The Industrial Green Game. 1997. Pp. 101–113.

Washington, DC: National Academy Press.

Environmental Constraints and the Evolution of the Private Firm

BRADEN R. ALLENBY

Several trends and proposals reflecting rising global environmental concern implicitly suggest that private, for-profit firms1 in an environmentally constrained world are evolving away from profit-seeking behavior towards more socially comprehensive goals.2 It is not apparent, however, than the implications of such an evolution have been defined and considered. It is also arguable that progress toward environmental sustainability can best be achieved by modifying the boundary conditions within which private corporations operate rather than by trying to change them into organizations that reflect social goals beyond profit seeking. If this hypothesis is true, it suggests that the social and legal responsibilities of corporations should not be inadvertently and unthinkingly expanded beyond those currently established but, rather, that wise policy should create incentives for corporations to behave in ways supporting the achievement of sustainable societies.

Corporations are pivotal economic agents in any modern economy. They reflect and create the cultures and economies within which they function.3 Created and defined by law, corporations may also be modified by law. Several questions arise: What forms of corporate structure are currently evolving? Are these new forms of corporate structure most likely to contribute to the evolution of economic structure and behavior that is dynamically stable over the long-term in an environmentally constrained world?

It is doubtful that we know enough yet to answer these questions definitively, but we can identify the trends that might drive redefinition of the corporation, lay the groundwork for a rational discussion of the desirability of any such redefinition, and propose a tentative position



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The Industrial Green Game: Implications for Environmental Design and Management The Industrial Green Game. 1997. Pp. 101–113. Washington, DC: National Academy Press. Environmental Constraints and the Evolution of the Private Firm BRADEN R. ALLENBY Several trends and proposals reflecting rising global environmental concern implicitly suggest that private, for-profit firms1 in an environmentally constrained world are evolving away from profit-seeking behavior towards more socially comprehensive goals.2 It is not apparent, however, than the implications of such an evolution have been defined and considered. It is also arguable that progress toward environmental sustainability can best be achieved by modifying the boundary conditions within which private corporations operate rather than by trying to change them into organizations that reflect social goals beyond profit seeking. If this hypothesis is true, it suggests that the social and legal responsibilities of corporations should not be inadvertently and unthinkingly expanded beyond those currently established but, rather, that wise policy should create incentives for corporations to behave in ways supporting the achievement of sustainable societies. Corporations are pivotal economic agents in any modern economy. They reflect and create the cultures and economies within which they function.3 Created and defined by law, corporations may also be modified by law. Several questions arise: What forms of corporate structure are currently evolving? Are these new forms of corporate structure most likely to contribute to the evolution of economic structure and behavior that is dynamically stable over the long-term in an environmentally constrained world? It is doubtful that we know enough yet to answer these questions definitively, but we can identify the trends that might drive redefinition of the corporation, lay the groundwork for a rational discussion of the desirability of any such redefinition, and propose a tentative position

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The Industrial Green Game: Implications for Environmental Design and Management THE PRIVATE FIRM The private corporate enterprise is such an intrinsic part of the modern capitalist economy that few realize its relative youth. The antecedents of the corporation can be traced back to the medieval merchant guild systems or, more recently, to trading companies enjoying monopolies granted under royal charter, such as the British East India Company. However, the advent of the truly modern firm is tied to the development of general incorporation laws, under which any entity meeting statutorily defined criteria was able to incorporate, rather than requiring the special grants of privilege that had hitherto prevailed. In the United States, the first of these laws was passed in 1811 by New York State (Vagts, 1973). The pattern subsequently established in Western economies--a complex network of independent firms, frequently competing on the basis of technological and scientific creativity, with successful innovation rewarded int eh marketplace--became the basis for modern, materially successful economies (Rosenberg and Birdzell, 1990). Thus, the modern corporation appeared at a certain stage in the increasing complexity of economies arising from the Industrial Revolution, and, arguably, was then responsible for their continued evolution. The fundamental purpose of a for-profit corporation in a free market economy is to make money for its owners, that is, the shareholders. This point is made vigorously by Milton Friedman (1962): ''Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine." It is, of course, now generally recognized that firms to a greater or lesser extent reflect the interests of many stakeholders, including their employees, their managers, their customers and, increasingly, different governments in a global economy. Corporate charitable contributions, for example, are generally legal if they are reasonable, and the firm's directors have broad discretion to take such actions if they help protect the corporation's interests. Firms from cultures less individualistic and adversarial than that of the United States, such as those in Europe or, especially, in Japan, tend to display a somewhat greater propensity to internalize select public interest. Inability to optimize one goal (or wisdom in a complex and rapidly changing environment) may lead firms to try to satisfice (meet minimum levels of performance) several goals, rather than focus on one (Scherer, 1980). Additionally firms, like any agent, evolve in structure to reflect changing boundary conditions, such as, for example, shifting from a authoritarian management model and hierarchical structure appropriate to mass-production manufacturing to a flatter, specialist-based, information-rich organization reflecting changes in technology and global market conditions (Dertouzos et al., 1989; Drucker, 1988). Nonetheless, it remains true that, broadly speaking, seeking profits remains the primary

