JOHN M. POLIMENI ASSOCIATE PROFESSOR, ALBANY COLLEGE … · JOHN M. POLIMENI ASSOCIATE PROFESSOR, ALBANY COLLEGE OF PHARMACY AND HEALTH SCIENCES, USA [email protected] Abstract

Annals of the „Constantin Brâncuşi” University of Târgu Jiu, Economy Series, Special Issue / 2018

„ACADEMICA BRÂNCUŞI” PUBLISHER, ISSN 2344 – 3685/ISSN-L 1844 - 7007

SURVIVING SOCIOECONOMIC SYSTEMS? SOME CONCEPTS AND AN EXAMPLE

RALUCA I. IORGULESCU

SENIOR RESEARCHER, INSTITUTE FOR ECONOMIC FORECASTING−NIER, ROMANIAN ACADEMY, ROMANIA

[email protected]

JOHN M. POLIMENI ASSOCIATE PROFESSOR, ALBANY COLLEGE OF PHARMACY AND HEALTH SCIENCES,

USA [email protected]

Abstract

Similar to ecosystems, socioeconomic systems, economies embedded in the environment, are characterized by their own metabolism which uses energy and material flows to maintain and reproduce itself. Sustainable socioeconomic systems require eco-efficiency. The European Commission’s ‘green’ approach to corporate social responsibility is that companies are responsible for their impact on society and the natural environment and also for the behavior of their business partners. For socioeconomic survival analysis it is imperative to mention that together with the beneficial aspects of ‘greening’ industrial activity (supporting increasing levels of global consumption under the ‘economic growth’ development paradigm) are packaged great risks. This paper discusses the need for eco-efficiency, corporate social responsibility (CSR) and eco-innovation, bearing in mind the risks that transnational value chains could bring for the less developed countries. The case of Romania’s eco-innovation performance over the years is discussed. Keywords: eco-efficiency, corporate social responsibility, eco-innovation index, socioeconomic metabolism. Clasificare JEL: Q54, Q01, F64 1. Introduction

The dangerously rapid pace of climate change calls for an accelerated societal switch from a

dependency on fossil resources and fossil-based industrial production to an environmentally sustainable, clean, industrial structure.

This paper offers a quick overview of some of the main concepts associated with the perpetuation of socioeconomic systems, such as the environmental aspect of corporate social responsibility (CSR), eco-efficiency, and the associated risks. In the European Union, the eco-innovation index (EcoI Index) is used to monitor member countries’ green growth [8]. Romania’s eco-innovation performance over the years [9-11] is a starting point for a case study. 2. ‘Green’ corporate social responsibility (CSR)

Murphy [25] presents the early evolution of CSR and shows how the environmental aspect of CSR began during the period 1953–1967, labeled as the awareness era, with the “recognition of the overall responsibility of business and its involvement in community affairs”. In his view, the next five years, 1968–1973, represent the issue era with concern about, among many others, “pollution problems” and “the need to assess the social impact of technology”. For the following decades, Carroll [6] provides an extensive overview of the literature clarifying the extent of those CSR issues including the concern for the environment.

The international public approach to CSR can be exemplified using the European Commission [12] definition as “a concept whereby companies integrate social and environmental

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concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.” The definition used by the United Nations Industrial Development Organization (UNIDO) is the same adding that such a company “achieves a balance of economic, environmental and social imperatives (“Triple-Bottom-Line Approach”), while at the same time addressing the expectations of shareholders and stakeholders” and listing the key issues at stake “environmental management, eco-efficiency, responsible sourcing, stakeholder engagement, labour standards and working conditions, employee and community relations, social equity, gender balance, human rights, good governance, and anti-corruption measures.” [32]

When discussing the concept of industrial clusters (and especially for the case of green clusters), we adopt the suggestion made by Lund-Thomsen et al. [23] to consider the use of Blowfield and Frynas’s [5 p. 503] definition of CSR: an umbrella term for a variety of theories and practices all of which recognize the following: (a) that companies have a responsibility for their impact on society and the natural environment, sometimes beyond legal compliance and the liability of individuals; (b) that companies have a responsibility for the behavior of others with whom they do business (e.g., within supply chains); and (c) that business needs to manage its relationship with wider society, whether for reasons of commercial viability or to add value to society. 3. Eco-efficiency

Eco-efficiency has its conceptual start in Rachel Carson’s 1962 [7] Silent Spring. Almost three decades later, in 1990, the United Nations Environment Programme (UNEP) defined the concept of cleaner production as “the continuous application of an integrated preventive environmental strategy applied to processes, products and services to increase overall efficiency and reduce risks to humans and the environment” [16 p. 3325].

