Tuesday, June 06, 2006

Conscience, Profit and Government Regulation

This is kind of an interesting article from the Rochester (NY) Democrat and Chronicle, especially if you read between the lines (or at least beyond the headline) a bit. It's a story about pioneers in sustainability efforts among large corporations, like Xerox and Kodak.
Known broadly as "sustainability," the effort to think beyond the production line and to balance profits with community and environmental concerns, is booming.

At Eastman Kodak Co., millions of pounds of plastic have been recycled as cameras once marketed as "disposable" are retrofitted for reuse. At Xerox Corp., new technologies have drastically reduced their products' energy use. At the Rochester Institute of Technology, students are helping smaller companies, such as Penn Yan Aero, develop strategies for replacing toxic chemical solvents with soap and water.

This is, of course, good news, and from the headline -- "Area Leads In Business Strategies That Add Conscience to Profits" -- one might think that conscience actually had something to do with it.

But reading a bit deeper into the article one finds that the main motivation is profit.

As oil prices reach record highs and climate changes attract more attention from lawmakers, energy efficiency is no longer just the prerogative of environmentalists. Penn Yan Aero has saved thousands of dollars by using a more efficient process to clean its parts, said company President Bill Middlebrook.

Many raw materials are increasing in price, and the cost of waste disposal is climbing in response to limited landfill space and local opposition to new facilities. Reusing and recycling, therefore, are becoming easier choices.

"We said, 'We've got all this stuff — we can either throw it out and spend money to throw it out, or we can find a way to use it,'" Calkins said.

And of course, there's nothing wrong with the profit motive encouraging energy conservation. That's a good thing.

Here's where it gets interesting for us good government, liberal types, however:

As public concern grows about chemical exposure — even in tiny concentrations — companies such as Kodak are taking action.

Many companies are deciding that it's cheaper and easier to reuse or find alternatives for risky chemicals such as methylene chloride than to go on using them and dealing with the emissions and hazardous waste that they create. At Kodak, more than 250 million pounds of solvents such as methylene chloride are now recycled each year.

Because less of the chemical is being used, methylene chloride emissions have dropped more than 90 percent since 1987, with most of that reduction during the early 1990s. The company has saved "tens of millions of dollars," estimated Bob Booms, Kodak's recently retired director for health, safety and the environment.

But the bottom line is the most important factor, Guide said. Executives generally don't care whether a product is environmentally friendly. "What they are about is fiduciary responsibility," he said.

In other words, the market works (as conservatives like to say), but it works particularly well when government regulation and the tort system (which allows companies to be sued for their damaging products) makes the marketplace work much better.

Of course the fact that government regulation can encourage the market to profit by doing the right thing is nothing new for those who have been paying attention. A 1995 study by the Office of Technology Assessment (OTA) of the accuracy of the cost-benefit analysis conducted on several OSHA regulations showed the exact same thing. The OTA looked at several OSHA standards that had been in effect for a number of years to determine the accuracy of cost and benefit estimates conducted by OSHA and the regulated industries. The study showed that not only does industry grossly overestimate expected costs (big surprise), but even OSHA routinely overestimated the costs and underestimated the benefits of standards. OTA found that part of the reason that OSHA overestimates costs is that the agency fails to take into account the fact that American businesses are especially talented at developing new technologies that are much more cost effective and efficient than OSHA had predicted.

Of course, there are still those retro companies who talk the sustainability talke, but don't walk the walk.
Nabil Nasr, Director of the Rochester Institute of Technology's Center for Integrated Manufacturing Studies warns of "greenwashing" by companies who more time and money giving lip service to its environmental goals than actually accomplishing them. Nasr didn't mention any names, but "but noted that some of the major corporations that advertise their environmental consciences with flashy TV spots may actually be masking environmental sins."

Hmm. Wonder who he's talking about?

So let's hear it for American business, the profit motive, sustainability and the lawsuits and government regulations that make it all possible.