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The Industrial Green Game: Implications for Environmental Design and Management goal of the private corporation and that the public-interest theory, which was especially popular in the late 1960s, has not been generally accepted. Do recent developments in environmental policy, or even our growing understanding of the interactions between economic activity and fundamental natural systems, indicate that the current concept of the firm is inadequate in an environmentally constrained world? Corporations coevolved with the Industrial Revolution; they are its creators as well as its creators. If the Industrial Revolution must be reengineered to be sustainable (Graedel and Allenby, 1995), is the same true of private corporations? REDEFINING THE FIRM There has been little explicit recognition that inherent in the integration of technology and environment—a likely prerequisite to any meaningful increase in the sustainability of global economic activity—are implicit drivers for redefining the corporation. Major drivers include the following: The arguably fundamental conflict between uncontrolled growth as a goal of profit-driven private firms and an environmentally constrained world (Constanza, 1991; Daly and Cobb, 1989). If a sustainable state requires bounded resource use and material flows, it presents a conflict between the traditional goals of the firm—maximization of value and growth of value over time for shareholders—and the firm's achievements. There are, however, conditions under which individual firms might grow even if unlimited economic growth (as opposed to economic development) is incompatible with sustainability. Some firms, for example, may continue to grow within a sector at the expense of less efficient firms even if the sector itself remains the same size or shrinks. Moreover, as sustainability is approached, some economic sectors will undoubtedly grow at the expense of others as the economy restructures itself. For example, sustainability may require the substitution of information and intellectual resources for material and energy inputs during manufacture or use, leading to an expansion of the electronics and telecommunications sector in the economy as a whole.4 Some forms of service, such as creating appropriate software applications, may contribute to dematerialization of the economy; firms providing such products could, and should, increase their value as sustainability is approached. Only when the growth orientation of corporations results in the inappropriate growth of the economy and environmental stress may sustainability be challenged. Corporations could retain a strict growth incentive, but society could create boundary conditions that preclude unsustainable economics. For example, the

