Wednesday, January 26, 2011

Salt, Pollution, and Capitalism

I was reading a friend's blog on Commonground, a community forum for environmental engineers, geologists, the occasional lawyer, etc., and he referenced this article here, from the Economist of all places. It's a review of a book titled, The Case for Business in Developing Economies, by Ann Bernstein.

The Economist's summary email read:

Companies shouldn't worry about their "triple bottom line”—profits, people and the planet—since, ultimately, it's simply by pursuing profits that companies help their community, argues Ann Bernstein. Nebulous goals such as helping humanity and the environment sound worthy but don't add up to much, Bernstein says, so companies should stick to what they do best: making money and spreading prosperity through society as a whole.

With that, how could I pass it up? I pulled some strings and got an advance copy of the book. It has some good points, and it has some very bad points.

The author, Ann Bernstein, presents her book as a response to Naomi Klein’s wildly popular No Logo, a popular 2000 book criticizing globalization in the aftermath of the 1999 World Trade Organization popularly known as the “Battle in Seattle.” This book has, over the last ten years, become an international best-seller and one of the seminal texts of the anti-globalization movement, particularly in encouraging the public to seek out the sources of what they consume and the circumstances under which it was produced.

Bernstein offers her book (in her own words) “in praise of enterprise and corporations.” Her complaint is that businesses, particularly industrial corporations, are unfairly limited by expectations of “corporate social responsibility,” which impose on businesses responsibility for social and environmental stewardship. This book is essentially a polemic in favor of business regulated only by itself, as Bernstein argues that business should be given a free hand to do what it exists to do—make money—so that what benefits business can (notionally) ultimately benefit all. This is Atlas Shrugged with a corporation standing in for John Galt.

Bernstein’s book is, to put it mildly, poorly researched, poorly organized, and poorly thought out, with a number of gross internal inconsistencies between her evidence and her argument. Without even a pretense at an evenhanded analysis, she lumps environmental activist groups in with terrorists and blackmailers (31), while a glance at the bibliography reveals that a number of her most heavily-cited sources are press releases, interviews, or other documents from corporations such as Texas Instruments, Coca-Cola, and Wal-Mart. Certain of her other sources are themselves controversial opinion pieces, particularly Paul Dreissen’s Eco-Imperialism – Green Power Black Death, a racially-tinged 2003 argument against emphasizing sustainable energy in developing African nations.

Ms. Bernstein is the founder and director of the Center for Development and Enterprise, an independent policy “think tank” based in Johannesburg, South Africa. She was formerly head of the Urban Foundation, a business-backed NGO that had lobbied the Apartheid-era government for economic reforms, and a board member of the Development Bank of Southern Africa. Doubtless she was considered a hopeless liberal by the unbending standards of the erstwhile de Klerk government, but to modern eyes her argument reads as a paean to deregulation and wild-hunt capitalism. Granted, her business-as-the-solution stance may be influenced by South Africa’s 25% unemployment rate and lackadaisical record of corporations investing in long-term projects without government sponsorship, financial guarantees, and considerable leeway in dealing with both people and the planet.

Ms. Bernstein’s central argument is that for-profit corporations should play a greater role in fostering economic development in the developing world, what was once less charitably described as the Third World. That makes a certain amount of sense, given that for-profit corporations tend to be more efficient at generating wealth from a given resource than other organizations. She further argues that in the interest of encouraging more rapid development, corporations should not be required to include environmental or social stewardship elements into their operations, and focus exclusively on the money-making end of things.

Granted, Ms. Bernstein does not voice the desire that the whole of the developing world be carved up among corporate interests, ala King Leopold’s domain in the Congo. One of her better arguments was for encouraging development by locally-owned corporations, preferably locally-owned, rather than internationals, NGOs, who would hopefully keep the wealth local and plow it back into the country’s economy rather than pumping it off to London or New York (or more likely these days, the Cayman Islands). So far, so good.

That still leaves us with Ms. Bernstein’s desire to ditch the other two elements of the ‘triple bottom line,’ namely people and the planet, the two elements which charge a corporation to embrace some element of social and environmental stewardship—if not making the world a better place, then at least not making it worse. In her case studies of corporate success stories in the developing world, she wholly omits discussing their effects on natural resources, e.g. air and water pollution from foreign-owned plants, and singularly avoids discussing more destructive industries such as oil and gas production, mining, and the like.

“People” and “the planet” are notionally the two principal areas of corporate public responsibility, the two metrics by which we judge whether or not a corporation is behaving as a “good citizen,” or when the corporation demonstrates that it cares about something more than itself. From a corporation’s point of view, though, these initiatives are usually public relations at best or balance-sheet liabilities at worst, and more likely to be obstacles than assets.

