Practice Case Assignment

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Chapter 7

The Environment

I. Introduction (NIB-Chapter Introduction) A. Opening Case Comments (NIB-Chapter Introduction)

1. In feeding, clothing, and sheltering ourselves and in manufacturing and consuming the necessities and trivialities of our existence, human-kind has scarred the globe,

contaminated the natural environment, and gobbled up the earth’s resources.

2. In the United States, Congress has passed several laws such as the Clean Air Act of 1970, the Clean Water Act of 1972, and the Clean Air Act Amendments of 1990 to

regulate private businesses’s environmental activities, along with creating the

Environmental Protection Agency (EPA) to issue environmental regulations and

enforce environmental laws.

3. However, this chapter’s purpose is not to argue that the environmental problems facing us are serious and that industry has greatly contributed to them; instead, this chapter is

largely concerned with a more practical question: Given the problems of environmental

degradation, of resource depletion, and of the abuse of animals for commercial

purposes, what our business’s responsibilities?

4. Chapter 7 examines the following topics: a. The meaning and significance of ecology. b. The traditional business attitudes toward the environment that encouraged

environmental degradation and resource depletion.

c. The moral problems underlying business’s abuse of the environment—in particular, the question of externalities, the problem of free riders, and the right to

a livable environment.

d. The costs of environmental protection and the question of who should pay them. e. Three methods—regulations, incentives, and pricing mechanisms—for pursuing

our environmental goals.

f. Some of the deeper and not fully resolved questions of environmental ethics: What obligations do we have to future generations? Does nature have value in

itself? Is our commercial exploitation of animals immoral?

g. A pragmatic approach for business to deal with environmental issues including various ecological friendly strategies businesses may adopt.

B. Chapter Learning Objectives (NIB) – After completing this chapter students should be able to:

1. Examine business’s posture toward the environment especially with regard to its role in protecting and preserving the ecosystem.

2. Study methods by which business could internalize the social costs of depleting natural resources and degrading the environment, in ways that approach the true costs of

production.

3. Understand and discuss the moral problems associated with irresponsible use and abuse

of the environment, the rights of citizens, and the obligation to preserve the

environment for future generations.

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4. Delineate the important aspects of environmental racism and demonstrate knowledge of its global impact.

5. Review and evaluate regulations pertaining to the protection and assignment of responsibility for the environment and appreciate the difficulty in enforcing them.

II. Business and Ecology (§ 7-1) A. Overview (NIB-§ 7-1)

1. To deal intelligently with the question of business’s responsibilities for the environment, one must realize that as business uses energy and materials, discharges

waste, and generates products and services, it is functioning within an ecological

system.

2. Ecology refers to the science of the interrelationships among organisms and their environments.

a. The operative term is “interrelationships,” implying that an interdependence exists among all entities in the environment.

B. Ecosystems (§ 7-1a) 1. In speaking about ecological matters, ecologists frequently use the term ecosystem,

which refers to a total ecological community, both living and nonliving.

a. Webs of interdependency structure ecosystems. b. A change in any one element can have ripple effects throughout the system.

2. Because of the interdependence of an ecosystem’s elements and because intrusion into an ecosystem frequently creates unfavorable effects, business must be sensitive to its

impacts on the physical environment.

C. Business’s Traditional Attitudes toward the Environment (§ 7-1b) 1. Several related attitudes, prevalent in our society in general and in business in

particular, have led to or increased our environmental problems.

2. Traditionally, business has consider the environment to be a free, nearly limitless good. a. Pollution and resource depletion are examples of situations in which each

person’s pursuit of self-interest can make everyone worse-off.

b. Garrett Hardin describes these consequences as the tragedy of the commons. 1) “The commons” according to Hardin are the public or communal goods

like air, water, and wilderness.

2) The “tragedy” arises as a result of individuals’ and companies’ following their own self-interest—each believes that his or her own use of the

commons has only a negligible effect, but the cumulative result can be the

gradual destruction of the public domain, which makes everyone worse-off.

