Can Corporations Assume Responsibility for the Environment?
by John B. Cobb, Jr.
John B. Cobb, Jr., Ph.D. is Professor of Theology Emeritus at the Claremont School of Theology, Claremont, California, and Co-Director of the Center for Process Studies there. His many books currently in print include: Reclaiming the Church (1997); with Herman Daly, For the Common Good; Becoming a Thinking Christian (1993); Sustainability (1992); Can Christ Become Good News Again? (1991); ed. with Christopher Ives, The Emptying God: a Buddhist-Jewish-Christian Conversation (1990); with Charles Birch, The Liberation of Life; and with David Griffin, Process Theology: An Introductory Exposition (1977). He is a retired minister in the United Methodist Church. His email address is firstname.lastname@example.org.. The following paper was delivered at the International Whitehead Conference held in August, 1998, in Claremont, CA.
In the past few decades we have witnessed a massive transfer of power from nation states to corporations. Of course, corporations have been powerful actors for a long time. In the late nineteenth century they were able to control many politicians in the United States and thereby acquire what they wanted. This process has continued to our own time. As the cost of running for office has increased, the problem has grown worse.
Both major political parties in the United States are so beholden to moneyed interests that, on a wide range of issues, there is little that distinguishes them. Since the same interests control the popular media as well, most people are not aware how poorly the interests of the middle class and the poor are represented in Congress. The Democrats at best slow down the dismantling of such programs as had real benefits for the poor. Since the poor contribute little money to campaigns and do not vote in large numbers, there is little incentive to help them.
Still, my statement of the transfer of power from nation states to corporations envisions something that goes far beyond this. Before World War II, despite the power of corporations, they were primarily national entities. In principle, and to some extent in fact, they could be, and were, regulated by national governments. They were expected to work for the national interest, and in part they were themselves influenced by nationalist sentiments. The dominant ideology of the time was nationalism.
Since World War II, the most important corporations have become transnational. The idea that these might subordinate their financial interests to that of a particular nation hardly comes into play. They relate to nations in such a way as to maximize profits, and they seek to be free of national restrictions. What is remarkable is the extent to which they have attained this freedom.
Of course, this freedom from national governments would not have been achieved apart from the great power of their money to influence political leaders. Nevertheless, their success would have been much less had they lacked the strong support of the dominant economic theory. This theory teaches that governmental intervention in the market inhibits its proper functioning. It is this functioning of the market that increases the prosperity of all. Hence, so the argument goes, governmental restriction on market activity should be minimized. Since market activity is dominated by corporations, this is tantamount to arguing that government regulation of corporations should be minimized.
This theory applied to national corporations and played a large role in supporting their growth and relative autonomy within nations. But since World War II another step has been taken. The same economic theory argues that the larger the market the better. Therefore, restricting the activities of corporations by national boundaries is also opposed. The abandonment of such restrictions is known as "free trade", and the movement toward freer and freer trade has been understood as progress.
A third factor leading to the surrender of national power to corporations was idealistic internationalism. In the United States this grew up in reaction to political isolationism. Many Americans had wanted to stay out of world affairs, especially, the wars among European states. But many idealists felt that the United States should play its proper role in the world, for example, by encouraging democracy everywhere.
Internationalists usually saw protection of a national economy as part of the isolationism to which they were opposed. They believed that trade between nations contributed to peace and to prosperity in both. Hence they advocated lowering the tariff barriers that had been so important a part of the nineteenth- century economy.
After World War II the United States emerged as the world's most powerful nation economically as well as militarily. Isolationism was an irrelevant ideology. Internationalism continued as an idealistic commitment expressing itself in the creation of the United Nations, the International Monetary Fund, and the World Bank. But internationalism also took the form of competition for power with the Soviet Union.
The reduction of barriers to trade was not only an expression of idealistic internationalism, it was also an instrument of leadership in the Cold War. Trade could bind other nations to our side in this war. Even when trade agreements required sacrifice on the part of particular American industries, they were often insisted upon by the U.S. State Department for reasons of national security.
Although the United States has led in the post World War II movement toward free trade, many other governments have voluntarily reduced their control over their own borders so far as business transactions are concerned. Those that have resisted doing so have had enormous pressure exerted upon them. This has been particularly true since 1980.