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The Industrial Green Game: Implications for Environmental Design and Management availability of physical inputs to the economy as a whole could be limited, either through increasing fee or tax structures, or the (more inefficient) use of regulatory bans and limits. The growing recognition that sustainability will likely require the rapid evolution of appropriate technology, and that corporations are the repository of technological competency in a free-market economy. Despite the tendency of many environmentalists to distrust technology, achieving sustainability quite likely will require better technology (Allenby, 1993; Elkins, 1993; Graedel and Allenby, 1995). Moreover, the rate of degradation of natural systems (e.g., loss of biodiversity, degradation of agricultural lands, and mining of groundwater) argues that the evolution of environmentally appropriate technology must occur relatively rapidly or social, cultural, and economic systems may not be able to adapt gracefully to an environmentally constrained world. Generally, in free market economies, technology as a broad competency resides in corporation. (There are exceptions, such as the national laboratory system in the United States, but these are relatively rare and tend to focus on specific missions, such as space exploration or military technologies.) Taken together, the hypothesis of technology as critical to sustainability and the fact that technology generally resides in corporations imply that private firms will be critical to any movement toward sustainability (Allenby, 1994; Organization for Economic Co-Operation and Development, 1992). External and boundary conditions can be changed through incentive-and control-based policies to elicit profit-oriented behavior that evolves technology for sustainability goals. Alternatively, firms can fulfill this function by making sustainability as specified internal goal. The mechanics of accomplishing this are unclear, at best, especially because in many cases sustainability may conflict directly with at least the short-term profit motive. Relying on changes in customer demand patterns for more environmentally appropriate products and services to effect this shift raises the difficult initial question of how to change customer preferences such that they result in firm behavior supporting a sustainable economy. In practice, of course, a combination of these factors is coming into play. Some customers are demanding environmentally appropriate products, to the extent such products can be defined (which is frequently to a much lesser degree than the public, environmentalists, or industry technologists understand). Some firms are exploring ways to include uncosted externalities (social costs) in their management decisions, at least qualitatively. Governments are establishing regulatory constraints, fee structures, and market information mechanisms (such as ecolabeling or community right-to-know data on release) that, intentionally or not, elicit environmentally preferable corporate behavior. However, these efforts tend to be sporadic, internationally uncoordinated, substance specific, localized

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The Industrial Green Game: Implications for Environmental Design and Management in time and space, and without a sophisticated, coordinated effort to help technology (and firms) evolve toward sustainability. The increasing pressure to include environmental costs, not just economic costs, into the management decisions of firms. Recent years have seen considerable progress in developing methodologies to determine the environmental impacts of substances and products over their life cycles. Among these are life cycle assessment, or life cycle analysis is (both known as LCA) (Keoleian and Menerey, 1993; Netherlands Company for Energy and the Environment, 1992; Society of Environmental Toxicology and Chemistry, 1991), and design for environment (DFE) (Allenby, 1992; American Electronics Association, 1993). Such tools would not be necessary if prices of inputs accurately reflected all externalities. In the absence of such pricing, these methodologies identify social costs not captured in the economic costs on which the firm traditionally relies. The firm is then expected to modify its behavior on the basis of the results of using the tool. Despite obvious problems in quantifying many environmental impacts (e.g., how much is a species worth, or is that even a morally acceptable question?), the development of such tools has been driven by entities--including private firms--that use them for material, process, and technology choices; product design; and management decisions in general. The internalization of environmental externalities, through LCA and DFE practices, shows that firms are seeking greater social efficiency within existing economic constraints. Thus, for example, if a DFE analysis establishes that one polymeric system is environmentally preferable to another, and the costs are roughly equivalent, no economic penalty has been paid but social costs can be lowered. Except in very rare situations, firms are precluded from choosing inputs, no matter how environmentally preferable, that render their products uncompetitive because of a concomitant cost, quality, or time-to-market penalty. Such internalization marks a fundamental questioning of the existing rationale of the private firm. The corporation is being asked to make decisions about its operations, products, and services on the basis of something other than economic costs, including externalities that, although they may result from the firm's choices and operations, are not costed in the market. It can be argued that decisions based on such criteria are in the long-term interest of the firm. For example, such practices add value to the firm's trademark as they enhance the perception of the firm as a good corporate citizen. More broadly, it is in the firm's interest to ensure a stable path to a sustainable future so that it may remain in existence and profitable. At least in the short-term, however, the firm is being asked to move away from a profit orientation.5 Ironically, some business leaders are urging that all environmental command-and-control regulatory mechanisms be dismantled in favor of a responsible