3. The tragedy of the commons also illustrates the more general point that there can be a difference between the private costs and the social costs of a business activity.

a. Economist term the disparity between private industrial costs and public social costs as externality, or spillover.

b. In viewing things strictly in terms of private industrial costs, business overlooks spillover.

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4. In some, externalities or spillover effects, pursuit of private interest at the expense of the commons, and a view of the environment as a free good that can be consumed

without limit have combined with an ignorance of ecology and of the often fragile

interconnections and interdependencies of the natural world to create the serious

environmental problems facing us today.

III. The Ethics of Environmental Protection (§ 7-2) A. Overview (NIB-§ 7-2)

1. Much of what individuals and businesses do to reduce, eliminate, or avoid pollution and depletion of scarce natural resources is in their collective self-interest.

a. Many measures that are taken—for example, recycling of cans or installing catalytic converters in cars—are steps that benefit everyone, collectively and

individually: the air is more breathable and the landscapes less cluttered with

garbage.

b. However, some individuals and companies shirk their environmental responsibilities creating what is commonly referred to as the free-rider problem.

c. Individuals and companies that attempt to be free riders in environmental matters or that refuse to address the external costs of their activities behave

unfairly/unethically.

2. In addition, some philosophers like William T Blackstone maintain that each person has a human right to a livable environment.

a. He contends that this right has emerged as a result of changing environmental conditions which affect the very possibility of human life as well as the

possibility of realizing other human rights.

b. Recognition of a right to a livable environment would strengthen further the ethical reasons for business to respect the integrity of the natural world.

c. In addition, recognition of this moral right could, Blackstone suggests, form a sound basis for establishing a legal right to a livable environment through

legislation and even perhaps through a constitutional amendment or

environmental Bill of Rights.

3. Acknowledging a human right to a livable environment, however, does not solve many of the difficult problems facing humankind.

a. In the effort to conserve irreplaceable resources, to protect the environment from further degradation, and to restore it to its former quality, people are still faced

with difficult choices, each with its economic and moral costs.

b. The next section focuses on pollution control, but most of the points apply equally to other problems of environmental protection, as well as to the

conservation of scarce resources.

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B. The Cost of Pollution Control (§ 7-2a) 1. It is easy to say that the environment should be improved; however, before this answer

has any operational worth, a number of questions must be answered.

2. First, what is the quality of environment wanted? This can vary from an environment restored to its pristine state to one minimally improved over its current condition.

3. Second, precisely what is necessary to bring about the kind of environment needed? In some cases it may be technologically impossible to restore the environment to the level

needed.

4. Third, what are the costs to bring about the changes needed? Answering this third question usually involves some type of cost-benefit analysis.

a. Cost-benefit analysis is a device used to determine whether it is worthwhile to incur a particular cost—for instance, the cost of employing a particular pollution-

control device.

b. The general approach is to evaluate a project’s direct and indirect costs and benefits, the difference being the net result for society.

c. However, calculating the indirect costs and benefits is difficult and complicated. d. In addition, cost-benefit analysis of rival environmental policies will frequently

prove controversial because they inevitably involve making value judgments

about nonmonetary costs and benefits.

e. A new discipline attempting to expand further the boundaries of environmental cost-benefit analysis by calculating the value of an ecosystem in terms of what it

would cost to provide the benefits and services it now furnishes is referred to as

ecological economics.

5. In some, pollution control has a price, and trade-offs must be made. a. Weighing environmental costs and benefits is often difficult. b. The new discipline of ecological economics and recent attempts to measure “non-

use value” try to offer a wider perspective on environmental issues, but any kind

of cost-benefit analysis inevitably involves controversial factional assessments

and value judgments.

C. Who Should Pay the Costs? (§ 7-2b) 1. Environmental protection and restoration do not come cheap, and determining who

should pay the necessary cost raises a tough question of social justice.

2. Two popular answers to this question currently circulate: a. Those responsible for causing the pollution ought to pay. b. Those who stand to benefit from protection and restoration should pick up the tab.

