SEA Working Paper 00/14 - abstract
Ethics and the economics of environmental care
Steven G.M. Schilizzi
Agricultural
& Resource Economics, The University of Western Australia,
Nedlands, WA 6907
Steven.Schilizzi@uwa.edu.au
Full-time farming operations are business firms, and farmers are business managers: they must sell their produce and make a profit if they are to survive in a market economy. Subsistence farming is a different story, of course. As with all businesses, environmental care can sometimes conflict with the demands of profitability. The spontaneous reaction by environmentally sensitive people, and policy-makers, is to ask farm business managers to show responsibility and ‘do their duty’ to the rest of society, to future generations, or to mother nature itself. This paper expands David Pannell’s views (SEA #7) by generalising beyond salinity management and investigating the relative influences of ethics and economics on any form of environmental care. At bottom, the issues are: 1) society’s interests compared to the interests of private business; 2) who in ‘society’ defines and mandates ‘environmental care’; and 3) what is the aim of such a mandate? Ethical injunctions of the type "thou shalt care" assume businesses have a certain degree of freedom in meeting profits. Because of different technology-product mixes, this is usually true. Yet, either of two things: either business managers have the same ethical outlook and concerns as the representatives of society, or they do not. If not, then trying to ‘moralise’ them is one way of trying to achieve environmental care, but usually not the most effective way. Considering businesses’ point of view (society also has obligations towards them), this paper argues that ethically motivated ‘compliance’ must be considered, if one wishes to see things happen, as a residual, and a random residual at that; or, stated otherwise, as a bonus. It is unlikely to solve the problem of unprofitable environmental care or contribute more than marginally towards it. At the same time, in the corporate world of firms quoted on the stock exchange, environmental management, accounting, and risk management are rapidly growing. This paper sets out to explain why by highlighting where ethics really matter: not so much with business managers as with their stakeholders, those who are demanding environmental care, and with government, whose own mandate is to allow the ethical (and economic) concerns of stakeholders to be efficiently ‘internalised’ by businesses. An appropriate mix of regulatory and incentive mechanisms is the answer. The more efficient these are, the smaller the gap between business practices and stakeholders’ concerns. For corporations, strictly regulated financial markets are playing a decisive role (investors, shareholders, lenders, insurers). The paper tries to glean the lessons for small, non-quoted businesses like farming operations.
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Contents
1. Introduction
2. Trends in business management of the environment
2.1 A unique
trend or different trends?
2.2 Environmental care: genuine or just apparent?
3. Explaining the trends: ethics or economics?
3.1 Factors
invoked as explanations
3.2 Ethics and economics: two competing paradigms?
4. The ethical paradigm and the reality of economics
4.1 Ethics as
an explanatory paradigm: why environmental commitment?
4.2 Ethics as a policy tool : the economics of ethics
5. The economic paradigm and the reality of ethics
5.1 Defining
ethicality
5.2 Amorality: a focus of competitive equilibrium
5.3 "The tyranny of the bottom line"
5.4 Strategic accounting
5.5 Time preference and willingness-to-gamble: the ethics of
economics
6. Implications for business decision making
6.1 Strategic
stakeholder rationality: anticipating legitimate rights
6.2 Market governance and ‘ethical incentives’
7. Implications for public policy and social pressure
7.1 The role of
government : direct versus indirect policies
7.2 Public intervention models : who does what best?
7.3 The role of civil ‘moralising’ forces
8. Conclusion
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Citation: Schilizzi, S. (2000). Ethics and the economics of environmental care. (SEA Working Paper 00/014). http://www.general.uwa.edu.au/u/dpannell/dpap00014.htm
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