Ms. Bernstein cites the example of a pipeline that global energy giant ExxonMobil built in Chad. Although the project was eventually completed, Ms. Bernstein uses it as an example of the kind of extra costs that “people” and “planet” concerns can impose on a project, including relocation and compensation of villagers, a circuitous route, and avoidance of gorilla habitat.

Her argument in this instance is that the added costs, negative publicity, and other difficulties nearly convinced Exxon to abandon the project altogether, and that such concerns actually make companies reluctant to invest in Third World projects.

What makes these requirements so burdensome that abandoning them would be a good thing? Their purpose is to ensure that the benefit of the development—which invariably comes at a cost in damage to the environment—is not the corporation’s alone.

The author also quotes a vitriolic statement from James Shikwati of Kenya (borrowing the passage wholesale from Dreissen):

Why do Europe’s developed countries impose their environmental ethics on poor countries that are simply trying to pass through a stage they themselves went through? After taking numerous risks to reach their current economic and technological status, why do they tell poor countries to use no energy, and no agricultural or pest control technologies that might pose some conceivable risk of environmental harm? Why do they tell poor countries to follow sustainable development doctrines that really mean little or no energy or economic development?” (Bernstein 108, Dreissen 30)

Although Ms. Bernstein does not explain who Mr. Shikwati is, he is a prominent Kenyan libertarian economist, founder and Director of the Inter Region Economic Network, and has argued that foreign aid to sub-Saharan Africa does nothing materially to aid the common people, but only abets government corruption and unbalances the national economy.

In response to Ms. Bernstein, and by extension to Mr. Shikwati, it is true that the position of the developing world is different from that of the developed world when it comes to issues such as clean energy and the development of natural resources. The developed world has the comparative luxury of an existing infrastructure, so that introducing clean power, for example is essentially a matter of replacing old fossil fuel plants with cleaner power sources on the same grid. Developing nations often have to build a nation’s infrastructure from scratch, grid and plants alike, which understandably results in a measure of frustration when foreign pressures are brought to bear to invest in unfamiliar wind turbines or solar power, rather than simply burning readily-available coal.

The same paradigm is true for many other issues, such as food or water resources—what appear to be ‘luxury items’ in the developed world, such being able to afford to turn away from effective but toxic pesticides such as DDT, genetically-modified food, infrastructure projects like dams—are simply not options to states such as Kenya. Without DDT there are malaria epidemics, without dams there is no water for irrigating farmland, and without genetically-modified food, there is famine.

The paradoxical result is that the developed world can afford unspoiled land but has only land scarred by two centuries of man’s labors, while the developing world has unspoiled land but cannot afford not to spoil it. Ms. Bernstein argues that nations in the developing world should have a free hand to regulate their own environmental practices, free of interference by NGOs or strings attached to loans from the World Bank, and by extension those of the corporations operating under their jurisdiction—in essence, to retain the right to sacrifice the environment in exchange for economic progress.

Although Ms. Bernstein disingenuously ignores it, the fact remains, that the developed world has come to its current state of environmental knowledge through bitter experience—consider the Great Smog of London, the Love Canal toxic waste dump in the US, the Bhopal catastrophe in India, or the Hungarian sludge lagoon disaster of 2010.

The last century and a half of the developed world’s experience offer a valuable object lesson on the merits of corporate good citizenship in environmental matters, and are relevant for two reasons. First, the developing world is repeating mistakes the developed world has already made, suffered through, and recovered from. Secondly, many of the corporations engaged in the developing world –for example, Royal Dutch Shell or AngloGold Ashanti--are multinational organizations born in the developed world, which have now extended their reach—sometimes for the express purpose of evading stricter standards in their home base countries. In addition to being closer to the source of production, oil refineries built in Nigeria do not have to have the same expensive pollution control systems as oil refineries built in Texas.

So much for Bernstein.

As it happened, I was reading Mark Kurlansky's Salt today-- it's a layman's history of salt production and consumption. I happily recommend just about everything Kurlansky's written.

What struck me is that Ms. Bernstein's argument—profit above all else, with profit and its trickle-down payoffs supposedly a panacea for a region’s problems-- is pretty much exactly the one that Kurlansky describes being advanced by Salt Union Ltd. in Cheshire (part of the northwest coast of England) in the late 19th Century. Most of the geology of Cheshire is rock salt, and people had been pumping brine out of the ground and evaporating it into table salt or packing salt for centuries. Pumping the salt-saturated (25% salt by weight) brine out of the ground drew fresh water into the salt formations, which dissolved the rock salt into new brine, much as water erodes limestone and creates caves.