3. Those Responsible – The claim that those responsible for causing the pollution ought to pay the cost of pollution control and environmental restoration seems eminently fair

until one asked the question: Who, exactly, is responsible for the pollution? Who are

the polluters?

a. Many people argue that big business is the chief polluter and therefore ought to bear the lion’s share of the cost of environmental protection and restoration.

b. However, others argue that consumers are primarily to blame for pollution because they create the demand for the products whose production impairs the

environment.

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c. Actually, both versions of the polluter-should-pay-the-bill thesis largely ignored the manifold, deep-root causes of environmental degradation: Two important

causes of pollution have been population growth and the increasing concentration

of population in urban areas.

1) Another root cause of environmental problems is rising affluence. As people get more money to spend, they buy and consume more tangible

goods, discard them more quickly, and produce more waste, all of which

hasten degradation of the environment.

d. Thus, the enemy in the war against environmental abuse turns out, in a sense, to be all of us. No solution to the question of who should pay the cost of pollution

control can ignore this fact.

4. Those Who Would Benefit – The other popular reply to the payment question is that those who will benefit from environmental improvement should pay the costs.

a. However, if this position means that individuals and groups should pay to the degree that they will benefit, then one must wonder how this could possibly be

determined.

5. Any equitable solution to the problem of who should pay the bill for environmental cleanup should take into account responsibility as well as benefit—everyone in some

way contribute to the problem and benefit of environmental safeguards and

improvements.

IV. Achieving Our Environmental Goals (§ 7-3) A. Overview (NIB-§ 7-3)

1. Without an environmentally informed citizenry making conscientious political, business, and consumer choices, it will prove impossible to reverse the degradation of

our environment by halting pollution, stemming global warming, and reducing the

utilization of natural resources to sustainable levels.

2. Three distinct approaches to environmental protection are the use of regulations, the use of incentives, and the use of pricing mechanisms and pollution permits.

a. Though similar in some respects, they carry different assumptions about the role of government and business, as well as about what is fair and just.

b. Each approach has distinct advantages and weaknesses; each raises some questions of social justice.

B. Regulations (§ 7-3a) 1. The regulatory approach makes use of direct public regulation and control in

determining how the pollution bill is paid.

a. State and federal legislation and regulations formulated by agencies such as the EPA set environmental standards, which are then applied and enforced by those

agencies, other regulatory bodies, and the courts.

2. A clear advantage to such a regulatory approach is that standards would be legally enforceable.

a. In addition, from the view of morality, such standards are fair in that they apply

to all industries in the same way.

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3. Four distinct disadvantages arise from the regulatory approach: a. First, pollution statutes and regulations generally require polluters to use the

strongest feasible means of pollution control.

1) This requires the EPA or some other regulatory body to become the expert in pollution-control technologies and economic conditions of many diverse

industries.

2) It is bound to make mistakes, asking more of some companies than they can ultimately achieve while letting others off too lightly.

b. Second, although universal environmental standards are fair in the sense that they apply to all equally, this very fact raises questions about their effectiveness.

1) In attempting to legislate realistic and reliable standards for all, will government so dilute the standards that they become ineffectual?

2) Where the environment is cleaner than government standards, should an industry be allowed to pollute up to the maximum of the standard?

c. Third, regulation can also take away an industry’s incentive to do more than the minimum required by law.

d. Fourth, there is the problem of displacement costs resulting from industrial relocation or shut down due to environmental regulations.

C. Incentives (§ 7-3b) 1. A widely supported approach to the problem of cost allocation for environmental

improvement is government investment, subsidy, and general economic incentive.

a. Thus, incentives in this context are any state or federal governmental reward for achieving an environmental goal.

2. The advantage of an incentive approach is that it minimizes government interference in business and encourages voluntary action rather than coercing compliance, as in the

case of regulation.