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The Industrial Green Game: Implications for Environmental Design and Management industry-government incentive regulatory regime. Regardless of the dubious political viability of this option, it certainly implies a high degree of internalization of social costs by the responsible firm. Whether those urging this approach understand that they are implicitly arguing for a fundamental redefinition of the private firm is unclear. The disconnect between the scope and scale of private firms and their environmental impacts. Virtually all modern approaches to environmental issues begin with the assumption that the appropriate scale of analysis is the life cycle of the material, product, or service at issue. A life cycle approach is clearly necessary and desirable if the inefficiencies and suboptimal results of localized optimization at the expense of the overall performance of the system are to be avoided. One example occurred with "air stripping" of volatile organics, which cleaned the water but generated air pollution. Such solutions usually resulted from decisions targeting single medium problems with little if any thought given to resultant systematic impacts. However, there is an obvious disparity between the scope and scale of even the largest firms and the life cycles of their materials, technologies, products, and processes. Firms manufacturing complex articles do not usually extract or perform initial processing on the materials they use. That is done by petroleum, mining, or chemical companies. Manufacturing firms also do not usually manage the products after the consumer is through with them, nor do they manage the material streams that may result from the dismantling or recycling of postconsumer products. Conversely, firms providing raw materials for the economy seldom have a detailed idea of how their industrial customers are using, formulating, or disposing of excess material. This structure has arisen for economic and historical reasons, with each firm seeking a position in a relatively limited number of markets where its core competencies give it a competitive advantage. The structure is also the result of legal actions. In virtually all market economies, some form of antitrust regulation controls both the scale (size within markets) and scope (vertical combinations) of private firms, although the mechanisms and stringency of regulations vary considerably depending on the country. Moreover, in many cultures, especially that of the United States, large organizations are generally disfavored. Environmental policies are in the short-term moving toward take-back policies for packaging and products. Under these policies, the manufacturer is responsible for taking back its packaging and products after the consumer is through with them and refurbishing, recycling, or properly disposing of them. Especially in Europe, policy discussions are beginning to suggest that manufacturers implement programs to extend product life. Under these programs, product are refurbished and returned to commerce as step toward the "functionality economy,"

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The Industrial Green Game: Implications for Environmental Design and Management where firms sell functions, not products, to consumers (Stahel, this volume; Stahel, 1994). In such an economy, for example, an automobile company would lease cars to consumers but remain responsible for the maintenance of the vehicle and all aspects of material management, from choice of inputs, routine maintenance, materials, and lubricants, to recycling the materials once the car was retired from service. Thus, product-take-back systems and the functionality economy imply a significantly expanded firm in many cases.6 This expansion could take the form of virtual firms, formed through contractual arrangements to provide direct primary customer interfaces, or of industry consortia, formed to establish standards of performance and design. In some societies, such as Japan with its virtual integration of different firms in keiretsu, the existing economic structure is such that this may not be a problem. In other societies, such as in the United States, it could be a substantial change from the status quo, posing significant legal (e.g., antitrust) and political challenges. The pressure on larger commercial entities, which can be made responsible for their impacts broadly through time and space, is apparent and will undoubtedly increase given the global scope of commerce and the recognition that many environmental concerns are also global. RESPONSES OF PRIVATE FIRMS Even within the constraints of existing profit-satisfying behavior, private firms' behavior is already changing significantly as a result of environmental trends and regulations. Firms routinely adjust to external and internal stimuli, especially customers and each other. The question is not whether change will occur; the question is how fundamental that change will be, especially as evolutionary change may well make more fundamental change less problematic.7 There are many examples of the evolution of the private firm in response to environmental stimulus. Corporate environmental codes of behavior, both at the firm level and at the trade-group level, have proliferated. Examples include the Principles of the Business Charter for Sustainable Development developed by the International Chamber of Commerce in 1991 and the Responsible Care Program and Product Stewardship Code developed by the Chemical Manufacturers Association (CMA) in the United States. Elements of these codes begin to reflect the trends discussed above. For example, the CMA Product Stewardship Code includes a requirement that CMA members encourage distributors and direct product receives to implement proper health, safety, and environmental practices, an indirect extension of the CMA member firm into the customer chain resulting directly from the desire to improve the life cycle impacts of the product (in this case, at the use stage). Other trade-group activities include the development of guidebooks for environmentally preferable technologies and practices, such as the American Electronics Association's DFE manual, which is aimed at institutionalizing

