Environmental Protection & the States: “”Race to the Bottom”” or “”Race to the Bottom Line””?

When Congress laid the foundation for today’s environmental regulation in the early 1970s, the idea that states inevitably cut corners in pollution control and conservation to attract business was a powerful argument for national action. When industrial debris in Cleveland’s Cuyahoga River caught fire and oil from an offshore blowout blighted Santa Barbara’s beaches in 1969, the incidents became national symbols of a “race to the bottom” in state and local politics.

Recently, this view has gained new support. Not long ago, the press carried graphic accounts of hog wastes washing down Virginia’s Pagan River toward the Chesapeake Bay from a plant owned by Smithfield Foods, Inc., the East Coast’s largest producer of pork products. Lax state enforcement of national water pollution laws “could create ‘pollution havens’” and “lead to a shift of manufacturing and jobs that would penalize the conscientious states,” the New York Times editorialized.

But the race to the bottom idea is too simplistic to describe the forces that shape state environmental policies in the 1990s. The idea is outdated for three reasons. First, evidence is by now overwhelming that businesses rarely decide where to locate or expand based on the strength or weakness of state environmental programs. Second, state politics have been transformed in ways that make it more likely that pollution and conservation issues will get a fair hearing, independent of federal action. Finally, and most important, public attitudes have changed. Today, states compete to gain prosperity in a fast-changing economy. After nearly 30 years of government action and scientific progress, government officials, business executives, and voters find that some environmental measures aid in that contest. There is growing evidence that some states lead in economic growth and environmental protection, while other states lag behind in both.

To call attention to these changes is not to deny that state and local governments face tough trade-offs, that businesses often lobby to weaken environmental rules, or that some polluters still try to beat the system. Hiring inspectors to enforce the law or buying land to protect a watershed is expensive and must vie for limited state funds with improving schools, building roads, and paying for Medicaid and welfare. Environmental issues continue to be contentious because they often do pit jobs against cleaner air or more conservation, and sometimes both choices offer economic benefits. When stakes are high, business, labor, homeowners, and other groups will fight for their interests. And, of course, there will always be cheaters.

Thirty years ago, the assumption that there was a race to the bottom among the states was important because Congress was debating the need for a national framework of environmental protection. That question is now settled. Mainstream Democrats and Republicans agree that air pollution, water pollution, and other environmental problems that cross state lines should continue to be controlled by federal rules. Because most of our daily attention is drawn to hard-fought battles at the perimeter of government authority, it is easy to forget that we have witnessed an exceptional event in the past three decades: the successful introduction of a new theme in national policy.

Today, the question of whether states shortchange environmental protection to attract business is important for different reasons. First, we have reached a turning point in national environmental policy in which some readjustment of federal and state roles is inevitable. Thanks in part to the considerable success of national laws aimed at controlling major sources of pollution and encouraging conservation on large tracts of federal land, public attention is now turning to problems that are harder to solve from Washington. The next generation of environmental policies will tackle widely scattered sources of pollution and conservation opportunities that affect farms and housing developments as well as forests and meadows.

Second, both Democrats and Republicans are calling for new approaches to the first generation of environmental problems in order to give more flexibility to states. Frustration with the high costs and rigidity of “command and control” regulations has prompted moves to supplement those rules with market incentives, negotiated agreements, industry standards, and other techniques that decentralize decisions.

Third, the reach of federal regulation may be overly broad. The National Academy of Public Administration has suggested, for example, that controlling chemical contaminants in drinking water and deciding when, where, and how to clean up hazardous waste might better be done by state and local governments.

Continuing confusion about the capabilities of state governments is costly. Much-needed revisions of three of the legal cornerstones of national environmental policy – the Superfund, Clean Water, and Endangered Species Acts – are stalled in Congress in part because of troublesome questions about how federal and state governments should share authority.

Businesses Have Changed

In the 1970s, sudden new pollution control requirements with short deadlines called for large, unplanned investments that were extremely costly to some industries. Today, environmental costs rarely determine business location because they have become a relatively small and usually predictable element of corporate expenses. Even for chemical and petroleum industries, annual pollution abatement expenses run less than 2 percent of sales. Capital costs for pollution control vary widely from one industry to another, ranging from 2 percent of total capital costs for machinery and 3 percent for electronics to 13 percent for chemical industries and 25 percent for petroleum and coal. Even when substantial, though, those costs are usually dwarfed by labor, real estate, transportation, energy, and tax considerations in relocation decisions, according to surveys of corporate executives. One caveat, though. Sudden changes in pollution rules can sometimes close down individual factories and destroy jobs. Retrofitting old factories can be extremely expensive, and small or marginal businesses cannot always survive government demands to make changes.

