information for energy and materials "raises the possibility that the service-oriented economy—the Information Revolution—and sustainability are synergistic.. . . [G]reater environmental efficiency will require as an enabling capability the Information Revolution, while the latter will, in turn, be strongly encouraged by the need for the former, and . . . the two will be integrated into an economic structure heavily focused on services" (i). The authoritative Organization for Economic Cooperation and Development has similarly asserted that" [g]lobalization can promote a more efficient and less environmentally damaging pattern of economic development by shifting production from raw materialsbased manufacturing to knowledge-based service industries. In these ways, globalization could help uncouple economic growth from pollution generation and resource consumption and, thereby, foster sustainable development" (2). Such predictions and others like them are both provocative and comforting, suggesting that the growing dominance of services and prevalence of information technologies hold the solutions to many of the environmental challenges we face. Unfortunately, a close look at the data provides little support for these propositions. For starters, the basis of some commentators' arguments—the demise of manufacturing—is wrong. The relative decline of manufacturing and ascent of services is only that— relative. Although it is true that the service sector has grown rapidly in the last few decades in terms of contribution to GNP and employment, the manufacturing sector has continued to grow as well, albeit at a slower pace. In terms of industrial output, we are producing more than ever before (3, cf. p. 759). We are witnessing the same transition that occurred in agriculture more than 50 years ago—fewer farmers, smaller percentage of GNR but more productive than ever before (3, cf. p. 675). What about an environmental bonus? If information truly is substituting for physical materials, if the economy is moving more toward information processing than material processing, one would expect to see reductions in resource consumption and pollution per unit of economic activity. And, in fact, most measures of material and energy intensity are improving, consistent with the thesis of a service economy (4, 5). No doubt, these improvements are largely due to input substitution, resource productivity, and product design (not to mention commandand-control regulations, market prices reflecting scarce resources, changes in market demand, and en-
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vironmental regulations that implicitly or explicitly change relative prices). But as the service economy develops, one might think, perhaps we can hope for even better results over time. Focusing on material intensity, though, misses the central point that there has been little improvement in the measure of material consumption per capita. In fact, in Japan, Germany, and the Netherlands, material consumption per capita has increased. The important corollary is that because of population growth and increasing e c o n o m i c activity, absolute resource consumption has actually increased, despite reductions in material intensity. As a recent World Resources Institute study concluded, "Meaningful dematerialization, in the sense of an absolute reduction in natural resource use, is not yet taking place" (6). My reading of the data suggests a counterthesis, a correlation between the rise of services and an increased resource consumption. Writings on the environmental consequences of the service economy have primarily focused on services' role as substitutes for products and polluting processes. In terms of environmental impact, however, far more important may be services' role as complements to traditional production factors such as labor and resources, improving their efficiency and leading to increased environmental impacts through greater resource flow and conversion. This is a variant on William Jevons's famous observations 150 years ago of increased coal consumption despite increasingly efficient steam engines. More research needs to be done DECEMBER 1, 1999 / ENVIRONMENTAL SCIENCE & TECHNOLOGY / NEWS • 5 1 3 A
to confirm this, but my gut feeling is that the rise of services and the other attendant trends of the information revolution are increasing the overall impacts of economic activity rather than transforming and reducing them. Given that the ascent of services will not, in and of itself, lead to improved environmental quality, it merits taking the next step to consider explicitly services' role as a source of environmental harm and how best to reduce the env i r o n m e n t a l i m p a c t s of specific services. The serDoes the rise of vice sector, it need hardly services pose be said, contains a remarkably heterogeneous assortimportant n e w ment of activities. In assessing meaningful policy challenges, or development, I find it useful to delineate the wide perhaps powerful variety of services into three categories with disopportunities, for tinct implications. The simplest d i s t i n c t