So goes the old saying, but now it seems disputed. Some ten years ago, the Harvard economist Michel Porter postulated that regulations to protect the environment could have positive effects not only on the environment itself, but on industry as a whole. It could actually become more competitive and have a "win-win" case.

The thrust of Porter's argument is that industry works in a world of dynamic competition. They can, and must, develop their processes, make better use of raw materials and change their products. "Properly designed environmental standards can trigger innovations," he said.

This was in opposition to the "static" view, which basically takes technology, products, processes and consumer needs as fixed.

Critics

Indeed, the Porter hypothesis has received a lot of criticism, because no doubt quite a few economists were hurt. Some argued that environmental regulation was all bad, which seems to be based on the idea that industry should be working optimally at all times and everything is fixed, which is exactly what Porter opposed. Some argued that "yes, there is something to it, but…"

Regulations were bad and should instead be replaced with tradeable permits and other "market based" mechanisms. An argument that slightly misses the point since it does not address in full the factors that can be changed in process, product design etc. Some companies may just make the choice to buy themselves off the hook, run the existing process as long as they can and then close down. They could instead have made the choice to rethink their product and processes.

In short, it seems as if the discussion, at least partly, is about different things. Porter talks about industry/company strategy and the critics try to find out what happens on an aggregated level. Doing that is very difficult since we always have the problem of what should have happened if measures were not taken. Porter talks about “innovation-friendly Regulation”, which does not exclude market-based mechanisms. These points are explored by Marcus Wagner (link above).

Some analysis has also dug deeper into the issues of dynamics such as the paradigm the industry operates from and the mind-set of its management.

Relevance for Climate change

These issues were focused again in the Stern-Review when it points to the win-win situation for those who react early to the need to combat GHG-emissions. The critics have woken up to say that countries should restrain themselves and not act too early. There might not be any gains, but just costs.

Well you have heard it so many times from political leaders and from those who lobby for some of the industries. Porter himself made the remark several years ago that the acceptance was "grudging". However, in the case of Climate Change, it is harder to see what anyone could win from waiting. Is it not rather that all have to move and that the early mover does not run the risk that the others will not follow? They will – some sooner and some later - but they will, and the loser is surely among the late ones!

Our grandfathers new about economics and that is why they noted that “the early bird catches the worm”. They were not sophisticated in making equations and diagrams and they were not computerised, but they could tell the difference between winners and losers. Have we inherited their instinct?