3. Three disadvantages arise from the incentive approach: a. First, as an essential voluntary device, and incentive program is likely to be slow. b. Second, government incentive programs often amount to a subsidy for polluters,

with polluting firms being paid not to pollute.

c. Third, incentive programs can be abused, and determining their cost-effectiveness can be problematic.

D. Pricing Mechanisms and Pollution Permits (§ 7-3c) 1. A third approach to the cost-allocation problem involves programs designed to charge

firms for the amount of pollution they produce.

a. Pricing mechanisms, or effluent charges, spell out the cost for a specific kind of pollution in a specific area at a specific time.

b. Prices are tied to the amount of damage caused and thus vary from place to place and from time to time.

2. One advantage of this approach is that it places the cost of pollution control squarely on the polluters. Pricing mechanisms penalize, rather than compensate, industrial

polluters.

a. From any persons this is inherently fairer than incentive programs that subsidize companies that pollute.

b. Also, because costs are internalized, firms are encouraged to do more than meet

the minimal requirements established under a strict regulatory policy.

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3. Instead of imposing a tax or a fee on the pollutants released into the environment, the government could charge companies for pollution permits, or it could auction off a

limited number of permits.

a. And even more market-oriented strategy is to give companies permits to discharge a limited amount of pollution and to allow them to buy and sell the

right to emit pollutants.

b. With pollution permits, companies with low pollution levels can make money by selling their pollution rights to companies with poor controls.

c. Thus, each firm can estimate the relative costs of continuing to pollute as opposed to investing in cleaner procedures.

4. Disadvantages of pricing mechanisms and pollution permits: a. First, for both economic and scientific reasons, pricing mechanisms and pollution

permits do not work well in all situations and for all environmental problems.

b. Second, pricing mechanisms and pollution permits trouble many environmentalists.

1) For one thing, the price tag for polluting seems arbitrary. 2) Moreover, environmentalists dislike the underlying principle of pricing

mechanisms and pollution permits and view with suspicion anything that

sounds like a license to pollute.

3) Michael Sandel, professor of government at Harvard, argues that it is immoral to buy the right to pollute. “Turning pollution into a commodity to

be bought and sold removes the moral stigma that is properly associated

with it.”

E. Summary (NIB-§ 7-3c) 1. In sum, although each of these approaches—regulations, incentive, pricing

mechanisms, pollution permits—has its advantages, none is without its weak points.

a. Because there appears to be no single, ideal approach to all environmental problems, a combination of regulations, incentives, effluent charges, and permits

is probably called for.

b. Any such combination must take into account not only effectiveness but also fairness to those who will have to foot the bill.

2. In addition, environmental protection is not a static or zero-sum trade-off. a. Higher environmental standards and pressure companies to invest in new

technology, thus enhancing efficiency as well as reducing pollution.

b. Many economists believe that measures to reduce greenhouse gas emissions may improve US productivity in the long run.

V. Delving Deeper into Environmental Ethics (§ 7-4) A. Overview (NIB-§ 7-4)

1. So far, your authors’ discussion of environmental ethics has focused on business’s obligation to understand its environmental responsibilities, to acknowledge and

internalize its externalities (or spillovers), and to avoid free riding.

2. The subject of environmental ethics can be pursued more deeply than this, and many moral theorists would advocate doing so. In particular, they would insist that the US

also consider its obligations to those who live outside its society.

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B. Global Environmental Fairness (§ 7-4a) 1. The United States’ bloated levels of consumption, dependent on foreign resources to

satisfy its needs, and the impact of both on the economies and environments of other

nations raise a variety of moral and political issues. Two moral and political issues

raised can be summarized as follows:

a. First is the question of how the continued availability of foreign resources is to be secured.

b. Second is the question of whether any nation has a right to consume the world’s irreplaceable resources at a rate so grossly out of proportion to the size of its

population.

C. Obligations to Future Generations (§ 7-4b) 1. Almost everybody feels intuitively that it would be wrong to empty the globe of

resources and to irreparably contaminate the environment that is passed on to future

generations.

a. But the question of what moral obligations one has to future generations is surprisingly difficult, and discussions among philosophers has not resolved all the

important theoretical issues.

b. One important issue is that since future generations do not yet exist, they cannot at present be said to have any interest at all. How can they then have rights?

