Saturday, June 14, 2008

Environmentalism the enemy of industry?

An old friend of mine has recently forwarded some newsletters from the company he works for. This successful industrial company has devoted significant portions of the newsletter to dispelling "myths" about the environment. What I found most interesting was how much the company seems to fear that environmental regulation will devastate us economically. This seems to be a common theme among those who oppose environmental regulations, but I have a hard time understanding what they base it on.

It's not hard to find a list of the world's countries ranked by GDP per capita. While not perfect, it's a pretty good indicator of the overall wealth and economic productivity of nations. Here's a wikipedia entry that lists nations according to IMF, CIA, and World Bank numbers separately:

The US is not at the top of the list according to any of the three institutions. And when looking at the nations that rank higher than the US in per capita GDP, nearly all of them have significantly more stringent environmental regulations. What's even more interesting is to consider that as little as a decade ago, the US was clearly ahead of all these nations. In the past decade, during a period when many of these tough environmental laws were passed, these nations have actually moved ahead of the US in terms of per capita economic productivity.

Now, of course, I realize that there's far more going on than just environmental regulation. Monetary policy, tax code changes, and countless other forces are always at work on an economy. However, it seems clear that strict environmental regulation is not going to bring down our economy or standard of living in any significant way.

In fact, given the currently skyrocketing costs of energy on the global scene, the countries with strict efficiency standards have gained an incredible competitive advantage over those without. American car companies have long fought regulations to increase fuel efficiency...and now they find themselves playing catch-up to European and Asian companies that made fuel efficiency a priority long ago. American airlines seem to be on the verge of death, while European carriers, who operate far more efficient fleets, are weathering the crunch more comfortably. In business, adversity and challenges often reveal stunning new ways of doing things. The challenge of operating in a more environmentally-sensitive way has been embraced by some businesses--particularly in countries where they had no choice--and many of those companies are currently thriving as a result of their willingness to embrace change. However, some companies will find themselves unable to adapt, but that's just the nature of business.

When companies blame environmental policy for their troubles, it's clear they're simply looking for excuses. As an investor, I would steer well clear of such companies.



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