In the first half of the period since World War II, many developing countries sought to improve their national economies. Some, such as Japan, South Korea, and Taiwan were remarkably successful in this endeavor, and many others made some progress. But the dominant economic and internationalist ideology, as well as the interests of the great transnational corporations, opposed these national economies as obstacles to the ideal situation -- a truly global market in which national boundaries were erased. Since 1980 this ideal has been progressively realized at breathtaking speed.
The first great instrument to this end was structural adjustment. Most developing countries borrowed heavily in the seventies in order to pay for more costly oil imports and because loans were so available and so cheap. When interest rates rose they found themselves unable to make even interest payments. This provided the opportunity for the International Monetary Fund and the World Bank to insist on changes in public policy that opened these countries far more to transnational corporations. This pressure continues to the present.
This pressure has been intensified by the Uruguay Round of the General Agreement on Tariffs and Trade and the subsequent creation of the World Trade Organization. The avowed and actual purpose of these organizations is to reduce barriers to investment and trade, thereby shifting power from national governments to TNCs. The next step is the currently proposed Multilateral Agreement on Investments which, if enacted, will still further restrict the ability of governments to influence the nature of economic activity within their national boundaries. It will give TNCs equal status with governments in courts of law that are no longer national. Although political objections to this further surrender of national sovereignty may prevent ratification of this agreement, it is likely that its provisions will be implemented, so far as "developing" countries are concerned through the structural adjustments imposed by the IMF.
In recent years environmentalists have expressed alarm over the effects of this shift of power from governments to TNCs. Governments have interests other than trade, including the protection of the environment and the preservation of resources for use in the future. TNCs are constituted for the purpose of making a profit for their stockholders. Leaving the consequences for the environment entirely in their hands appears dangerous, and thus far the effects have in fact been very bad.
These objections were raised in the United States with regard to the North American Free Trade Agreement. Environmentalists allied themselves with labor in opposing this agreement. To reduce this opposition, the Clinton administration negotiated side agreements on the topics of the environment and labor. The environmental movement was split. Some organizations supported NAFTA with its side agreements on the grounds that for the first time a trade agreement took environmental considerations into account. Others viewed the environmental side agreement as weak and unenforcable and continued to oppose NAFTA. The split weakened opposition to NAFTA sufficiently to secure its passage.
In the case of GATT the administration promised environmental opponents that the next round of negotiations would deal with environmental issues. Defeated on NAFTA, the opposition was weak. Subsequent experience with side agreements on NAFTA has been so bad that environmentalists await the next round of GATT with little optimism.
Somewhat more promising has been the recent record of the World Bank. For decades World Bank loans went for development projects that were usually environmentally destructive. Despite some positive rhetoric on the part of McNamara, environmental issues remained peripheral until the mid-eighties. Then, gradually, and with accelerating seriousness in the nineties, the World Bank attended to the environmental effects of its loans.
However, during the same period the role of the Bank in development has markedly declined. This was partly due to its own policies. These had been geared to encouraging private investment, and finally, in the nineties, these have risen to a flood tide that dwarfs the Bank's direct contributions. Hence, although the Bank's own loans are now, for the most part, sensitive to environmental issues, the Bank no longer plays much role in determining whether development projects generally will have this sensitivity.
This long introduction to my paper is to set the stage for recognizing the importance of the question that is its title: "Can Corporations Assume Responsibility for the Environment?" There are some reasons for optimism. TNCs are attracting many of the finest minds and spirits to their employ. Many of these people have genuine concern for the future of the Earth. And TNCs collectively have the power to make the difference.
Nevertheless, there are great obstacles. What stockholders expect of corporations is economic success. Furthermore, at least in the United States, this is measured in short spans of time. Capital is extremely mobile; so many stockholders are more interested in policies that quickly raise stock prices, enabling them to sell at a profit, than in policies that would work for the long-term good of the company. Policies that might be both better for the environment and more profitable in the long run are often rejected because they do not have the desired immediate effects. CEOs who view matters in terms of the longer time-span are likely to be replaced by those who will take whatever actions are needed for immediate profit.