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The Industrial Green Game: Implications for Environmental Design and Management life cycle approaches and DFE practices in the electronics sector (American Electronics Association, 1993). Regulatory programs already in effect also reflect these trends. Germany has adopted a packaging take-back law; Netherlands has also done so through an agreement, or covenant, with relevant industrial associations. Postconsumer take-back of complex manufactured products is being considered in Germany. Netherlands, Sweden, Austria, Denmark, France, Japan, and other countries and is already a part of some voluntary ecolabeling schemes (such as the Blue Angel requirements for personal computers). The U.S. requirement that firms report their emissions of designated substances under so-called community right-to-know requirements has had a strong effect on corporate behavior. Emissions of listed materials have declined substantially, and reduced emissions and pollution prevention are now part of the technology choice process for many facilities. Significant in themselves, such regulatory requirements—and their reflection in most of the industrial codes of behavior referenced above—are a first step toward manufacturing becoming a collaborative effort among the firms involved, the suppliers and customers, the community in which manufacturing occurs, and the host culture (Graedel and Allenby, 1995). Those who were not in manufacturing when each facility was a barony unto itself (as is still true in too many cases) cannot realize what a fundamental cultural change has already taken place within leading firms. WHAT IS TO BE DONE? The above discussion indicates that there are at least some powerful trends driving a redefinition of the firm. In particular, these drivers—which face equally strong opposing forces—would tend to create a firm that is larger in scale and scope and that has explicitly assumed at least some of the responsibility for mitigating existing environmental perturbations and transitioning toward a more sustainable global economic state. The implications of such an evolution of the firm are substantial, and a few of these are highlighted below. It is worth noting that the discussion becomes unabashedly speculative at this point. Shifting to an environmentally sustainable future places inconsistent demands on firms. On the one hand, it is likely that the rapid evolution of environmentally appropriate technologies—with technology taken in its broadest sense as the means by which a society provides its members with quality of life—is necessary to avoid potential discontinuous shifts in natural systems (environmental catastrophes). Rapidly changing markets containing highly competitive firms tend to be the most innovative and would thus be desirable in an economy moving toward sustainability. On the other hand, as discussed above, the economic and social trends generated in response to those perturbations appear to be implying the need for larger firms in more collaborative structures with significant, if unspecified, public interest components in their goal structures. Such an economic

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The Industrial Green Game: Implications for Environmental Design and Management structure could well be less competitive, less innovative, and less conducive to rapid technology diffusion than today's structure and thus could hinder rapid technological evolution. It is also likely that, at least initially, those public interest components, will be imposed by regulation rather than internally generated; they are thus liable to be rigid rather than flexible. Technologies will be frozen and incentives for innovation reduced, not expanded. Certainly, that is the case in the United States. Laws such as the Resource Conservation and Recovery Act or the newly amended Clean Air Act are characterized by inflexible regulation of frequently outdated end-of-pipe control technologies rather than policies designed to elicit desirable corporate behavior and technological evolution. Large, inflexibly regulated organizations are not noted for their innovative strength or ability to change rapidly. Moreover, assume for discussions' sake that it is desirable for firms to become largely responsible for achieving sustainability and thus develop the requisite power to perform the necessary functions, probably at the expense of the nation-state. The transition period would be quite difficult. The credibility of private firms on environmental issues is minimal at best, and public trust is virtually nonexistent. How would firms be regulated over the transition period to assure that they were able to meet accountability standards demanded by political reality (and imposed by a public that is, for all intents and purposes, technologically and environmentally illiterate) while they experiment with sustainability strategies?8 Surely in such a political environment, the pressure of regulation on corporate activity would be substantial. In sum, there is a need for accelerated flexibility and innovation at a time when trends seem to favor large, relatively inflexible organizations. This is not an insoluble dilemma, but it calls for far more sophistication than has been yet demonstrated. Another subtlety is that it is not the development but the diffusion of environmentally appropriate technologies that is critical. New technologies are developed all the time; most, even if environmentally preferable, are discarded for any a number of reasons. Only technologies that actually diffuse through the economy and thus change (hopefully reduce) the environmental impacts associated with providing a unit of function to the consumer are meaningful to the question of sustainability. This makes the question of the proper structure of the firm even more complex. Technology development is an engineering and scientific function, but technology diffusion becomes a question of culture, firm organization (both formal and informal), public policy, and a myriad of other, complex, social phenomena that are not well understood. Having identified some of the difficulties raised by current trends, let us return to the fundamental question: What form of agents within the existing economic system and what boundary conditions on their behavior will be most effective in moving the economy toward sustainability, given that sustainability is likely to be an emergent characteristic of a suitably self-structured economic