Empirical evidence confirms that the rigor of state environmental policies generally has little influence on business location. Economists, who have found the issue hard to analyze because of the paucity of information about business relocation and the complexity of environmental policy, have generally found no strong association between environmental compliance costs and business location. Studies during the Reagan administration, when national oversight lessened, found no evidence of businesses moving in search of pollution havens. Likewise, there is little evidence that international businesses seek pollution havens, according to a recent report by the Organization for Economic Cooperation and Development.

At times, businesses may choose a high standard of environmental protection for reasons having nothing to do with state law. Investors stung by plummeting Rust Belt stock prices in the 1970s, when companies predicted devastating costs to comply with the first wave of environmental laws, now want to know that firms have planned for new requirements. And firms with plants in many locations may find it economical to adhere to a single set of environmental standards.

States Have Changed

States in the 1990s bear little resemblance to states in the 1960s, and their role in environmental protection has fundamentally changed. As political entities, they have been transformed by growth of professional staffs, vigorous two-party systems, use of referenda and initiatives to make policy, and procedural requirements that assure greater public participation in regulatory decisions.

Many aspects of environmental protection have been assimilated into state and local politics, as they have been into national politics. Political scientist Barry Rabe notes in Environmental Protection in the 1990s that about 70 percent of important environmental legislation enacted by the states now has little or nothing to do with national policy and only about 20 percent of the $10 billion that states now spend annually on environment and natural resources comes from Washington. State and local governments are responsible for nearly all the enforcement of national environmental laws and continue to dominate decisions in areas like land use and waste disposal. Occasionally, states have cooperated to spread the costs of addressing a complex problem or to concentrate pressures for action among affected states. Lax enforcement still occurs, of course, but it is more likely to be checked by political interests within the state.

Public Attitudes Have Changed

Finally, the idea that states routinely minimize environmental protection to attract business is outdated because we have learned a few things in the past 25 years about the benefits – and costs – of environmental protection. Even without a federal prod, voters have shown that they are sometimes willing to pay for state or local clean-up or conservation if they can reap the rewards. Environmental measures that contribute to critical infrastructure, attract skilled workers, or satisfy the needs of particular businesses are rightly seen as having economic value. Governors and legislators support environmental proposals that promote safe drinking water or provide adequate sanitation not because Washington requires it but because public health is a precondition to prosperity. Voters approve measures that improve an area’s appeal as a place to live and work in part because catering to the preferences of skilled workers can enhance economic growth. And tourism (accounting for nearly 10 percent of U.S. jobs in 1995) is not the only business with a direct interest in pollution control or conservation. Firms that require large amounts of pure water, for example – computer-chip manufacturers, food-processing companies, and breweries, to name a few – have economic incentives to keep streams, rivers, and groundwater uncontaminated.

At the other extreme, spending money to clean up pollution that drifts, flows, seeps, or can be transported into other states is likely to be viewed as a poor prospect by state politicians. And giving up prime development land to protect endangered species is usually seen as offering scant economic or political benefits. Environmental scientists must consider effects of development on future generations. State politicians usually can’t. When poor investments for states are priorities for the nation, rigorous federal oversight is needed.

A Race To The Bottom Line

In general, though, support for environmental protection is a result, not a cause, of prosperity. At least at the extremes, states with strong economies tend to support relatively strong environmental protection programs while those with weak economies often support weaker programs.

In the 1990s, the real competition among states is not a race to the bottom to minimize environmental protection, but a race to the bottom line to improve property values and increase tax revenues. States compete to gain prosperity in an economy where firms are consolidating, capital is increasingly mobile, and skilled workers are sometimes in short supply.

Because experience has shown that wealthy economies devote more resources to environmental protection than do struggling ones, we should be concerned about the future of pollution control and conservation in relatively poor states.

Some research has suggested direct links between prosperity and environmental protection. An analysis by the Institute for Southern Studies in 1994 found that 9 of the 12 states that were strongest in environmental protection also were strongest in economic growth, while 12 of the 14 states that were weakest in environmental protection also ranked among the lowest in economic growth. States that have been dependent on oil, timber, mining, or other natural resource industries may face special problems with improving environmental protection and with assembling the ingredients of lasting growth.

