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07/22/06
We can be Pro Business AND Pro-Environment
Filed under: Politics and Economics
Posted by: site admin @ 8:45 pm

A consistent conundrum in American politics for the last 40 years has been the perceived antithesis between being “pro-business” and being “pro-environment”. The Democrats choose the environment and the Republicans choose business. Neither seems to be able to see that it is possible to choose both. The reason for this is that businesses decry environmental regulation because they believe it will increase costs. Given this, politicians feel that they are forced to choose between something that will cost businesses more and help the environment OR cost the environment and help business. This is a false dichotomy.

There are two key reasons why:

1) The law, properly constructed, creates a level playing field for all businesses. When this is done, any costs added are added to all, which keeps the competitive environment the same as it was.

2) Every regulation must be implemented - and every solution requires a supplier. In other words, these costs, while incurred by some company, result in business for other companies.

This false dichotomy exists because politicians fail to realize that they are listening to existing businesses only. They don’t hear from new businesses - because those may not exist yet. The impact on existing businesses whose costs will change is focused - and so their reaction is strong. The positive impact on others is initially diffuse - and so that reaction is more muted.

The fact is that the entire world will have to become environmentally conscious if we are to survive. And those that solve the environmental problems first will have the solutions that everyone needs. For example, the US has the lowest CAFE1 standards in the world. Our persistence in keeping the standards low at the insistence of GM and Ford2 has probably done more harm to these companies than good. Why? Because many of the cars made to American standards cannot be sold in places like the EU, Japan or China because their standards are higher than ours. However, cars made there can be sold here. This gives companies who meet the higher standards more markets to choose from, and thus more sales possibilities to amortize those costs. Further, because those companies have already solved the problems involved in meeting these standards, they now have IP3 available for licensing to those who lag behind, which also becomes a source of revenue or a way to create a competitive advantage.

This same kind of scenario can be true in any area. With the increasing importance of IP in business, the first mover advantage becomes tremendous. Because of this, public policy should encourage the creation of IP here so that the revenue streams from it come here. And the straightforward way to do so is to create the highest standards in every area. When other countries realize the significance of the first mover advantage in IP, and the fact that all nations must become more environmentally friendly if we are to survive on this planet, we’ll see a virtuous cycle of countries competing for the highest standards possible as a way to spur innovation.

And we’ll have something that’s good for the environment AND good for business.

PS - Less waste, energy or otherwise, lowers the dependence on those who supply the materials being wasted. In aggregate, this can reduce the “strategic interests” of the US to the point where we no longer have a reason to be involved in as many world crises, which can reduce the cost of the US military, thus creating what amounts to a tax cut.

NOTES:
1. CAFE = Corporate Average Fuel Economy. Background on current US standards can be found on Wikipedia. Commentary on Chinese standards is here
2. Chrysler, as part of Daimler Chrysler, is no longer technically an “American” company.
3. IP = Intellectual Property

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