Tough environment policy needed

Tough environment policy needed

By Anies Rasyid Baswedan

HYATSVILLE, Maryland, United States (JP): Multinational
corporations (MNCs) are the latest version of the modern
corporation. Since the middle ages, modern corporations have gone
through various stages with regard to corporate values evolution.
The history of corporate management shows how corporations
behaved toward labor in the early days of modern business.

Labor was simply considered a "resource", and very little care
and few benefits went to them. There was no social security nor
concern for a healthy working environment. In most industrialized
countries, this kind of labor treatment could only be found in
history textbooks. Labor is now considered an important component
of economic activity.

The same kind of treatment was used toward the environment.
Corporations previously simply considered the environment an
unlimited economic resource. But this viewpoint has also changed.
The environment has come to be recognized as an integrated part
of economic activities that needs to be preserved. This is a
result of the evolution of modern corporate values that took
decades or even centuries to develop in countries that are now
industrialized nations.

On the other side of the globe, in many developing countries,
including Indonesia, the understanding of environmental issues
has not changed and the exploitative treatment of labor itself
has not yet become part of history. Throughout Indonesia, bad
labor conditions, low wages and an unhealthy working environment,
are still common. Compared to corporations in industrialized
countries, Indonesian businesses have not yet undergone this
evolution of corporate values and culture regarding labor and a
modern understanding of the environment. In this older paradigm,
corporations consider environmental issues a threat to their
business since these issues often increase their costs, although
only in the short run.

These two different views toward the environment represent the
gap between corporations in the industrialized and in the
developing countries. This difference should no longer exist
since today's reality shows that the world is facing one and the
same problem, regardless of geographic location: that is, the
degradation of the ability of nature to support the life of all
God's creatures on earth. This degradation is acknowledged as an
outcome of the current technological revolution and economic
behavior.

As the world becomes "smaller", interestingly enough,
corporations expand their operations in the search for new
markets or resources. These corporations are mostly based in
industrialized countries, but they have expanded their operations
to developing countries. Therefore, they face the two different
corporate values that are described above.

The industrialized-country-based and developing-country-hosted
MNCs are a unique case. This is interesting because MNCs in many
ways have the same character as the environmental problem: both
are borderless. The MNCs operate across nation-state boundaries
as do environmental problems. Many environmental problems, such
as global warming and air pollution, are international problems.
But they both also face the same constraints, that is,
environmental policies and standards that vary from one country
to another.

MNCs respond in two ways toward this variation of
environmental standards, the passive method, where they operate
according to local environmental laws or policies and the active
method, where they operate according to the standards of their
home country (Hopfenbeck, 1993). But environmental policy
variation often creates an incentive for MNCs to apply the
passive method where they operate according to the host country's
environmental standards.

According to Porter, an expert of strategic management from
Harvard Business School, private corporations started recognizing
the benefits of being environmentally friendly in the mid 1980s.
Private corporations began taking advantage of environmental
issues as an opportunity for their business.

While Porter's analysis may be true for corporations in
industrialized countries where environmental awareness has
greatly increased over the past 15 years, this opportunity may
not exist when private corporations are operating in less
environmentalistic societies.

Theoretically and ethically, MNCs should be an agent of
environmental awareness all over the world. Baumgartl (1995)
mentioned eight potential roles that could be played by MNCs. Two
of those roles are to become a model for environmentally friendly
production methods and to transfer environmentally related
technologies.

But in most cases, as economic players, MNCs will behave
according to economic values, not moral or social values.
Therefore, expecting MNCs to be an agent of the development of
international environmental awareness without economic incentives
is quite unrealistic.

The MNCs' environmental policies are always related to how
these MNCs prioritize various contributing factors. Table 1 shows
how the MNCs consider those factors in relation to their policies
and concern toward the environment. This figure was drawn from a
survey of 100 corporations including 73 MNCs that are operating
in Indonesia. It was conducted by the Inter-University Center for
Economic Study, Gadjah Mada University.

The MNCs consider government programs and national laws as the
two most important factors in their decisions regarding the
treatment of the environment, higher than the economic motivation
of reducing costs. It is also interesting that MNCs put public
pressure as the lowest of all other contributing factors, with a
considerable gap of index points.

In the case of industrialized countries such as the U.S.,
public pressure is usually considered to be an important factor,
especially after the U.S. developed its policy on Toxic Release
Inventories.

In addition, public pressure in the U.S. could soon translate
into regulations and could be very influential in forcing
corporations to work together concerning important environmental
issues.

In Indonesia, public pressure about environmental problems is
often weak, especially when compared to the severity of
environmental problems in remote areas. In a broader view, this
explains how corporations "adjust" and take advantage of a
country's political reality.

In a country where political power is laid upon the people,
public pressure becomes important. In contrast, in a country
where the people have only limited political power, corporations
are less likely to consider the voice of the people. Instead,
they perceive the government as the most important factor in
their decision regarding the environment. This figure provides an
indirect snapshot on the Indonesian political reality.

Based on Table 1, the government plays a strong role in
determining MNCs behavior while the public is relatively weak.
This shows that the MNCs will generally try to obey the
government's environmental policies. The supply oriented MNCs
have limited contact with the public. For example, the mining
industry, by its nature, operates in remote areas far from public
attention and its products are mostly shipped out of the country.
Only people who have some business connections with the mining
industry will likely understand the situation. Mentioning these
issues in newspapers and magazines is somewhat rare.

The above arguments are likely to support Porter's thesis.
Porter (1996) said strict environmental regulations can prod
corporations to produce more efficient products that will be
valued highly internationally. This does not mean that
corporations will be happy about tough regulations since it will
increase short-term costs and they need to redesign the process
of production. But the benefits of tough standards will be
particularly large in the industries that have international
markets and competition.

The ability to adjust is a key to survival in modern business.
The MNCs that are operating in Indonesia must have those
experiences as well. Since MNCs consider government regulations
important in forming their strategic policies, MNCs will adjust
to external changes such as environmental regulations.

On one hand, Indonesia should not consider environmental
relaxation as a potential factor in maintaining foreign
investment. And on the other hand, the corporations including
MNCs are likely to comply with the government's environmental
policy changes.

The common assumption that tough environmental standards will
reduce the willingness of MNCs to operate in a foreign country
might no longer be true. MNCs are willing to comply with the
government's environmental standards. But are Indonesia's
standards and enforcement good enough to protect the environment?

The writer, alumni of Gadjah Mada University, is currently a
graduate student at the University of Maryland, United States.

Window A: According to Porter, an expert of strategic management
from Harvard Business School, private corporations started
recognizing the benefits of being environmentally friendly in the
mid 1980s.

Window B: On one hand, Indonesia should not consider
environmental relaxation as a potential factor in maintaining
foreign investment. And on the other hand, the corporations
including MNCs are likely to comply with the government's
environmental policy changes.