Unravelling the competitiveness debate

Abstract

Abstract As the global marketplace has developed, businesses have become increasingly concerned about their ability to compete. The question of whether environmental regulation may be an influential factor in this respect has been the subject of considerable debate, much of which has focused on the costs associated with regulatory compliance. In a global sense many of the key points in this debate may be academic since it might be argued that companies operating under widely different market conditions should be expected to experience different levels of competitiveness. However, within the setting of the EU, where it is intended that industry should operate on a level playing field, the issue becomes much more important and the debate takes on greater significance. This paper considers the opposing sides of the argument in an attempt to gain a clearer indication of whether differences in regulation might lead to differences in competitiveness. In so doing, the paper examines the Porter hypothesis (Porter and van der Linde, 1995), which suggests that strict environmental regulation may be a spur to increased industrial competitiveness. After exploring the logic underlying the hypothesis, the paper considers various efforts to corroborate or refute the argument. On the surface, the hypothesis should be relatively simple to test with the question ‘does new environmental regulation result in a net increase in costs of production relative to those of a firm's competitors?’. Unfortunately this question has proved virtually insoluble, and in this paper we attempt to explore why this has proved to be such an intractable problem. Copyright © Crown Copyright 2002. Recorded with the permission of the Controller of Her Majesty's Stationery Office. Published by John Wiley & Sons, Ltd.

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