Explain Porter and Van der Linde's arguments regardinghowenvironmental regulations should be crafted in order to be effective and to encourage innovation and competitiveness.

Pollution = Inefficiency

Are cases like the Dutch flower industry the exception rather than the rule? Is it naive to expect that reducing pollution will often enhance competitiveness? We think not, and the reason is that pollution often is a form of economic waste. When scrap, harmful substances, or energy forms are discharged into the environment as pollution, it is a sign that resources have been used incompletely, inefficiently, or ineffectively. Moreover, companies then have to perform additional activities that add cost but create no value for customers: for example, handling, storage, and disposal of discharges.

The concept of resource productivity opens up a new way of looking at both the full systems costs and the value associated with any product. Resource inefficiencies are most obvious within a company in the form of incomplete material utilization and poor process controls, which result in unnecessary waste, defects, and stored materials. But there also are many other hidden costs buried in the life cycle of the product. Packaging discarded by distributors or customers, for example, wastes resources and adds costs. Customers bear additional costs when they use products that pollute or waste energy. Resources are lost when products that contain usable materials are discarded and when customers pay- directly or indirectly-for product disposal.

Environmental improvement efforts have traditionally overlooked these systems costs. Instead, they have focused on pollution control through better identification, processing, and disposal of discharges or waste-costly approaches. In recent years, more advanced companies and regulators have embraced the concept of pollution prevention, sometimes called source reduction, which uses such methods as material substitution and closed-loop processes to limit pollution before it occurs.

But, although pollution prevention is an important step in the right direction, ultimately companies must learn to frame environmental improvement in terms of resource productivity.[1] Today managers and regulators focus on the actual costs of eliminating or treating pollution. They must shift their attention to include the opportunity costs of pollution-wasted resources, wasted effort, and diminished product value to the customer. At the level of resource productivity, environmental improvement and competitiveness come together.

This new view of pollution as resource inefficiency evokes the quality revolution of the 1980s and its most powerful lessons. Today we have little . trouble grasping the idea that innovation can improve quality while actually lowering cost. But as recently as 15 years ago, managers believed there was a fixed trade-off. Improving quality was expensive because it could be achieved only through inspection and rework of the "inevitable" defects that came off the line. What lay behind the old view was the assumption that both product design and production processes were fixed. As managers have rethought the quality issue, however, they have abandoned that old mind-set. Viewing defects as a sign of inefficient product and process design-not as an inevitable by-product of manufacturing-was a breakthrough. Companies now strive to build quality into the entire process. The new mind-set unleashed the power of innovation to relax or eliminate what companies had previously accepted as fixed trade-offs.