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June 25, 1996

The Positive Relationship Between Jobs, Environment and the Economy

by Paul H. Templet

[Editor's note: Dr. Paul H. Templet is a keynote speaker in The Harbinger's symposium on Sustainable Development on July 13 at 7:30 p.m. in the Unitarian Universalist Fellowship Hall. Dr. Templet's presentation is funded by a grant from the Alabama Humanities Foundation, a state program of the National Endowment for the Humanities, and the Mobile Bay Sierra Club.]

The assumption that the environment must be sacrificed to create more jobs is prevalent in American business and society. But environmental studies tell us that the economy is dependent on the environment to provide resources and accept wastes, so a good environment should make for a better economy. Empirical evidence from a number of studies substantiate that finding and show that states with lower pollution levels and better environmental policies generally have more jobs, better socioeconomic conditions and are more attractive to new business. Pollution is only one of many external costs borne by the public that provides subsidies to an economic sector that distorts the market and results in poorer socioeconomic conditions, including growing income disparities. A Louisiana case study explains why jobs increase while pollution declines.

Louisiana Case Study

If there are positive economic effects from environmental improvements, there ought to be cases where it can be demonstrated. And indeed there are. During the years 1988-1992, new environmental laws and regulations and rigorous enforcement, policies, and programs in Louisiana reduced emission approximately 50 percent, while over the same period, investment in Louisiana increased two and a half times and unemployment dropped from 12 percent, the nation's highest, to about 6 percent, the nation's average.

Cleaning up the environment occurred concurrently with more investment and more jobs. Why should this be so? The connections between economy and environment are often subtle, indirect and difficult to quantify. What, for example, is the effect on economic development of the "Cancer Alley" label applied to the industrial corridor along the Mississippi River between Baton Rouge and New Orleans? Undoubtedly, having that kind of reputation is detrimental to development, even if the label isn't deserved, but it's difficult to put a dollar value on it.

One direct economy-environment connection that can be demonstrated and quantified in dollars is that of spending on pollution control and its effect on job creation. The primary reason why toxic emissions decreased by 50 percent in Louisiana from 1988 to 1992 was that the state's manufacturing industry increased its capital outlay spending on pollution control from about $144 million a year in 1988 to about $1.06 billion -- greater than a six-fold increase -- by 1992. The impetus for increased spending was environmental laws passed by the U.S. Congress and the state Legislature and agency regulations and programs designed to bring Louisiana's pollution levels into line with national averages.

Concurrent with the increased spending, employment in the manufacturing sector increased by about 14,000 direct new jobs by 1991, excluding construction and contract jobs -- see Figure. Prior to 1988, employment in the manufacturing sector in Louisiana was slowly declining. The chemical industry's multiplier of 4.6 related jobs for each new direct job yields an additional 64,000 new jobs because of pollution-control spending, which partially accounts for the current low unemployment rate in Louisiana. Pollution-control spending creates jobs; the U.S. average is 23 new jobs created for each $1 million spent, which predicts 21,000 new direct jobs and about 96,000 indirect jobs for Louisiana by 1992.

Thus, at least one of the direct connections between reduced pollution and jobs is apparent and positive. Because of the increased pollution spending by industry, portions of Louisiana are now experiencing a mini-boom in employment.

Other studies on the relation between environment and the economy include the 1992 study by Stephen Meyer of the Massachusetts Institute of Technology, who found that over time those states with good environmental programs have better employment, productivity and economic growth than poor environmental states. A Bank of America study in 1993 found similar results.

In a 1994 study entitled "Gold and Green," B. Hall of the Institute for Southern Studies, located in Durham, North Carolina, ranked states according to both their economic and their environmental health, using 20 indicators of each. The 20 economic indicators emphasized job opportunities, working conditions, protection for disabled or unemployed workers, and job creation. The 20 environmental indicators focused on toxic emissions, recycling efforts, and state spending to protect natural resources. The state rankings on the two lists were remarkably similar. Louisiana ranked last on both lists, and Southern states and those reliant on mineral extraction generally ranked low on both. The New England and Scandinavian-influenced states ranked best on both sets of indicators. A correction of the Gold and Green scores shows them to be very significant and positively related, indicating again that a good economy is compatible with a good environment. Since the economy is a subset of the larger environment and relies on it for services, it is becoming clear that the direction of causation is that a clean environment is a necessary condition for a good economy, at least when the long term is considered. That brings us to the concept of sustainability.

Sustainability

A sustainable economy recognizes the need for the long-term viability of a culture and is being promoted by the United Nations and most countries. To be sustainable, a culture must integrate environment with economics in its planning and policies. Although the term has been in limited use since the early seventies, it was popularized by the World Commission on Economic Development in 1987, sometimes called the Brundtland Commission for its chairwoman, Norwegian Prime Minister Gro Harlem Brundtland. Sustainable economic development is usually defined as a means of satisfying the needs of today without sacrificing the needs of future generations.

Another way to look at the notion of sustainable development is that we should live off the income from our capital rather than the capital itself. Living off the income from our stock of capital is sustainable; endlessly drawing down the stock of capital will bankrupt us. In much the same way as our stocks of money, equipment and other assets are man-made capital from which we create wealth; the environment is natural capital essential to wealth creation, and if it is depleted it won't contribute its income, i.e., resources and waste disposal, to our economic system, or its life support to us.

Although the concepts of sustainable development are still being developed, H.E. Daly, writing in the 1990 issue of Ecological Economics, proposed three conditions for sustainability to protect the environment from over-use: economic scale, waste emissions within capacity and harvest rates equal to regeneration.

The question we are asking is whether sustainability is enhanced or retarded by externalities such as high pollution levels. One disturbing result of large externalities is increased income disparity, which deserves further comment. Income disparity is the gap in average income between the top 20 percent of income and the bottom 20 percent. It increases significantly as externalities and subsidies increase.

In fact, the gap between the rich and poor has been increasing in the United States for some time. During the decade of the 1980s the gap widened in 43 states, and in 27 of those states the average income of the poorest fifth of the population declined while the average income of the top fifth increased. The widening gap indicates that externalities are increasing in the United States, and that is unfortunate for a developed country. Large income disparities are usually a characteristic of a developing country.

Conclusion

It has become abundantly clear that there is little or no supporting evidence for the supposition that progressive environmental policies are detrimental to a state's economy. There is substantial and growing evidence, much of it practical empirical evidence, that the converse is true, i.e., that a clean environment not only is good for business, but is probably a necessary condition for a healthy economy over the long term. The efforts we make to improve our environment can only benefit our quality of life, including our economic life, and improve our chances of being sustainable. A sustainable society follows a path that includes low pollution and conserved resources with more equity, leading to a higher quality of life for all its citizens.


Editor's note: This article is excerpted with the permission of the author from a longer article in the Spring 1995 issue of Spectrum of the Institute of Electrical and Electronic Engineers (IEEE).

-- June 25, 1996


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