Environmental regulation, globalization and innovation - Trade and the Environment - page 280

24 Environmental regulation, globalization and

innovation 1
Nicholas A. Ashford

Introduction
This chapter explores the complex relationship between environmental regulation, inno-
vation and sustainable development within the context of an increasingly globalizing
economy. It will be argued that industrial policy, environmental policy and trade initia-
tives must be integrated, with a deliberate focus on stimulating technological innovation
if trade and globalization are not to undercut progress in sustainable development.
Health, safety and environmental regulation - herein collectively referred to as 'envi-
ronmental regulation' - addresses failures of the free market to internalize many of the
social costs of an industrialized or industrializing economy by requiring the adoption of
measures to protect the environment, workers, consumers and citizens. Regulation is crit-
icized and resisted by many industrial rms, 2 who argue that such measures force some-

times unnecessary 'non-productive' investment that could be better directed to developing
better goods and services and to expanding markets. Further, one of the complaints made
by trading

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rms in industrialized nations is that such measures are not required in indus-
trializing countries that enjoy the competitive advantage of free-riding on the environ-
ment and conditions of work. 3 A more modern view of the e

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ects of regulation on the
economy that results in competitive advantage resulting from regulation-induced innova-
tion derives from the work of Michael Porter and Class van den Linde (1995a; 1995b),
Martin Jaenicke and Klaus Jacob (2004), Jens Hemmelskamp et al. (2000), and Ashford
(1979; 1985; 2000), among others, who argue that there are '

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fi rst-mover' advantages to

fi rms that comply innovatively with regulation, become pioneers in lead markets, and dis-

place suboptimal products, processes and rms.

Globalization has indeed changed the economic landscape. It connects the national
economies in new ways and denationalizes access to information, technology, knowledge,
markets and

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nancial capital. It has also opened up two distinct pathways by which a
national sector or economy can compete in international markets: (1) by producing more
innovative and superior technology that may or may not be

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rst deployed in niche markets
(Kemp, 1994; 1997) and (2) by adopting cost-cutting measures that involve increased
economies of scale, by shedding labor, and by ignoring health, safety and environmental
hazards. While some have argued that globalization also increases the demand for more
protective measures worldwide (Vogel, 1995; Bhagwati, 1997), others have cautioned
about a 'race to the bottom' and an ever-increasing tendency to trade on environmental
(and labor) externalities (Ekins et al., 1994).
Thus we see that there are not only two drivers of economic growth, technology and
trade, but that trade itself can take two diametrically opposed directions, innovation-
driven competition and traditional cost-cutting competition.
Health, safety and environmental regulation is the means by which industrial develop-
ment is forced to become more sustainable, but the absence of strong international

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