2.3.3 Critics of the Porter hypothesis
The controversy around Porter's hypothesis has animated
several debates among economics academia. The motives are different: Firstly,
the questioning of the basic paradigm that the firms maximise their profit
under free market condition with no need to any supplementary restraints,
otherwise these constraints will rather increase their costs and consequently
impact their competitiveness negatively. Secondly, the lack of analytical proof
in Porter's work based on case studies of some companies in selected sectors,
which does not allow for generalising. «Is it really in all areas that the
`profitability green' is possible?» According to Palmer et al. (1995),
before concluding that more stringent ER has to be applied, one should first
answer the previous question. Thirdly, the governmental intervention in the
private sector is subject of a debate among economic researchers in order to
identify business opportunities. For Palmer et al. (1995) «if
opportunities exist, the state does not have to intervene to encourage
companies to identify them, they will do it for themselves given that firms are
aware of systematic improvements production process or technology». Many
researchers agree that ER may trigger eco-innovations; however this case would
be «the exception rather than the rule». Thus, even if businesses may
overlook new cleaner and cheaper processes, it is dubious that regulators are
better capable to assess the innovative potential than company management.
In the same vein, while defining competitiveness broadly,
Jaffe et al. (1995) have identified one hundred studies on the effects of
environmental regulations on competitiveness. There is little empirical
evidence that supports the hypothesis that the regulation has had an adverse
effect on the competitiveness of firms. If the long-term costs of regulations
can be high, including high costs on productivity, studies measuring the
effects of regulation on net exports, trade flows and the
decisions (re) location of firms have produced estimates that are generally
insignificant. The reasons given by economists have little to do with
compensating innovations. Except for the most polluting industries, the costs
of the environmental regulatory compliance represent a small proportion of
total costs. Moreover, firms seem reluctant to (re) locate for reasons of
environmental standards. (Lanoie & TANGUAY, 1999)
Similarly, the relationship between ER and competitiveness has
been largely debated among academics. Fundamentally, two main visions are
opposed concerning this link between competitiveness and ER. On one hand, the
traditional school which main concern is the possible negative effect that
would have a governmental intervention on productivity and competitiveness of
private economic agents (Palmer et al., 1995). On the other hand, the defenders
of the `win-win' situation generated by the ER as a stimulus for
eco-innovation, leading ultimately to both a decrease in environmental
externalities and a boost of business productivity (Porter and van der Linde,
1995). Several empirical analyses have been conducted to show the
dissimilarities between the two views. The empirical results concerning the
test of PH on the link between ER and competitiveness are quite equivocal. The
most influential articles found in the literature would be «Stewart,
(1993); Gray and Shadbegian, (1995); Repetto, (1995); Boyd and McClelland,
(1999); Wagner, (2004), King and Lennox, (2002); Sharma and Arragon-Correa,
(2005)» (Triebswetter & Wackerbauer, 2008). However, a strong
empirical support of PH is hardly found (Murty and Kumar, 2001).
Another argument against the PH is brought by Simpson &
Bradford III (1996), showing that typically stricter ER leads will not enhanced
firms' competitiveness because it governmental intervention will rarely trigger
the right eco-innovation. They add: «... it is by no means clear that the
benefits will repay the investment in the necessary innovation ... innovation
as the mechanism by which stringent environmental regulation is translated into
long-run competitive advantage (Simpson & Bradford III 1996, p. 283)».
They justify their analysis on the basis of incremental costs, assuming that in
order for a firm to improve its competitive position it has to decrease its
marginal costs but they found that regulation would rather increase the
marginal costs on what they called «direct effect», while the
indirect effect would be a decrease in variable costs «and thus marginal
costs through innovation». They made the assumption that«...the
government's objective is to maximise a domestic firm's profits net of the
(presumed) environmental externalities it imposes (Simpson & Bradford III
1996, p. 283)». The authors came to the conclusion that even if «it
is possible to develop a model in which effluent taxes in excess of marginal
external
damages are optimal (Simpson & Bradford III 1996, p.
284)» it will not be easy to define the right design for ER so that it
will trigger eco-innovation, and if so it will be valid only for some specific
situations and therefore it may create collateral disadvantages for other
industries for instance. Henceforth, «even if tougher environmental
regulations did serve to enhance competitive advantage, the same objective
might be achieved more effectively by more direct and conventional policies
(Simpson & Bradford III 1996, p. 284)», consequently
«...tightening regulation to induce advantage may be extremely dubious as
practical policy advice (Simpson & Bradford III 1996, p. 284)».
Another major critic addressed to the PH by its opponents is
the (implicit) assumption of overlook opportunity to `voluntarily' enhance
their competitiveness through environmental innovation. The metaphor used is
that there is no «10-Dollar bill on the ground because if it was there,
somebody else would have picked it up already» (Wagner, 2004). The other
questionable assumption is the one arguing that the governmental regulator is
more able to define the most effective ER in order to encourage eco-innovation
without negative impact on firms' competitiveness. In the same context, other
economists challenged the PH by the assumption of profit maximisation and the
other metaphor of the "low hanging fruit", arguing that if it was any
opportunity for firms to increase their profit there is no need for regulation
since the economic agents are rational (Wagner, 2004).
According to Palmer & al. (1995), even if RE may
eventually increase the competitiveness of businesses through eco-innovations
«these cases would be the exception rather than the rule». They argue
that the return of R&D investment is hardly determined «ex-ante»;
«it may be that, by chance, a company is equipped with technology that ex
post turned out to be profitable». They added that Porter and van der
Linde procedure of listing some "success stories" is far from proving the
presence of a «systematic link between ER positive and
profitability». In this context, Palmer & al. (1995) concluded that
«one could equally find cases where firms have seen their costs and
increase their profits shrink». (Ambec & Barla, 2006)
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