In addition, corporations must be competitive. To be competitive, costs must be kept low. Keeping costs low often requires actions that are environmentally destructive. To fail to take such actions when similar ones are taken by competitors can have severely detrimental effects on a corporation.
On the other hand, even within this competitive, profit-driven context there is freedom for positive action. Often environmentally favorable actions are also profitable. Pointing this out has been the special mission of Amory and Hunter Lovins through the Rocky Mountain Institute.
For example, reducing energy use through greater efficiency saves money. The initial outlay is typically larger, but it can be shown that within a short time savings cover this initial cost. A simple example is the switch to fixtures that generate equal light with a fourth of the electricity. But the Lovins have demonstrated that efficient and economical use of energy goes far beyond this. They have built a home and office building high in the Colorado Rockies that depends on passive solar energy for its heating and cooling. They believe that the extra cost of construction was paid back in savings from the first year's utility costs. The drive for profits can lead both individuals and corporations to build in ways that greatly reduce the use of fossil fuels and other sources of electricity.
One might suppose that such a shift would be bitterly opposed by the providers of gas and electricity. But the Lovins have shown electric utility companies that they can make a better profit if their customers use less electricity. This is because new facilities are far more expensive than the old ones. If efficient use of old plants can supply the needed electricity, providers can avoid the large expenses involved in building additional ones. Accordingly, many electric utilities now give rebates to customers who buy more efficient appliances such as refrigerators. Similarly, natural gas companies sometimes subsidize insulation of homes.
The Lovins are optimistic that market forces will lead automakers to produce cars that are far more energy efficient. These will also generate far less pollution. The Lovins believe that the targets for reduced emission of greenhouse gases set at Kyoto can be met on a voluntary basis as Clinton proposes. Indeed, they were instrumental in persuading Clinton of this possibility.
Nevertheless, it has been clear that market forces do not bring about these changes automatically. People in business operate not only with profits in view but also out of deep-seated habits of mind with regard to how profits are earned. They typically assume that their job is to increase sales. The Lovins had to do a great deal of explanation to persuade directors of electric utilities that this did not apply to their business. Still, the deeper commitment to maximize profits could be appealed to as a basis for changing tactics. To achieve the needed change, the openmindedness, flexibility, and environmental concern of business leaders has also been important.
That there is still great resistance to the needed changes was shown by the concerted opposition on the part of American oil and automotive corporations to any significant agreement at Kyoto. At least in the United States, it would be unwise to expect that corporations will assume responsibility for the environment apart from external pressure and massive changes within them. Nevertheless, the fact that many environmentally favorable actions can be profitable indicates, at least, that goodwill, environmental sensitivity, and moral concern among corporate leaders can lead to some of the urgent changes without violation of their responsibility to stockholders.
The Lovins have shown brilliantly that There are some reasons for optimism. TNCs are attracting many of the finest minds and spirits to their employ. Many of these people have genuine concern for the future of the Earth. And TNCs collectively have the power to make the difference.There are places where Garrett Hardin's "tragedy of the commons" is more relevant. This principle is that what is economically beneficial to the individual, or individual corporation, may be detrimental to the common good. Hardin's illustration is about a pasture, shared by one hundred families, that can sustainably support one hundred cows. The common good requires that each family put only one cow in the pasture. But an individual family would profit from introducing a second cow. That family would double the benefit it receives from the common pasture while sharing only one one-hundredth of the loss from the gradual decline of the pasture. If decisions are left to individuals, and if rational behavior is understood to be that which benefits the actor, the result will undercut the good of all.
A contemporary example is fisheries. If each company acts independently for its own interests, a shared fishery is destroyed. There have been many illustrations of this.
To save the commons there must be something else at work. One possibility is for all interested corporations to come to agreement among themselves. There are significant movements in this direction. Most of the agreements have been somewhat general. That is, a good many corporations have adopted principles designed to reduce the likelihood of environmental destruction. The Valdes Principles are an example. I do not, however, know of any fishery that has been saved in this way.