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The Industrial Green Game: Implications for Environmental Design and Management system and thus difficult to define a priori? To this question a tentative answer is offered, albeit more in hopes of stimulating discussion than in any firm belief in its correctness. Initially, an interesting conceptual point should be noted. This paper is implicitly assuming that,through policies or individual initiatives, firms can be structured within the context of a complex economy to migrate toward a long-term stable carrying capacity, or sustainability. Sustainability, however, is quite possibly going to be an emergent characteristic of a properly bounded and structured economy, thus unrecognizable until achieved. One must wonder whether we are capable of understanding this complex system (or acting on that understanding) so as to structure it to result in the emergence of the desirable self-organization. In simple terms, what does it mean operationally when a complex system (ourselves, our cultures, our economies) begins to become so fundamentally internally self-referential? This is not, obviously, a new issue. Throughout history, people have taken great pleasure in writing about themselves in myriad ways. Nonetheless, the issue is now raised in a more critical context. Avoiding serious cultural, social, economic, and population perturbations may depend on humanity's ability to understand complex systems (economies, and physical, financial, cultural as well as underlying natural systems) and how and where we may be able to interfere with and change them constructively. This is not a skill we as individuals or societies have developed. In this light, then, there may be one significant advantage to the profit-driven model of the corporation: It is relatively easy to establish meaningful boundary conditions for such an agent. Simplistic economic models to the contrary, firms already incorporate many aspects of their cultures and societies within their operations and are able to adopt more even as the dominance of the profit motivation is maintained. Manufacturing as a collaborative effort, increased environmental responsibility within economic constraints, and new models of interfirm organization to implement life cycle programs and responsibilities are trends that imply but do not necessitate a broadening of the firm's mandate to include, for example, responsibility and authority for achieving sustainability. Moreover, maintaining the primacy of the profit motive in a sense maintains the natural selection pressures of the economy, which are arguably critical if rapid evolution within the system is sought. No externally imposed regulatory mandate can substitute for the constant pressure, the brutal frankness, of potential commercial failure. We want to maintain Schumpeter's "gale of creative destruction" precisely because we need creativity and evolution. If, however, private corporations are to remain narrowly defined, public policy must become far more sophisticated. What will be required is the establishment of boundary conditions that propel the evolution—especially diffusion—of environmentally appropriate technologies leading to the achievement of sustainability, when those technologies cannot be defined until after the fact. Some aspects of such a policy can be defined: more and better data on emissions,

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The Industrial Green Game: Implications for Environmental Design and Management environmental impacts, and their sources; possibly properly designed product take-back and producer-responsibility requirements; and price adjustments to internalize externalities. In a broader sense, we need much more information and knowledge to do this. For example, it is arguable, if not apparent, that complex systems such as the economy tend to self-organize and exhibit distributed, not centralized, control, feedback, and internal regulatory systems (Allenby and Cooper, 1994). How can such distributed self-organizational behavior be stimulated, given that price structures, which might perform such a function, are unlikely to include all relevant environmental externalities for the foreseeable future? How can we get there as a practical matter, when most existing environmental regulation, at least in the United States, is predicated on precisely the opposite assumption—the need for specific, mandated, central micromanagement of all behavior bearing on the environment? The details are daunting, but we may come under more stringent selective pressures than we expect or desire as environmental perturbations become manifest, which may result in far more rapid change than we anticipate. Nonetheless, it seems at least defensible that it is desirable to maintain the current fundamental structure of private corporations while not interfering in the adjustments they are already making (as discussed above) and placing far greater emphasis on understanding industrial ecosystems so as to be able to define and implement appropriate public policy. Such policy, in turn, may be defined as the development and implementation of boundary conditions that create selective pressures, by acting upon private corporations, for the evolution of technologies that support the achievement of sustainability. If this is the case, we have reached an important understanding. Corporations may indeed be evolving in response to changes in the boundary conditions affecting them. The changes result from increased anthropogenic environmental perturbations and concomitant regulatory developments. We should not expect otherwise. However, private firms should not be fundamentally redefined and, to the extent public policies have created trends to do so, must be carefully evaluated and monitored. Meanwhile, the public policy challenge lies not in traditional environmental regulation or increasingly stringent end-of-pipe regulation, but in the establishment of boundary conditions that encourage private firms and the economy as a whole to self-organize in a sustainable structure. NOTES 1.   The terms "corporation" and "firm" as used in this paper refer to private, for-profit entities established under various state and national general incorporation statutes, as opposed to non-profit organizations and governmental entities. 2.   There is a large literature on whether corporations should be redefined to include public-interest factors explicitly among their goals or whether they are assuming responsibilities—such as the provision of health care and support for older citizens or the conduct of international trade and control of global financial structures—formerly provided directly or indirectly by the nation-

