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Environment, Economy Art Not Foes

A new MIT study has found that strict environmental regulations and controls do not hurt economic growth in contrast to the beliefs and consequent policies of both the Reagan and Bush administrations.

"The 1980s marked the.entrance of the `environmentalism hurts economic prosperity' thesis into federal policy-making.Yet there has been surprisingly little rigorous research to substantiate it," wrote Professor Stephen M. Meyer of political science in a study released October 5 titled "Environmentalism and Economic Prosperity: Testing the Environmental Impact Hypothesis."

So Professor Meyer set out to conclusively determine the validity of this thesis. Specifically, he ranked the 50 US states by "breadth and depth" of environmental programs then compared environmental rank with five different indicators of economic growth (gross state product, total non-farm employment, construction employment, manufacturing labor productivity and overall labor productivity). The data were analyzed with graphs and statistical tests.

"This is the first study to look at each of the states and try to understand what's going on across the nation with respect to environmental policies and economic growth," Professor Meyer said.

He found that during the Reagan New Federalism era, 1982-89, "states with stronger environmental policies did not experience inferior rates of economic growth and development compared to states with weaker environmental regulations." In fact, he wrote, during that period "the environmentally strong states [the first 17 in the ranking] outperformed the environmentally weak states [the last 18] by substantial amounts." (The 15 states in the middle of the ranking were defined as environmentally moderate. Among the New England states MA, ME, VT, and CT were ranked environmentally strong; NH weak, and RI moderate.)

Professor Meyer further noted that "the most dramatic difference [between environmentally strong and weak states] was in construction employment," which grew by about 53 percent among environmentally strong states from 1982-89 but declined by 1.4 percent among weak states. This is an important economic indicator "because it reflects future business plans," Professor Meyer wrote. If industries were unduly burdened by environmental regulations they might be expected to plan moves to-and build new plants in-states with weaker environmental policies. The data refute that this happened.

Professor Meyer took the study one step further by comparing "gains and losses in economic growth between the periods 1973-80 and 1982-89 as a function of state environmental rank."

Such an analysis could catch whether states that loosened environmental controls in the 80s showed greater economic growth in that decade than in the 70s, when many controls were still federally mandated. Conversely, it could also show whether states that remained environmentally strong in the 80s showed no change in inter-decade economic growth, a decline, or less economic growth than their environmentally weak counterparts. All of these findings would be consistent with the environmental impact hypothesis, or the idea that environmental controls hurt economic growth.

Here again, however, the results say no. Professor Meyer found that for three of the five economic indicators environmentally weak states showed considerably less economic growth in the 80s than the 70s (inter-decade growth in overall productivity rose slightly for weak states; manufacturing labor productivity stayed about the same for all three categories of states).

Professor Meyer also found that "the states with higher environmental ranks systematically outperformed those with lower environmental ranks" across the two decades.

Results for both variations of the study appear to refute the environmental impact hypothesis. However, Professor Meyer noted that even the most seemingly unambiguous results can sometimes be explained by other factors, so he explored three other possible explanations.

" that the results are driven by `big state' economies," he wrote. To find out he conducted two other analyses on inter-decade economic growth; in one he used only data from the 25 smallest states (gross state products under $40 billion), in the other only data from the 41 states with gross state products under $80 billion ("thus excluding only the really uncharacteristic economies" such as those of California and New York).

He found that, once more, the results for both analyses refuted the environmental impact hypothesis.

"Another possible explanation.might be the changing economic context," Professor Meyer continued. "That is, changing fiscal, energy, regulatory, and [other] policies [during the time periods studied] may simply [have] swamped the negative effects of environmentalism on the economy."

He concluded, however, that "the argument that one cannot observe the harmful economic effects of environmentalism because they are lost in the noise of contemporary economic an argument that concedes the triviality of the environmental impact hypothesis from both a substantive and a policy perspective."

Professor Meyer also explored whether characteristics peculiar to one or more groups of states might account for the results. For example, he found that among the environmentally weak states several are energy-producing, such as Texas, Louisiana, and Alaska. "It is possible that the boom/bust cycle that rolled through the energy sector in the 1970s and 80s may account for their poor showing-regardless of their relative environmental status," Professor Meyer wrote.

He found, however, that when these states were removed from the analysis the results did not change. He also explored a statistical phenomenon linked to group characteristics that might have affected results, but again found nothing to change the study's conclusions.

Overall, Professor Meyer wrote, the data not only refute the environmental impact hypothesis, but also reveal "a clear and consistent positive relationship between the states' environmental efforts and their economic performance."

He stressed, however, that "while these results may tempt the reader to infer that environmentalism stimulates economic prosperity, any such conclusion at this point would be speculation."

He concluded: "It is clear from the data and analyses presented in this report that the states can pursue environmental quality without fear of impeding economic prosperity. For those who continue to argue that environmentalism hurts economic growth and prosperity the burden of proof now clearly falls on their shoulders."

Professor Meyer's study was conducted through the MIT Project on Environmental Politics and Policy, a new program directed by Professor Meyer that "focuses on the politics of natural resource and environmental policy-making at federal, state and local levels." The study was funded by the MIT Provost's Humanities and Social Science Fund.

Professor Meyer notes that he will be teaching an undergraduate course on environmental politics and policy next spring.

A version of this article appeared in the October 21, 1992 issue of MIT Tech Talk (Volume 37, Number 10).

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