Did the Invisible Hand Need a Regulatory Glove to Develop a Green Thumb? Some Historical Perspective on Market Incentives, Win-Win Innovations and the Porter Hypothesis

Abstract

Abstract:The idea that properly designed environmental regulations can improve a firm s competitiveness while simultaneously contributing to a cleaner environment through the development of so-called win-win innovations (i.e., that reduce environmental damage while simultaneously increasing profits) is usually credited to Porter (1991). Numerous studies have since attempted to assess the validity of the concept, with mixed results. This paper contributes to this debate by surveying a nearly forgotten body of literature written in the late nineteenth and early twentieth century that discussed the impact of market incentives on the development of valuable by-products out of industrial waste. Based on the opinions held by several industrial chemists, engineers, technical journalists and economists, the development of win-win manufacturing practices seems to have been primarily the result of the profit motive, although actual or potential legal actions based on private property rights and/or government regulations occasionally triggered this process. After reviewing some important historical writings on the latter issue, a suggestion is made that the best way to craft well-designed environmental regulations is perhaps to return to a private property rights approach to mitigating pollution problems whenever possible.JEL -codes: O31, N80, K29 Did the Invisible Hand Need a Regulatory Glove to Develop a Green Thumb? Some Historical Perspective on Market Incentives, Win-WinInnovations and the Porter Hypothesis. Abstract:The idea that properly designed environmental regulations can improve a firm's competitiveness while simultaneously contributing to a cleaner environment through the development of so-called 'win-win' innovations (i.e., that reduce environmental damage while simultaneously increasing profits) is usually credited to Porter (1991). Numerous studies have since attempted to assess the validity of the concept, with mixed results. This paper contributes to this debate by surveying a nearly forgotten body of literature written in the late nineteenth and early twentieth century that discussed the impact of market incentives on the development of valuable by-products out of industrial waste. Based on the opinions held by several industrial chemists, engineers, technical journalists and economists, the development of 'win-win' manufacturing practices seems to have been primarily the result of the profit motive, although actual or potential legal actions based on private property rights and/or government regulations occasionally triggered this process. After reviewing some important historical writings on the latter issue, a suggestion is made that the best way to craft 'well-designed' environmental regulations is perhaps to return to a private property rights approach to mitigating pollution problems whenever possible.

The division of labor need not imply regional specialization

“…Some cement and glass plants were built adjacent to steel producers in order to use their slag. The origins of countless firms in the modern petro-chemical industry can be traced back to ventures that initially fed on the residuals of coal gas and petroleum refining operations (Desrochers, 2008(Desrochers, , 2009). …”

Revisiting the Porter hypothesis: an empirical analysis of Green innovation for the Netherlands

“…This metaphor neglects three things 1) that market forces alone do not provide enough incentives for firms to be engaged in green innovation and 2) that green innovation is not very different compared to innovation in general and 3) that policy responses such as environmental regulation have a role to play to bring economic opportunity in line with the environment (see e.g. Jaffe et al, 2002, Desrochers, 2008and Cerin, 2012. The central issue is the question whether regulation drives innovation.…”

Goals and Principles of Environmental Policy

“…34 Of course, both proponents and opponents of the Porter hypothesis refer to numerous examples to support their views. Economic history abounds in 'win-win' innovations that improve technical efficiency and protect the environment (Desrochers, 2008). Yet there are some important theoretical arguments too.…”