2. Professor of philosophy Joel Fienberg argues that whatever future human beings turn out to be like, they will have interests that can be affected, for better or worse, right

now.

a. Even though one does not know who the future people will be, one does know that they will have interests and what the general nature of those interests will be.

b. This is enough, he contends, both to talk coherently about their having rights and impose a duty on us not to leave ecological time bombs for them.

3. Even if one is persuaded that future generations have rights, one still does not know exactly what those rights are or how they are to be balanced against the interests and

rights of present people.

a. Normally, the benefits of some environmental policy outweigh the costs, then a strong case can be made for adopting the policy.

b. But what if it is the present generation that receive the benefits in the future generations that pay the costs? Would it be unfair to adopt such a policy? Would

doing so violate the rights of future people?

c. An additional puzzle is raised by the fact that policies adopted will affect who is born in the future.

4. Annette Baier argues that the important thing is to recognize one’s obligations to consider the good of the continuing human community.

a. This stance suggests adopting a utilitarian perspective and seeking to maximize total human happiness through time.

5. John Rawls has suggested another approach to the question about obligations to future generations, an approach that reflects his general theory of justice (discussed in Chapter

3).

a. His approach would use his original position and the veil of ignorance to

determine obligations to future generations—in particular, how much each

generation should save for use by those who inherit the earth from it.

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D. The Value of Nature (§ 7-4c) 1. A more radical approach to environmental ethics goes beyond the question of one’s

obligations to future generations.

a. It challenges the human-centered approach adopted so far. b. Implicit in the discussion has been the assumption that preservation of the

environment is good solely because it is good for human beings.

c. This reflects a characteristic human attitude that nature has no intrinsic value, that it has value only because people value it.

d. This anthropocentric or human-centered approach can be illustrated by William F Baxter’s approach to the pollution problem. Baxter mentions the fact

that the use of DDT in food production is causing damage to the penguin

population. He states, “. . . Penguins are important because people enjoy seeing

them walk about rocks . . ..”

2. However, many writers on environmental issues do not recognize this anthropocentric bias. Instead, they advocate what Holmes Rolston III calls the naturalistic ethic.

a. Advocates of the naturalistic ethic contend that nature can have value in and of itself, apart from human beings.

3. Adopting a naturalistic ethic would definitely alter the way of looking at nature and of understanding the moral obligations to preserve and respect the natural environment.

E. Our Treatment of Animals (§ 7-4d) 1. Above a certain level of complexity, animals do have at least a rudimentary cognitive

awareness. Accordingly, a number of philosophers have recently defended the claim

that animals can have rights.

2. Rather than talking about animals’ rights, utilitarians would stress that higher animals are sentient—that is, that they are capable of feeling pain.

a. Accordingly, there can be no justifiable reason for excluding their pleasures and pains from the overall utilitarian calculus.

b. In principle, utilitarians are willing to permit testing and experimentation on animals, provided the overall results justify their pain and suffering.

3. Factory Farming – Business’s largest and most devastating impact on animals is the production of animal-related products—in particular, meat.

a. Cattle, chickens, and hogs are raised or processed in production facilities design for efficiency with little regard to the quality of life of the animal.

4. Is It Wrong to Eat Meat? – Moral vegetarians are people who reject the eating of meat on moral grounds. Their argument is simple and powerful: The raising of animals for

meat, especially with modern factory farming, sacrifices the most important and basic

interests of animals simply to satisfy human taste.

5. The important moral issue concerning animals is the real suffering and unhappy lives that billions of creatures experience on the way to dinner tables. This often overlooked

aspect of environmental ethics raises profound and challenging questions for business

and consumers alike.