i o n is b e environmental tween services that cause high direct impact per faprotection? M o r e cility and those that have a surprising is that correspondingly lower impact. Services with high imscant consideration pact may be described as "smokestack services" and has been given to include traditional companies such as trucking these questions. companies, telecommunication providers, and hospitals. Their operations involve large physical plants and emit significant quantities of air pollutants or solid waste. They are regulated but often inefficiently so, because although strategies for controlling industrial sources of pollution go to the very core of environmental protection, they may poorly match such smokestack services. The regulatory mindset that "when you have a hammer, everything looks like nails" poses real problems because services often aren't nails. As an example, concerned over the burdensome and costly regulation of wastes generated by the state's biotech companies, California's Department of Toxic Substances Control created a 50-member Laboratory Regulatory Reform Task Force. The Task Force's report concluded that the Resource Conservation and Recovery Act (RCRA) had been designed for large industrial sites and was ill-suited to regulation of laboratory waste. Depending on the specific research project, labs generate infrequent, small amounts of many different types of hazardous waste. Industrial sites, on the other hand, routinely generate large amounts of a small number of wastes (7). To be sure, the regulatory mismatch problems faced by smokestack services in some instances will be no different than those faced by traditional smokestack industries; but they are more likely to be problematic because our framework environmental laws, such as RCRA, were not written with the examples of biotechnology or other services in mind. The key pol5 1 4 A • DECEMBER 1, 1999 / ENVIRONMENTAL SCIENCE & TECHNOLOGY / NEWS
icy challenge for smokestack services lies in considering more explicitly the fit between their operations and impacts and the relevant regulations. A second category encompasses "cumulative services." These services do not cause significant environmental harm at the level of individual operation but collectively have important impacts. They include a wide range of companies such as dry cleaners, dentist offices, and fast-food chains, posing the difficult policy challenge of a "nonpoint source world," where a universe of diffuse sources threatens to exceed the capacities of commandand-control regulation. A third category employs a fundamentally different type of approach, focusing not on the impact of the services themselves but on their ability to reduce environmental impacts throughout product life cycles. These "leverage services"—such as large retailers, utilities, and banks—act as a funnel through which products, electricity, and financing must flow to end users. They raise intriguing possibilities for environmental protection because, although not necessarily causing significant environmental impact in their immediate activities, the services' commercial links provide a uniquely effective fulcrum to leverage environmental improvements upstream and downstream in the life cycle. This presents a systemic vision of environmental protection, moving from a narrow focus on production and disposal to energizing the web of commercial relationships. This brief sketch on the overall impacts of the service sector and regulatory strategies for specific services is admittedly subject to disagreement. What should be beyond disagreement, though, is acknowledgment of services' important contributions, both direct and indirect, to adverse environmental impacts. Serious, explicit consideration of the service sector, the other 75% of the economy, and its many implications for environmental protection is long overdue.
References (1) Allenby, B. Clueless, Environmental Forum; Environmental Law Institute: Washington, DC, Sept. 1997; p. 36. (2) Globalisation and the Environment: Perspectives from OECD and Dynamic Non-Member Economies; Organization for Economic Cooperation and Development: Paris, 1998; p. 8. (3) Statistical Abstract of the United States; Bureau of the Census, U.S. Department of Commerce, U.S. Government Printing Office: Washington, DC, 1995. (4) Adriaanse, A., et al. Resource Flows: The Material Basis of Industrial Economies; World Resources Institute: Washington, DC, 1998. (5) Cleveland C; Ruth, M. /. Ind. Ecol. 1999, 2 (3), 15-50. (6) Adriaanse, A., et al. Resource Flows: The Material Basis of Industrial Economies; World Resources Institute: Washington, DC, 1998. (7) California Laboratory Regulatory Reform Task Force Report (1994), as cited in Stanford Environmental and Natural Resources Law & Policy Program, Philern Corp. Case Study, Part II; Environment and Natural Resources Law Program, Stanford Law School: Stanford, CA, 1998.
Jim Salzman is a professor in the Washington College of Law at American University in Washington, D.C. For additional material on the data and categories described in this viewpoint, please e-mail him at
[email protected].