By the late 1800s, though, the quantities and rates of brine withdrawal were causing severe subsidence problems throughout the county, had created, enormous sinkholes, and had pretty much obliterated most of the area's sources for potable water. Salt Union didn't start the damage, but did exacerbate it, and had bought up most of the other salt producers by 1890, by which time it controlled three-fourths of the British Empire's salt business and was the wealthiest corporation in the UK or any of the colonies.

When the locals in Cheshire focused on Salt Union as the cause of the damage and demanded compensation, the corporation gave them the same line Bernstein did-- the people whose houses have suddenly fallen into holes had been compensated by the profit brought to the area by the salt industry. The legal battles went on for years and eventually wound up in Parliament, and weren't settled until the government established a Compensation Board, funded by a flat tax on all producers (which promptly drove many small producers out of business, to Salt Union’s benefit) that handled reimbursements for damage caused by subsidence. Salt Union, Ltd. is still in business to this day.

If Bernstein had her way, her book argues, companies operating in the developing world would be free to act like Salt Union did, and divest themselves of any obligations toward environmental or social responsibility in the name of the almighty dollar. In fact, this is how most oil and gas producers, mining concerns, and other industrial corporations have operated in the developing world since the end of colonialism.

I find it surprising that she would write this, given the environmental problems in the developing nations with which she is presumably most familiar. Multinational corporations such as Shell have left an enormous environmental footprint in southern Nigeria, leaving vast swaths of land ruined with clear-cutting, defoliation, hasty drainage work that fouls rivers and drowns farmland, displaced people, and wholesale pollution of soil, water, and air, while oil revenues account for 90% of the Nigerian government’s income. State monopolies such as the Israeli Chemical Company have exploited scare resources (e.g. the Jordan River and the Dead Sea) to the point of ruining them.

In Ms. Bernstein’s own South Africa, beginning in the 1930s the government essentially rezoned the district of South Durban by government fiat, evicting thousands of residents and converting the area a vast petrochemical industrial park. As recently as the year 2000, South Africa had no legally-binding pollution regulations. The average concentrations of the air pollutant nitrogen dioxide in another South African city, Cape Town, which is usually considered a comparatively pleasant seaside city-- are significantly higher than those in the slums of Calcutta, India, which has yet to live down allusions to the infamous “black hole.” Organochlorine and organophosphate pesticides, banned in most of the rest of the world due to their toxicity, remain in common use on South African farms. The major cleanup provisions of the National Environmental Management: Waste Act are soon to go into effect, requiring property owners to clean up contaminated sites, but the government lacks the ability to enforce the laws.

It’s fair to say that nearly all of the world’s economy consists of the workings of corporations of one sort or another, to the extent that the term ‘corporations’ is nearly synonymous with the private sector in general. Corporations are organizations that ultimately exist primarily on paper, and (current US election laws notwithstanding), corporations are emphatically not people. They do not eat, breathe, drink, get cancer, or worry about their children. They are neither intrinsically good nor intrinsically evil. For all their potential size and legal complexity, corporations are ultimately as simple as a liver fluke. Corporations are money-making operations, which take some sort of resource and process it, sell it, or otherwise extract some kind of value from it, expressed as money.

Therefore, since corporations are the part of society that has the most to do with extracting resources and generating wealth, if corporations are not held responsible for environmental impacts of their work, who will be held responsible? Who else is there? The government? The local citizenry, who are already inconvenienced? Or, should polluters be given a free pass, with everyone else told up to shut up, suffer the side-effects of development, and live with the mess, all in the name of a (likely brief) spell of prosperity? Life in the developing world is already hard enough—a multibillion dollar corporation like Shell shouldn’t get a free hand to make it worse.

Take the United States as an object lesson in exactly how corporations behave in the absence of regulations to protect the environment.

Prior to the 1970s, industrial corporations in the United States had essentially no legal, popular, or moral expectations to meet regarding environmental stewardship, and the result of this was catastrophic air pollution, destruction of the nation’s rivers and lakes (to the point that a large part of Lake Erie, for example, remains essentially biologically dead to this day), abandoned mines pockmark dozens of states, hundreds of thousands of properties polluted by hazardous wastes, and untold millions of people have been sickened or killed by toxic exposure. The sheer scope of the United States’ environmental problems, as belatedly realized in the 1970s, was such that the new regulations included requirements to protect public health as well as ecological damage.