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VI. The Pragmatist Mind-Set and Pascal’s Wager (NIB) A. Overview

1. In the 17th century, French philosopher Blaise Pascal formulated an interesting argument for why belief in a Christian God was rational.

a. He suggested that if Christianity was essentially true, then if one did not believe, one was destined for an eternity in hell.

b. If, on the other hand, Christianity was essentially false, little or nothing would be lost by living according to Christian principles.

c. This argument, entitled “Pascal’s Wager,” has been the subject of much discussion and debate over the years.

2. Taking a pragmatist’s view of nature suggests that business should modify Pascal’s insight to apply to the environment and call it “Pascal’s Wager on the Environment.”

B. Pascal’s Wager on the Environment 1. If business assumes an optimistic scenario that implies that the gloomy forecasts about

the degradation of the environment are all wrong, are businesses willing to bet the

future of their business on this optimistic scenario?

a. For example, if the optimistic scenario is wrong or even partially wrong with respect to “global warming,” then there will be no inhabitable world left for

future generations.

b. If businesses follow the logic of Pascal’s Wager here, they would assume that betting on an eventual environmental crisis is reasonable. The consequences of

being wrong are too great to bet otherwise, so business (and everyone else)

should take a cautious approach to environmental concerns and actively work to

avert such a crisis.

VII. Adding the Environment to the Business Framework (NIB) A. Overview

1. The pragmatist mind-set is a perspective that believes there is not one solution to the environmental problem, but that there are many solutions to any problem.

2. It is the declaration that through the ingenuity of entrepreneurial innovation, driven by deeply held environmental values, business can create a better set of opportunities for

future generations.

B. Shades of Green 1. There are many ways that businesses can adopt strategies that are friendlier towards the

environment. None of them is simple. All of them must still compete in the arena of

“better, cheaper, faster” while incorporating environmental principles into the business

strategy.

2. There are at least four primary “shades of green,” each of which has its own logic, and many interpretations. The shades are:

a. Light Green b. Market Green c. Stakeholder Green d. Dark Green

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C. Light Green Principle 1. According to this principle a business can create and sustain a competitive advantage

by ensuring that it is in compliance with the law.

2. The logic of light green relies on the public policy process to drive its strategy. It is a mistake, however, to think that simply because every company has to obey the law, that

no competitive advantage is possible.

a. First, countries with strict environmental standards seem to gain an edge in global marketplaces—they become more efficient and have better technology.

b. Second, within an industry, companies can actively pursue public policies that fit with their special competitive advantage. By innovating with technology and

expertise, a company gains an advantage over a competitor that cannot comply as

efficiently.

D. Market Green Principle 1. According to this principle a business can create and sustain a competitive advantage

by paying attention to the environmental preferences of customers.

2. Market green strategies are based on “the greening of the customer,” a fast-growing yet controversial phenomenon.

3. Market green logic just applies good, old-fashioned “know the customer” thinking to the environment, with the customer not even having to be an extreme environmentalist.

E. Stakeholder Green Principle 1. According to this principle a business can create and sustain a competitive advantage

by responding to the environmental preferences of stakeholders.

2. Stakeholder green is a shade darker than market green. a. It applies market green logic to a variety of key stakeholder groups such as

customers, suppliers, employees, communities, shareholders, and other financiers.

b. Companies can seek to maximize the benefits of one group, or they can seek to harmonize the interests of all groups.

3. Stakeholder green strategies are based on a more thorough adoption of environmental principles among all aspects of a company’s operations.

4. This shade is different because it does not prescribe one set method or a focused set of actions. It requires, instead, anticipating and responding to a broad set of issues related

to the environment, and as such is more complicated than the two lighter shades.

F. Dark Green Principle 1. According to this principle a business can create and sustain value in a way that

sustains and cares for the earth.

2. Dark green is a shade toward which few companies strive. Being dark green commits a company to being a leader in making environmental principles a fundamental basis of

doing business.

3. Intuitively, most people know that this principle should be obeyed. We teach our children to care for their things and the things that we share, such as our homes and

land. It is not a large stretch of the imagination to expect that the same values apply to

business.

VIII. Study Corner (§ 7-5)