Apart from the difficulty of competitors gathering in a spirit of mutual trust to save the commons, there is also the danger that one existing competitor will not agree, or that a new company will see an opportunity to take advantage of the restraint of the established ones. Beyond that, there is the difficulty of enforcement. Historically, corporations have not been organized for the purpose of public enforcement of rules. If the question about corporations taking primary responsibility for environmental matters points to such voluntary agreements and compliance, it is difficult to be optimistic.
The second possibility is that enforcement be through national laws. If the commons are located entirely within one nation, this is the historic way of dealing with the problem. The national government establishes and enforces laws. If the laws are wise and equitable, the companies themselves benefit in the long run. Insightful corporate leadership will support such government action, since it enables companies to behave morally and in their long-term self-interest, without losing out to competitors. In fact, unfortunately, corporations have often worked to limit such government regulations.
Needless to say, government regulation has not always worked well. Sometimes the regulations are foolish or unnecessarily cumbersome. As we saw also, governments are very responsive to corporate wealth and influence, and they often subordinate the long-term common good to the short-term gains of individual corporations or simply of governmental leaders themselves. Nevertheless, governments are, in principle, subject to public pressure in ways that corporations, especially TNCs are not. And governments have the means of enforcement built into their structure.
The global economy reduces the role of this traditional pattern in two ways. First, restriction on the exploitation of resources in one country can lead to the shift of investment to a more compliant one. Jobs and taxes are lost. There is pressure to ease restrictions and, thus, the well-known race to the bottom in terms of environmental protection and other standards. Competition among nations to attract investment, a central element in the global economy, works against the environment.
Second, many commons are transnational. The oceans and Antarctica are two that have attracted special attention. But tropical forests, biodiversity, and the purity of the air all point to this transnational character of many of our commons. Individual nations cannot deal with these adequately.
Accordingly, international agreements are needed. Some of these have been achieved when sufficient attention has been focused by the scientific and ethical communities on particular issues. The most impressive achievement was the Montreal Protocols designed to slow the destruction of the ozone layer. In time we will learn whether the agreements at Kyoto presage a similar success with respect to slowing global warming.
An alternative to ad hoc international meetings is permanent international organizations. The United Nations is the most important such organization, but partly because of United States policy, it has little ability to formulate or police environmental rules. There are some reasons for optimism. TNCs are attracting many of the finest minds and spirits to their employ. Many of these people have genuine concern for the future of the Earth. And TNCs collectively have the power to make the difference. More specifically, this protection will be through the WTO. This is because this organization has more power to enforce its rulings on First World nations, and because corporations prefer to deal with it. Thus far the rules it enforces are those that compel countries to open their borders and to reduce restrictions on trade. The power of the WTO works against environmental rules within countries. It serves corporate interests in promoting trade. But as the need to protect the environment is increasingly recognized, it is likely that the WTO will assume a somewhat more positive role.
If this happens, we will have a real test of the ability of corporate leadership to accept responsibility for the environment. The WTO, although an international governmental organization in official structure, is primarily a creature of the TNCs. The standards it sets for environmental protection will reflect the desires of these corporations. If among TNC leaders there is a real desire for the protection of the commons against their exploitation for immediate profit, this will be reflected in the policies adopted by the WTO. If the primary interest of corporate leadership continues to be expanding markets and freedom from imposed restrictions, WTO protection of the commons will be very limited indeed.
My argument is that just as the Lovins have succeeded in persuading an important sector of corporate leadership that efficient use of resources is profitable, someone will need to persuade corporate leadership that all will benefit in the long run from restraint in the exploitation of the global commons. It is in fact in their self-interest to establish rules protecting the commons and to have an international agency with enforcement powers compel all to observe those rules. But recognition of this self-interest will require changes of habit at least as deep as that involved in recognizing that reduing demand is in some cases more profitable.
Personally, I am not happy that the future of the Earth is now in the hands of corporations rather than governments. I believe that power should be in the hands of those who have other goals than economic gain in view as part of their primary job description. Governments, including both legislators and administrators, are supposed to aim at the common good. Corporate CEOs have primary responsibility to stockholders in their capacity as stockholders, and not in their capacity as global citizens. To place on their shoulders the responsibilities that belong to the political sphere is unwise and unhealthy. My first choice would be a massive effort to return power to the people and their elected representatives. My primary efforts will be directed to that goal.