Yes, we as a society benefited from the industries that created this pollution. The American way of life from the 1950s onwards was built on it, fueled by cheap plastics, cheap gasoline, and cheap food from farms using chemical fertilizers and pesticides. We would not be where we are now without strip mines, coal-fired power plants or lavish use of asbestos and chlorinated hydrocarbons. That’s “better living through chemistry,” all right.

The obvious response to such wholesale pollution, is to hold the polluters responsible for the damage the caused. To do anything else is to essentially privatize the profits generated by a polluting operation, while socializing the costs and damages. This does nothing to protect the environment or public health, and in fact essentially subsidizes polluters by relieving them of the financial consequences of their actions. The environment’s financial status would revert to the sort of ‘tragedy of the commons’ scenario that Garret Hardin discussed in his seminal essay in Science in 1968.

A corporation’s bottom line is always the first concern—since corporations exist to make money, and if a corporation does not make money it goes out of business, and everything else is moot.

In other words, if environmental stewardship isn’t an enforceable requirement, or at the least loaded with very powerful incentives or penalties, the corporation probably won’t do it. This is not to damn all corporations as calculatedly indifferent to anything save the almighty dollar (though some doubtless are).

One of the most damning examples of this behavior is Monsanto’s behavior concerning polychlorinated biphenyls, or PCBs. In 1937, the Harvard School of Public Health completed a study that determined PCBs were toxic to humans and most other forms of life. Monsanto and two other industrial giants, Westinghouse, and General Electric, sat on the study for forty years because PCBs just brought in SO much darn money-- $22 million (in 1970 dollars) yearly for Monsanto alone. Monsanto was the sole US manufacturer of PCBs, and both General Electric and Westinghouse manufactured thousands of products containing them, including electrical equipment, paints, hydraulic oil additives, plasticizers, and a million other uses. After several years’ worth of investigations into the harmful effects of PCBs the US banned the manufacture of PCBs in 1977.

Of these three, Monsanto became the textbook case for corporate malfeasance and bottom-line rationalization, in large part because numerous lawsuits and government investigations over the past forty years have forced the corporation to disclose reams of confidential documents that recount the corporation’s attitude towards the environment, the public, and even its own customers. Monsanto fought the PCB ban for ten years, to the point of conducting fraudulent toxicological studies that ‘proved’ PCBs were nontoxic. The directors of the laboratory that conducted studies on Monsanto’s behalf, Industrial Bio-Test Labs of Northbrook, Illinois, were subsequently convicted of fraud.

As an example of Monsanto’s behavior, corporate records show that in 1969 executives decided that although fish died within minutes of wastewater discharges from the corporation’s plant in Anniston, Alabama, “there was no reason to go to expensive extremes in limiting discharge form the plant” where PCBs were being manufactured. Much of the town and the nearby waterways are now heavily polluted with PCBs, due in large part to the dumping of vast quantities of PCB waste into the river and into landfills. Thousands of local residents have suffered severe health problems over the ensuing years—in 2003, Anniston lead the state in the number of birth defects found in newborns, and the cancer rate is 25% higher than the state average. Anniston residents first learned of the contamination in 1995, over a quarter century after Monsanto was indisputably aware of gross pollution problems at the Anniston facility.

That industrial corporations—in whatever nation-- have historically regarded environmental stewardship as a cost or liability becomes quite obvious when you look at how difficult it has been to pass regulations requiring stewardship of the planet from those extracting its resources. Monsanto spent over a decade actively arguing that PCBs were safe, and still refuses to acknowledge their danger. Even something as straightforward as the 1969 incarnation of the Safe Drinking Water Act –which did nothing more or less than to ensure the water the nation drinks is safe to consume-- took nearly five years to get through Congress due to the heavy lobbying from the oil, mining, and manufacturing sectors.

Perhaps the root of the problem is that money-focused corporations and actual human beings have different perceptions of what is valuable.

Money is not the only thing of value. Yes, this is 2011. Yes, pretty much every business decision made lately comes down to the pennies column in the financial spreadsheets. Yes, the economy trumped every economic and social issue save President Obama himself for the 2010 midterm elections. Yes, anyone with money is practically fawned over, whether he is a billionaire hedge-fund manager buying a fourth yacht or a restaurant owner able to put a down payment on a suburban house. Yes, it is very difficult to quantify “clean air” in dollars, Euros, or yuan when speaking in front of the stockholders or board of directors.

By contrast, the population of Dimock, Pennsylvania quite understandably values safe drinking water over corporate “money now” profits now that a natural gas hydrofracking project has ruined the town’s drinking water supply.

The people of Madhya Pradesh in India certainly valued the lives of people killed when the run-down and undermanned pesticide plant belonging to Union Carbide’s Indian subsidiary suffered a catastrophic failure, releasing a cloud of poison gas over the city of Bhopal in 1984.

