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Marketplace Sets 'Green' Agenda

AT first glance, there are some similarities between the first "Earth Day" in 1970 and the one we are celebrating today. Liberals again are bemoaning a planet rife with pollution. Conservatives are in a froth about aggressive federal bureaucrats. And most everyone agrees (for different reasons) that environmental laws are outdated.

What few appreciate, however, is how irrelevant much of the debate about environmental protection now is. The marketplace, not the government, has emerged as the chief protector of this country's environment, and private institutional regulators provide the best defense against would-be polluters.

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"Greening" is a natural, inevitable product of economic evolution. After a pollution-based economic adolescence, in which rapid growth rates come at the expense of the environment, national economies gradually take on a more environmentally sensitized configuration.

Three forces propel this changeover: the growth of a large middle class that demands cleaner air and purer water; the accumulation of enough national wealth to construct environmental infrastructure like water-treatment plants; and the use of efficient (i.e. less polluting) equipment to produce goods and perform services.

All these forces have acted as effective greening agents in the United States as well as in some European and Asian countries. Similar forces are quickly beginning to take hold in more advanced economies such as Taiwan, South Korea, Argentina, and Brazil.

The massive federal and state regulatory machinery that grew in this country after 1970 is not the primary cause of our own national economic greening. Rather, it is a highly visible manifestation of this marketplace phenomenon, one linked to greener consumer demand.

Since government regulation is nonetheless an important second-hand market force abetting the greening process, might not the present regulatory paralysis in Washington and in many state capitals signal that progress is slowing - at least temporarily? The answer, happily, for long-term economic development and environmental protection, is a resounding no. Private regulators are compensating for any government pullbacks.

Banks no longer make loans to acquire environmentally contaminated properties, and they are increasingly loath to loan to companies with untoward environmental exposure. Professional accounting groups have made it harder for companies to hide or delay recognition of environmental liabilities. Stock analysts have become alert to the possible consequences for the bottom line of such liabilities, as have the institutional investors that factor in a company's environmental exposure when making their stock picks.

At a time when so many marketplace mechanisms are becoming effective environmental protectors, why is so much attention still being focused on government action or inaction? If a company can't get a loan or insurance because it pollutes, can't sell its properties because they are environmentally contaminated, and has its stock prices hammered and its bond rates raised because analysts and investors think environmental exposure might subject the firm to severe future penalties, what are the economic incentives to continue polluting?

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Under those circumstances, does it matter whether or not the EPA and state enforcement agencies gild prevailing private sanctions with fines and prison terms?

Regardless of who - President Clinton or Senator Dole - ends up setting environmental policies in Washington after the next election, the greening tendencies of the marketplace still will rule.

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