Environmental Progress thru Competition!

Environmental Progress thru Competition!

Ganga Prasad G. Rao
http://myprofile.cos.com/gangar


Lok Sabha TV is a pleasant surprise. Yeah, they telecast some sessions of the Lower House, but it is far more than a peek in to the hell-house that we elect our representatives in to. And I don't just mean the cultural presentations. Late night this week, I happened to switch in to the Principal Advisor of the Planning Commission, Suresh Sethi, discussing energy policy matters on the channel. For once, I did not switch to the F channel. Believe me, my right hand almost twitched!

Much of what he said was, for want of a better word, relevant, and though I did not see his way at many points along his talk, one sentence caught my attention. Mr Sethi said, and I quote (though not verbatim) “Competition (among producers) will enhance the environmental performance of our industry”. Well, I fervently hope so. Because my training in micro-economics and energy economics suggests an entirely different outcome. So different that I thought it would be a great to elucidate my suspicions in my blog.

An industry's environmental performance is typically measured in the three media – air, water and land - and in indoor and outdoor spheres. Outdoor pollution is regulated by various state and central pollution control authorities while indoor exposure, to the best of my knowledge, is covered under occupational exposure and hazards regulations. Competition needs no definition. It pits the fortunes of one firm against another within an industry, sometimes across political boundaries. The virtues of competition are familiar. Competition among producers stimulates the incentive to innovate and lower costs as a means to undercut competitors. Larger market share translates to larger profits, (and for those executives with stock options, higher stock prices). By the same token, competition is, at least superficially, friendly to consumers who benefit from lower prices and choice. All hunky dory. Right?

Wrong! Competition is also a fight for survival (though, I suspect our bureaucrats and regulators will never permit annihilation of any firm of any significant size). The fight for survival engenders various competitive and anti-competitive strategies - from advertisements, product differentiation by branding, positioning in niche markets, pricing wars, to monopolistic and switching regimes strategies and more. It may be that competition in service industries begets practices that are considered internationally acceptable, thus enabling domestic firms to reach out to the international clientèle for their business. But competition in basic industries is not the same as competition in the IT industry. Consider the iron and steel industry. It is entirely raw-material intensive. From applying for environmental clearance, environmentally sustainable mining, transportation, to benefication, refining and pollution control – every step is resource-intensive. In other words, it costs money. Money reflected in the bottom-line of the quarterly report submitted to SEBI that drives many an investor frenzy. Despite the scale of production, pollution control costs are a significant fraction of total variable cost. Introduce competition in these industries and what happens is that the firm at once seeks to further lower its cost of production (wary as it is of its competitor's richer ores or closer mines). It seeks lower-priced raw material inputs, higher labor productivity, ...., and to cut corners environmentally. If its hands are tied with regard to iron ore and coal supply (gotta apply for fresh licenses and 'linkages' from the Steel and Mines Ministry), and the labor union leader has a permanent scowl on his face (who could those guys on motorbikes waiting outside the factory gate be?), then can one be sure that all pollution control procedures were followed? (Why, the workman assigned to that task took paternity leave!) When the going gets tough in the market, the squeeze is inevitably on activities that do not add to the bottom line of the firm. Is it then any wonder that firms under competitive pressures are hard-put to abide by the resource-draining environmental obligations? I half-suspect environment regulators and the commerce ministry officials are all-to-ready to look the other way if the firm's management is smart enough to suggest production cut-backs or 'labor-shedding'. And the Competition Committee would not look kindly about plant closures either! (And need I say anything about where the bull-runners stand?)

Pray what chance the environment has under these extremely 'competitive' times?


Come my friend, compete with me
Times are tough, input prices rising
The unions seek more, always
Where else do we cut corners
but of course environmentally
(The Minister did attend our luncheon
And did we not pay in to the Rehabilitation Fund?)

Times are tough, the market's rising
Oh no!, our shorts have failed
Who'd have anticipated
a government so friendly overnight!
Not a pie have we to spare
Where are the margins to justify
pollution treatment beyond the cursory?
Yes, our waste-water is clarified
(it sort of pooled up in the ditch)
Besides, the village well is more polluted!
(Hydrologist? No, we have none!)

Be ever my competitor,
but do complain 'bout competition
Yes, it is the bane of this industry
Compete, lest the consumers complain
Compete, lest they break me up!
(Standard Oil? Sounds familiar!)
Compete, so the Competition Committee may survive
(We need them too, you do understand?)

Times are tough, do me a favor
Compete with me, won't you my friend?
I'll return the favor and compete with you,
all of next year, infact for ever!
Let's compete and aid the Planning Commission in nation-building
Let's compete to realise their version of environmental utopia!