Do Environmental Regulations Promote Economic Growth?
Air Date: Week of December 4, 1992
Steve talks with MIT political scientist Stephen Meyer about his new study of the impact of environmental regulations on economic growth in the U.S. Contrary to conventional wisdom, Meyer found that the states with the toughest environmental safeguards grew significantly faster during the 1980's than those with weaker rules.
CURWOOD: With the resurgence of organic cotton, the marketplace is providing the incentive for a greener product that should help business and consumers alike, but what about mandatory rules? The current conventional wisdom says they can be a drag on the economy.
At the Massachusetts Institute of Technology, political science professor Stephen Meyer studied the effect of environmental rules on economic growth in all 50 states. He came up with some surprising results.
MEYER: When you group the states in sort of three categories, environmentally strong, moderate and weak -- when you compare the strong with the weak, what you find is that on average the environmentally strong states outgrow, on all the indicators, the environmentally weak states by a factor of one and a half to two times. What's important to understand is the Council on Competitiveness, the Reagan-Bush Administrations, all were predicting a strong negative relationship and that could not be found anywhere on the data.
CURWOOD: Is this a cause-and-effect? Does this mean that if you have strong environmental policies, your economy and your state is going to flourish?
MEYER: It's too soon to talk about the question of cause and effect. But there's two directions of speculation. One is that states that tend to spend on environmental quality and tend to regulate their environment are also states that tend to invest in education and transportation and communications, and all of the other things that make a modern industrial economy work. So there may be a correlation there. The second direction of speculation is a bit more intriguing, and there really is some evidence for this. And it's the argument that environmental regulation is actually a stimulus for innovation, that it has a Darwinistic effect -- it weeds out weak, dying, inefficient, noncompetitive companies and allows those that are much stronger and robust and innovative to flourish in a new environment.
CURWOOD: Let's talk about the New England region. We're right here in Massachusetts. Now in this region the environmentally weak state is New Hampshire. New Hampshire has had a tougher time in this recession than Massachusetts. Would you say these are linked, that the environment being weak in New Hampshire means that it has a tougher recession?
MEYER: Well, I think there's an even more interesting comparison, and that's the comparison between Vermont and New Hampshire. And up until the '70's or so, those two states were extremely similar in their, in all their economic and social characteristics -- they were called "Sister States," by many people. And what happened in the '80's is quite interesting. Where Vermont started to impose very strict environmental controls, not just on pollution, but land use, wetlands protection, wildlife protection -- New Hampshire maintained its sort of free, live-free-or-die philosophy. And as a result, in the '80's both states grew very well, both Vermont and New Hampshire grew very well. But when the recession came, all five of New Hampshire's major banks failed, and none of Vermont's did. And the question is, what happened? Well, it turns out that Vermont's tough environmental regulations prevented them from overspeculating in real estate development, where in New Hampshire there was literally no control on the construction of condos and shopping malls and business parks, and many developers overextended themselves and then went bankrupt. That didn't happen, and so the irony is: here is a case where environmental regulation, which originally business people argued stymied economic growth, turns out to have made a very big difference in how the financial stability and the construction and industry stability in Vermont compares to New Hampshire.
CURWOOD: What do you think that public policy people should do with this information you're created?
MEYER: Well, in my view the debate over whether environmentalism costs jobs has been going on for too long, and diverts attention from the serious issues. So we need to move away from that, and start to move forward. And it seems to me what we need to do now is think about those regulations, those controls that do hurt isolated industries, isolated communities, and ask how we can do things better to help those already in economic trouble. The issue should really not be how do we suspend environmental regulations to help them limp along just a little longer before they collapse, but rather, how do we integrate into our environmental policy an economic policy that revitalizes areas that are caught in this sort of old-industry problem. The timber industry in the Pacific Northwest is gonna shut down, and that time is coming, and we should be thinking about how those economies, those local economies and those industries can be helped now, and not pretend it's related to some owl living in a tree someplace.
CURWOOD: Stephen Meyer is a professor of political science at MIT. He's the author of a new study of the impact of environmental regulations on economic growth.
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