Nevertheless, I recognize that the shift of power has gone so far that, for the foreseeable future, corporations will rule the world. How they rule it is a matter of great concern to all of us. The new rulers are people like ourselves with moral principles and concern for the wellbeing of their children and grandchildren. As they recognize the extent of their power, some are also recognizing that their responsibility must be for all those affected by their actions and not only their stockholders. They must continue to serve the latter. But within that service they still have room to consider proposals for the common good. A great deal depends on whether their narrower habits of mind based on historically narrower definitions of their responsibility can change in time. We should rejoice at all the activity suggesting that a change is occurring.
I have presented this account of our present situation with no reference to process thought. I believe it stands on its own feet and can be judged with respect to its accuracy independently of the philosophical perspective of the author. Nevertheless, it is my belief that perspective influences what we notice. I believe that the point of view that I have derived from my internalization of Whitehead's philosophy helps me to raise broader, more inclusive, questions, than are asked by those whose points of view are shaped chiefly in schools of business, the study of international relations, or immersion in economic theory. But this does not mean that one who approaches matters from one of those perspectives cannot recognize the truth of what I have said from my Whiteheadian perspective.
The difference between point of view and what is seen from that point of view can be illustrated from the case of Amory Lovins about whom I have spoken. Lovins was a physicist employed by Friends of the Earth. His own perspective was informed by great concern for what current human activities are doing to the Earth. Viewing matters in this way he was appalled by wasteful use of resources. He studied this waste and discovered that it was often unprofitable in strictly business terms. He then separated his argument about profits from the point of view that had led him to discover this truth. When he approaches a utility company, he does not begin with his love of the Earth and his deep concern for its future. The big picture almost disappears in his presentation.
I believe that much of the time we Whiteheadians need to operate in the same way. We need to describe the world we see from our perspective in ways that fit with what people see from other perspectives. We will not explain the point of view from which we are looking.
If we have the opportunity to address CEOs of TNCs directly, our emphasis should be on the advantages to them of having a level playing field whose shared rules would preserve the commons. The argument would be that on this basis they should help to develop the needed rules and support their enforcement.
This paper has been directed not to the CEOs but to those concerned for the global environment, asking where we can look for leadership to address the issues, and how we should approach those with such ability. This required a somewhat broader picture. But it was still a limited one in relation to what a Whiteheadian sees.
The chief limitation is the omission of the masses of the Earth's human inhabitants from the picture. I could omit this without a bad conscience because I am convinced that their wellbeing is intimately bound up with that of the other creatures with whom we share the Earth. Accordingly, if we act for the sake of the environment we will in fact be acting also for the people who inhabit it, even if we do not focus attention on them.
Of course, there are times when there are tensions between these two concerns; so in a larger discussion they need to be distinguished and the tensions dealt with. But the commonality of interest is primary.
Seeing that commonality of interest, and therefore being to focus on the environment, has, in my case, been facilitated by my Whiteheadian point of view. Those who approach matters from a dualistic point of view often miss this commonality of long-term interest, seeing primarily the tensions. But we who are aware of the deep interconnectedness of all things, notice how the true wellbeing of one part of creation supports that of others, and we are led to see how policies that reduce pressure on resources and defend the commons also give opportunities to the poor to survive and even prosper.
I suspect also that my attention to the big picture has been facilitated by my Whiteheadian perspective. Most accounts focus either on the economic scene or the political one, interpreting events in one set of categories or the other. The relationship of the the two spheres, and in particular the shift in dominance from the political to the economic one is rarely highlighted. Yet it is more important for the understanding of our history than what is happening in either sphere viewed separately. Whitehead helps us to ask the more inclusive questions by freeing us from disciplinary and bureaucratic boundaries.
I do not, of course, say that only Whiteheadians see things in these ways. Fortunately, we have allies. But we have our own distinctive contributions to make. And I believe that we can make them while entering into the public conversation, describing what we see in as acceptable and accessible a language as possible. Perhaps by doing so we can help bring about some reframing of the public discussion so as to focus on the truly important issues of our day.
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