. "Environmental Constraints and the Evolution of the Private Firm." The Industrial Green Game: Implications for Environmental Design and Management. Washington, DC: The National Academies Press, 1997.
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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