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The Industrial Green Game: Implications for Environmental Design and Management     state. The question of whether firms, especially large transnationals, are participating in the devolution of the nation-states' responsibilities to others, including both local and international political units, is fascinating but far beyond the scope of this paper. Nonetheless, the trends discussed in this paper can be seen as elements of what appears to be currently accelerating shifts of power and responsibilities among political and economic entities at all levels. 3.   Any economy consists of a number of agents—suppliers, consumers, regulators, etc. Additionally, some interesting work is being done on the self organization of loosely linked groups of firms that form frequently successful and innovative industrial districts, such as Silicon Valley in the United States, or the collection of textile firms near Florence, Italy, known as ''The Third Italy." This discussion, however, is limited to the class of agents identified as for-profit private corporations, primarily because any broader discussion would be far too complex for a short paper. Note that in any such analysis, only a limited class of agents is being considered and that these agents both modify and are modified by—coevolve—all other elements of the system. 4.   Such a substitution of inputs is already evident in the transportation sector, where advanced computing technology, on-board electronic systems, sensors, and other information systems are being used to meet increasingly stringent environmental constraints. See, generally, Auzins and Wilhelm, 1994; The Economist, 1994. 5.   Note that this is a separate issue from the so-called green accounting problem, arising when management accounting systems include environmental costs and liabilities in overhead, thus reducing the ability of managers to identify and reduce such costs and the associated environmental impacts (Macve, this volume; Todd, 1994). Social costs are not included in management accounting systems. 6.   Not in all cases. Note, for example, the structure of postconsumer take-back in the automobile industry in the United States: Some 65 to 70 percent of automobiles by weight are recycled, and many subassemblies are refurbished (rebuilt) and placed back into commerce without any explicit control mechanism. A wide variety of parts dealers, junkyards, scrap operators, and secondary smelters have formed a very effective recycling system, organized only through mutual economic self-interest (Klimisch, 1994). The self-organizing properties of complex systems cannot be overlooked, but more study is required to learn what conditions favor the evolution of such behavior. Why are white goods or electronic items not similarly recycled? What boundary conditions might result in the self-organization of a similar system for such products? More pessimistically, what changes in current policies might result in the disruption of an already fairly efficient demanufacturing operation? 7.   The need for firms to integrate technology and environment throughout their operations and recognize environmental issues as strategic for the firm is arising just as the shift from regional and nation-state to global economic competition (at least among developed countries) and from internal management based on mass manufacturing paradigms to information-based non-hierarchical models is occurring. Environmental issues then become one of several forces fostering radical change in the firm, and such change is easier when more than one driver is at work. In some ways, the process appears analogous to punctuated evolution, but consideration of whether this is only a superficial similarity or evidence of some deeper similarity based on principles of behavior of complex systems is beyond the scope of this paper. 8.   The reader will have noted, possibly skeptically, that this paper assumes that sustainability can be achieved without social, economic, or natural upheavals. This is, indeed, only an assumption, as the author is not aware of any data that convincingly support such an optimistic conclusion. However, it seems best in this matter to adhere to the philosophy of pragmatism espoused by William James and act as if sustainability is achievable, lest, by the failure to act, the opposite become a self-fulfilling prophecy.

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