The residents of the La Toma region in Colombia certainly value their land, which the South African mining concern AngloGold Ashanti would very much like to strip-mine for gold over the heads of the local inhabitants and small private mine owners, citing mining rights granted to it by the Colombian government.

Residents of the Niger River delta in Nigeria are accustomed to oil spills as a routine part of life. The country’s first major environmental activist, Ken Saro Wiwa, was murdered by the Sani Abacha regime in 1995 after taking the environmental crisis there to the world stage.

As you can see, money is still not the only thing of value.

Money is fungible, yes, and can be exchanged for goods and services (Homer Simpson's brain said so, so it must be true) but while money is replaceable, most of the other “goods,” such as clean water, clean air, critter habitat, whales, passenger pigeons, etc. are far more fragile than Hardin understood them to be, and pretty much irreplaceable. Once land is ruined—for example, by careless open-pit mining, with nothing left behind save slag-heaps, pits, and polluted water—it changes from an asset to a liability. You can’t farm it, you can’t live on it, you can’t sell it, the water is worthless, and you can’t get any financial return out of it unless you spend a lot more money and a great deal of time to render it safe.

Sometimes natural resources are immediately necessary to sustain human life, let alone economic viability. In many places in the US, and many more overseas, such as most of Africa, simply having enough water, let alone drinkable water, is vitally important. The eastern United States generally doesn’t worry very much about water rights, but they are a very common and very contentious cause of disputes in the west. Nobody raised the issue of drilling in the Catskill Mountains region, from which New York City draws some of the best drinking water in the world without need for treatment or filtering, until the last few years. Meanwhile, concerns over drinking water have been percolating for decades in much of the Midwest, the Rockies, and the agricultural areas of rural California. If the water supply a Texan cattle rancher uses to water his herds dries up or becomes polluted and unusable, he is in dire straits indeed. If the source area for New York City’s drinking water is damaged, the economic costs just from the need to construct a treatment plant could run into the tens of billions of dollars. Now ask yourself why New York City’s water should be so protected, and Aba, Nigeria’s shouldn’t be.

A hypothetical upper-middle class businessman’s seven-figure salary is going to do him a fat lot of good if his drinking water is loaded with arsenic from mine tailings or fizzing with dissolved methane freed by gas hydrofracking. Granted, he could pay for a super-Brita or a lifetime supply of Dasani bottled water, but that costs money. He could sue the gas producer or the mining company, but that costs time and money, which in turn cuts into his quality of life.

This ruining of the commons is exactly what’s going on right now in Ms. Bernstein’s metaphorical backyard, in one of the economies for whom she is advocating industrialization and intensified resource extraction as a means to social and economic progress. Consider Nigeria again, where a reported 400 children have died since March 2010. They died of lead poisoning caused by unregulated gold mining.

Even clean air is a fragile resource. It’s been over fifty years since the UK passed air-quality legislation in response to the Great Smog of London in 1952—which killed over four thousand people in less than a week—and London air is still nothing pretty. It’s still better than Cape Town’s, though.

More to the point, the 'commons' - air, water, groundwater, public land, and so on—are not and should never be either open cookie jars or pollution-sinks. They are public resources, and public resources should not be used to subsidize private prosperity. Exactly what moral, legal, or economic arguments can be mustered in favor of allowing a chemical plant to discharge untreated toxic wastes into a publically-owned water body, thus ruining it for everyone else, simply to save the plant's owning corporation the cost of a wastewater treatment plant? Likewise, should they have the right to withdraw so much water from the water body that it leaves too little water for anyone else to use? Since when does, say, Omega Chemical's interest in its bottom line outweigh my right to go swimming without having my skin peeling off in sheets afterwards?

It’s a rather morbid and little-known fact, but the Environmental Protection Agency actually puts a dollar value on a single human life, for the purpose of evaluating the cost-effectiveness of hazardous waste cleanup options. It’s $7 million. Until the second term of the Bush administration, it was $8 million. The general idea of this grim calculus is that if the cost of a particular cleanup method costs more than $7 million per human life that would be saved, it’s not cost-effective and another method should be evaluated.

In conclusion, as much as some wish, we cannot have an economy without corporations, factories, mines, oil wells, and the like. Extracting resources from the earth will almost inevitably cause at least some damage to the environment. At the same time, however, some things are more important than "money now."

People and the natural environment are both resources that exist in and for the long term, and which require careful use and long-term planning to get the best out of them—“money later.” If you don't take care of your resources, you might have 'money now' in the short term, but you won't have 'money later' because there won't be anything to sell, or anyone to sell it to.

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