March 15 ENV222 lecture format.doc.docx

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University of Toronto St. George
School of Environment
Kenneth Mac Donald

ENV222 March 15 Business and the market 1. Definitions . the market (previously defined): human relationships based upon the buy-sell contract . capitalists: those who seek a return on investment in market activities . the industrial sector: firms in a similar form of market activity, eg the chemical industry, financial services industry, agriculture . the firm: the business corporation, with limited liability, often with publicly traded shares . sub-units and individuals within the firm: eg, Chief Executive Office, environmental unit 2. Basic objectives and functions of the firm . basic function of the firm: combine capital, labour and land to produce a product or service for sale . market objective: to maximize return on investment, ie generate profit - means the firm is continually working to increase production, maximize its own growth (works against environmental protection) - but also means the firm is working to maximize efficiency (ratio of inputs of capital, labour and land to output of product or service) which works in favour of environmental protection: the firm has an inherent incentive to minimize its own pollution (portion of the land, or raw material input, not used in the final product and therefore wasted money) - see reader p. 406 "pay to be green?" - capitalists seek only return on their investment, regardless of the form of market activity: works in favour of environmental protection, since if there is a market for green products the firm will sell them . political objective: to influence state action so as to help the firm achieve the market objective; usually works against environmental protection . social objective: to maintain the "social license to operate", ie to act in accordance with dominant social values, while still pursuing economic self-interest: depending on strength of those values, can work in favour of environmental protection Thus business firms can work in support of environmental protection; see reader pp. 369 section titled Why Would Businesses Turn Green? 1 3. 19th c to 1945 . late 1800s emergence of the large, visible corporation (eg AT&T); became subject to social criticism, loss of legitimacy . to regain legitimacy, large firms responded in two ways: . changing own behaviour (eg labour practices) . advertising and media relations to change image of their behaviour . business came to accept that it was not purely a market actor but also had "social responsibility" . industries such as fish and oil, facing tragedy of the commons situations, invited state regulation to avoid immediate depletion of the resource 4. 1945 to early 1970s . "golden age of capitalism"; high profit levels, corresponded with business loss of social legitimacy, expanding state regulated firm activity in a variety of areas, including environment . environmental regulations were imposed with weak standards, little enforcement; firms did little to resist, since was not a significant threat to profitability . industrial sectors of resource extraction and manufacturing, eg pulp and paper, were focus of regulatory action; others such as agriculture were exempt 5. 1972 to 1992 . business initiated the project of "rolling back the state"; eg, Reagan and Thatcher (previously discussed) . business began to actively contest environmental regulation . 1980s second wave of environmentalism, new issues like acid rain, governments took new regulatory action (domestic and international) and began to actively enforce environmental law . emergence of green industrial sectors, eg renewable energy, which have an inherent market incentive to see increased government regulation (creating demand for their product) a force in favour of environmental protection . post-1987 the compromise of sustainable development
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