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In a recent post for ConservativeHome, Lord Flight had this to say about Britain’s productivity puzzle:

“The UK economy has now recovered to its 2007, pre-financial crisis, GDP and there has been a 1.7 million increase in employment in the private sector; but there looks to have been a significant decrease in overall productivity/output per person employed. Much greater analysis is needed of what has been going on as regards productivity.”

Environmental regulation is often portrayed as a drag on productivity, but does it deserve this reputation? A major OECD study of the issue – covered by the Economist – would suggest not:

“Researchers at the Organisation for Economic Co-operation and Development… recently constructed the first comprehensive set of data on environmental strictness and its effect on productivity…

“Policies everywhere have become stricter since 1990. More importantly, the new study confirms earlier findings about the impact of individual measures: ‘an increase in stringency of environmental policies does not harm productivity growth.’ This contradicts what most governments and companies seem to believe: that green rules may be justified by the need to save the planet but impose immediate economic costs.”

By way of an explanation, it’s worth noting that environmental regulation – when properly designed – encourages greater efficiency in the use of resources, which is the very stuff of productivity. Another important aspect of regulatory design is the impact it has on competition – it may be stringent or lax in terms of environmental standards, but whether it facilitates or obstructs the functioning of markets is a separate matter:

“To measure this, the researchers constructed a second index, using a questionnaire to look at matters such as the administrative burden associated with getting an environmental permit or whether new firms face higher barriers to entry as a result of green rules… The Netherlands is strict but competition-friendly; Italy is lax but anti-competitive; Germany is strict and burdensome.”

The virtue of the Dutch model is that it encourages a ‘race to the top’. For Britain, this is surely the way ahead because we can’t possibly win a ‘race to the bottom’ – i.e. gaining a competitive edge by trashing the environment.

For a start we’d be up against China, where greenies, nimbies and other impediments to growth are either ignored, imprisoned or beaten-up – and where the consequences of lax regulation would be intolerable within a British context.

Consider Beijing’s air quality crisis; vividly described by Oliver Wainwright in the Guardian:

“Paper face masks have been common here for a long time, but now the heavy-duty kind with purifying canister filters – of the sort you might wear for a day of asbestos removal – are frequently seen on the streets. On bad days, bike lanes are completely deserted, as people stay at home or retreat to the conditioned environments of hermetically-sealed malls. It’s as if the 21-million-strong population of the Chinese capital is engaged in a mass city-wide rehearsal for life on an inhospitable planet.”

Those Beijing schools that can afford it now have inflatable domes with “hospital-grade air-filtration systems” so that children can play ‘outside’. However, not all the city’s residents are as privileged:

“…the average 18-year-old Beijinger will spend as much as 40% of their remaining years in ill-health – potentially suffering from cancer, cardiovascular or respiratory disease. Breaking the usual government silence on the issue, China’s former health minister, Chen Zhu, spoke out in January to reveal that between 350,000 and 500,000 people die prematurely each year here as a result of air pollution.”

Even if Britain could compete in an environmental race to the bottom, the prize for winning is a poisoned chalice.

13 comments for: Heresy of the week: Environmental regulation is not a threat to economic productivity

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