CityEconomist

Business and Ecology – Regulatory, Taxation and Voluntary Approaches

by John Tepper Marlin[1]

Prepared for the U.S. Society of Economical Economists, Pace University, June 23, 2007.

Abstract: Corporations are nomadic in that they are better able than individuals to leave areas where the rationales for property use decline. The Georgist framework offers insights into environmental policies by and for corporations for three kinds of property: city land, mines and farms. 

City Land: Value Rising with Density. City land has high value based on the density of residential, industrial and commercial use. This density encourages the development and dissemination of urban legends that attract people seeking opportunity. City density also encourages development of specialized skills and higher excellence in fields such as education, art, sport, fashion, retailing and finance. The value of land ordinarily grows with increasing density. However, density brings with it other problems that can cause neighborhood decline, such as crime or transportation problems. Some cities heavily dependent on a single economic sector are also vulnerable to a turndown in performance of this sector. Corporations have moved away when crime rates in a city have become high.

Farms and Fishing: Depletion Potential. The value of agricultural land and fisheries is based on its fertility. This fertility can decrease with careless agricultural or marine policies, as the soil becomes depleted or the water becomes polluted or over-fished. Fertility can increase with careful management. These problems can be acute for corporate monoculture. A common solution of moving on to new lands and fishing areas. While described as nomadic, we should make clear that the Masai – while nomads – left the areas they settled in better condition, because of the concentration of fertilizer, than when they arrived.

Mines: Depletion Likelihood. The value of mining land is linked to the value of the minerals beneath the surface of the land in excess of the cost of extracting them. The value declines as more of the ore is extracted and increases with the price of the ore. Different mining strategies have differing impacts on the value of mines and on the lives of workers and those living near the mines. Oil wells fall into the same category.

Government Regulation and Taxation. Communities and their governments are defined by the real estate that they include. Henry George believed that this land should be viewed as a community legacy. Therefore the thrust of government regulation and taxation should be with an eye to the long run, approximating to what the community would ask from renters if all property were owned in common. The community is interested not only in revenue from rent or property taxes, but also in the impact of corporate activities on the community and the land, since the behavior of corporations can contribute to the value of the land. Governments introduce constraints on corporations to ensure that they are building, mining and farming in the most environmentally friendly way. They impose requirements that corporations:

-         Consult with the community before major changes are made.

-         Be subject to independent monitoring of environmental impact.

-         Provide a safe and humane workplace.

In the case of cities, property values depend on the strength of the local economy, which in turn depends in part on maintaining a transportation infrastructure, fighting crime and other threats to public safety, and providing other services such as quality public education and sanitation. These services require taxes. The nomadic character of corporations means that governments are limited in the extent to which they can impose regulations and direct taxes without seeing corporations leave. In this situation, taxing the property that corporations own or rent is more reliable. The policy issues of service delivery and tax mix are largely at the local government level. Increasingly, corporations seek to connect themselves with the cities in which they do business.  

In the case of farms and fisheries, regulations can limit the extent to which land and water are depleted or polluted. In the past, the landowner and the community have borne the burden of depletion because corporations have been free to move on. Increasingly, corporations have seen the limits to this approach and are seeking to be responsible farmers.

In the case of mines or wells, the issue is sustainability. As ore is extracted, the land becomes less valuable, both because chemicals such as arsenic are used in the mining process and because in order to keep a mine in operation, the miners must go deeper and deeper into the earth. This raises workplace issues as well as environmental ones.

Voluntary Corporate Standards. In developing countries, the power of governments can be weak in the face of nomadic multinational corporations, which can “shop” among different communities for their most profitable options. Corporations have many choices for commercial location or agricultural production. In the case of the extractive industries, corporations have fewer choices because the best sites for extracting ore or petroleum are limited in number. Corporate behavior in these situations has in the past sometimes been coercive. Even in advanced countries, environmental laws may not be enforced (example: of Ferrit in St. Petersburg). Governments can encourage environmentally friendly policies by corporations using the “soft regulation” of incentives, in the terminology of the European Union. Consumers, buyers, lenders, investors and trade associations can also encourage higher environmental in their choices and conditions. 

Standards for City Buildings. In the case of cities, value can be protected by encouraging the development of “green buildings,” solar energy, congestion pricing. The LEED Green Building Rating System is a set of standards introduced by the U.S. Green Building Council. The United States also has the National Association of Home Builders Green Building Guidelines, and in the USA, Canada and UK the Green Globes standards are used. Other countries have their own standards.

Standards for Agriculture. For agricultural operations, especially corporations with land-hungry production functions such as banana farms, the challenge of environmental standards is great. Chiquita, which was a “bitten brand” after a series of critical articles in the Cincinnati Enquirer is paying for its farms to be certified according to both environmental (Rainforest Alliance) and workplace (SA8000) standards.