Such differences among states are not surprising. State boundaries were drawn by accidents of settlement and political compromise, not by a desire for equity. Those chance divisions have produced variations in political culture and history that, in general, we celebrate. They have also produced variations in natural resources and taxable assets. State environmental protection, which lies at a junction of economic forces, political will, and historical tradition, naturally reflects such enduring differences.

One danger, though, is that states that are weak in both economic growth and environmental protection are particularly vulnerable to a funding squeeze that may turn out to be an important political dynamic during the next 10 years – the prospect of increasing demands for environmental protection that no one is willing or able to pay for. Many of the least prosperous states depend most heavily on federal funds to finance environmental protection at a time when such funds are increasingly scarce. And their budgets are likely to be more heavily burdened by demands like welfare and Medicaid and less easily expandable by tax increases or borrowing.

None of this is an argument for economic determinism, however. State economies are constantly changing as markets change, and experience has shown that political will and fortuitous circumstances can overcome obstacles to growth. Booming high-tech industries and tourism made the Rocky Mountain states, traditionally dependent on mining, timber, and agriculture, the fastest-growing region of the country in the early 1990s. And the recent opening of the $11 million Jack Nicklaus-designed Old Works Golf Course in Anaconda, Montana, built atop a Superfund site, is not an isolated event.

What To Do?

Giving up on the simplistic theme of a race to the bottom among states to minimize environmental protection opens the way for considering harder questions. How much flexibility should states have to make choices about environmental measures? How can national priorities not in the interest of any one state best be advanced? How should chronic inequities among states be dealt with? A number of initiatives already under way suggest partial answers.

Variations on national themes. Setting clear national goals and giving states as much flexibility as possible in how to carry them out is the best way to mediate between national priorities and state differences. Supplementing standards with wider use of market incentives, negotiated solutions, and business self-monitoring can broaden local choices while respecting national priorities. The federal government should concentrate oversight wherever states are weakest, as the National Academy of Public Administration has suggested. And as information improves, state progress should be judged by environmental conditions, not by numbers of inspections and permits. All this is, of course, much easier said than done. After 30 years of efforts and billions of dollars spent, the United States does not yet have a reliable system of measuring trends in environmental conditions that could be a basis for setting national goals and marking progress toward them.

Information as regulation. Requiring that the public receive detailed information about environmental consequences can create incentives for business and governments to limit pollution, particularly if the consequences directly affect those receiving the information and if facts are accompanied by objective interpretation. Using “Surf Your Watershed,” the newest EPA Internet site, for example, anyone who enters a zip code can now learn about pollution sources, water quality, and drinking water sources. And the 1996 Amendments to the Safe Drinking Water Act, passed by the 104th Congress after two years of acrimony, require local water systems to notify customers once a year about bacteria and chemicals in tap water as one way of encouraging careful monitoring. These information requirements follow the example of the Toxic Release Inventory, a provision added to federal law in 1986 and recently expanded, which requires companies to report on their discharges of toxic substances. Regional cooperation. The possible benefits of regional cooperation have received too little attention in a political system that emphasizes national and state authority. Many environmental problems are inherently regional in scope, rather than national or local. We need to understand better why some attempts at regional cooperation succeed and others fail.

Creative financing. Voters who have effectively capped state revenues by resisting tax increases remain willing to pay special fees for environmental services or projects that are viewed as needed investments, helping to alleviate the funding squeeze, especially for the least prosperous states. Three-quarters of state and local waste disposal programs are financed by special fees, a proportion that has increased rapidly in the 1990s, according to a 1995 General Accounting Office report. Special fees also have disadvantages, of course. Linking revenue-raising to spending on particular activities can interfere with the agility of the political system in responding to changing public needs.

Changing Times

It would be a mistake to let the fears of the 1970s dominate action in the 2000s. The race to the bottom is a powerful idea that resonated with sudden changes in environmental requirements during the 1970s. It has little bearing on the challenges of the 1990s, when environmental costs are a relatively small portion of business expenses, state governments are more open to include environmental interests, and public understanding has improved. After nearly 30 years, environmental protection has been assimilated into the political system, where it will continue to evolve in thousands of separate national, state, local, and private actions. The success of those actions depends in part on our ability to adapt our ideas about how governments and businesses work to changing circumstances. In a time of scarce national resources and continuing disparities among states that are successful in economic growth and environmental protection and those that are less successful at both, our attention should now turn from the race to the bottom to the race to the bottom line.