Pollution Abatement and CSR
If science, technology, and information have accomplished anything for humanity, they have made society cognizant of the consequences faced based on its aggregate decisions. This is especially true in the context of environmental issues. Society, now aware of its self-destructive behavior, has made efforts to combat these issues on multiple levels, from government intervention to corporate initiative. The governments of many nations have intervened by regulating air emissions and water contamination to reduce pollution, and corporations have taken advantage of this environmental consciousness by producing goods which are environmentally friendly in hopes of increased profits or at the very least to remain competitive. While these are two different means to two different ends, both applications follow roughly the same path and possibly reach roughly the same conclusion.
Government policy intervention has aimed to reduce pollution by means of regulating manufacturing standards and end product standards. By implementing such mechanisms, governments have imposed external costs on manufacturers, which may have very significant implications. The micro-economic framework accepted today predicts that firms will have various responses for these new costs in both the short run and the long run. In the short run, firms may reduce employment to maintain profit maximization. Although this response has not been seen in the data, it may very well be a result of an increase in demand for environmentally friendly inputs, which has kept employment more or less unaffected. In the long run, firms may be able to innovate and adjust their manufacturing processes to mitigate these new imposed costs.
Firms have taken note of the recent environmental movement themselves and have taken action to gain their own advantage. While it may be cynical to assume that firms are taking action solely for their own advantage, it is highly unlikely to find even a totally altruistic charity these days. Economics as a science, thus, rightly assumes firms to be focused on profit maximization. Many firms, in pursuit of these profits, have been utilizing business tactics to put themselves in positions to benefit from the environmentalist movement. Such tactics include the introduction of environmentally friendly products, utilizing more energy efficient appliances or electricity means, and donating profits towards the environmental protection effort. These tactics lead to innovation, increased employment, more efficient use of resources, and most important a cleaner environment.
Essentially, both government intervention and corporate initiatives lead to the same results, that is, a cleaner environment. The main difference beside the means to that end is the effects that both mechanisms have on profit. Government intervention forces firms to make investments prematurely whereas corporate initiative willingly decides to act in more environmentally friendly ways willingly. Without doing any math it is clear to see which strategy would be more beneficial and optimal, which would be corporate initiative. Unfortunately market forces aren’t strong enough to influence firms to make such adjustments on their own all of the time; therefore, government intervention becomes a necessity. After all, pure markets aren’t always perfect markets.