In 1992, the World Business Council for Sustainable Development (WBCSD) clarifies that “Eco-efficiency is achieved by the delivery of competitively priced goods and services that satisfy human needs and bring quality of life, while progressively reducing ecological impacts and resource intensity throughout the life-cycle to a level at least in line with the Earth’s estimated carrying capacity.” [29]

Later on, the OECD [26 p. 7] offers its definition for eco-efficiency: “the efficiency with which ecological resources are used to meet human needs” and measures it as a ratio of an output (the value of products and services produced by a firm, sector, or economy as a whole) divided by the input (the sum of environmental pressures generated by the firm, the sector, or the economy).

The European Environment Agency (EEA) offers its version of a definition: “A concept and strategy enabling sufficient delinking of the ‘use of nature’ from economic activity needed to meet human needs (welfare) to allow it to remain within carrying capacities; and to permit equitable access and use of the environment by current and future generations” [24 p. 35]. The 1998 workshop organized by the EEA and the Factor-10-Institute in co-operation with World Business Council for Sustainable Development (WBCSD), European Partners for the Environment (EPE), Nordic Council of Ministers and Austrian Federal Ministry for the Environment, Youth and Family Affairs was focused on linking eco-efficiency, resource productivity and innovation.

In 2012 [21], the concept was standardized by ISO/DIS 14045: “Eco-efficiency is a quantitative management tool that enables the consideration of life cycle environmental impacts of a product system alongside its product system value to a stakeholder”.

Eco-efficiency is a central topic within the framework of industrial ecology. Although the industrial ecology concept was coined since the 1940s, the field did not become mainstream until 1989 with the publication of two groundbreaking papers. The first one by Robert U. Ayres [2] was on industrial metabolism. The second one, by Frosch and Gallopoulos [13], was asking “why would not our industrial system behave like an ecosystem, where the wastes of a species may

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be resource to another species? Why would not the outputs of an industry be the inputs of another, thus reducing use of raw materials, pollution, and saving on waste treatment?” giving way to the development of the concept of ‘Eco-industrial Park’. 4. From ecopreneurs to green clusters

Isaak [19 p. 80] defines ecoprenuring as “system-transforming, socially committed environmental businesses characterized by breakthrough innovation” with the focus placed on ecological-purpose business ventures.

The definition proposed by Kirkwood and Walton [22] is largely accepted; ecopreneurs are “those entrepreneurs who start for- profit businesses with strong underlying green values and who sell green products or services.”

Thompson [31 p. 11] defines an environmental entrepreneur as “A person who habitually creates and innovates to build something of recognized and economic value around perceived opportunities”.

For Holt [18 p. 6], the ecopreneurial businesses can be defined as profit generating businesses where environmental considerations are key to the business culture, product or service. They may include consideration of social values but as part of a synergistic balance with environmental concerns within a broader sustainability focus. They may start up with an environmentally based product or process, or have transformed to consider environmental issues as an integral component of their business culture.

When getting into more details regarding the type of ecopreneurial businesses, they can be classified as ‘green businesses’ (moving an existing firm towards environmental responsibility) and ‘green-green businesses’ (a business designed in process and product to be green as a start-up) [20 p. 43].

Bennett’s 1991 [4] book Ecopreneuring: the complete guide to small business opportunities from the environmental revolution is considered in the literature as an important publication on the concept of ecopreneurship presenting a ‘best practice’ collection of early examples of businesses (many of them small). A decade later, Holt [18 p. 15] looked again at how those ecopreneurs traveled and found that some of those “former small ecopreneurs now have a huge influence through their power as multinational enterprises, amongst their employees, customers and suppliers to promote their environmental and social values.”

If the environmental aspect of CSR was geared initially toward corporations, for small businesses green innovation could be the chance to challenge larger firms in providing consumers with green products. Robinson and Stubberud [27] examined the case of green SMEs in Germany through analysis of data from over 70 000 small businesses regarding their efforts in environmental innovation.

More recently, Santini [28 p. 2] provided an extensive literature review on ecopreneurship showing that if

“initially ecopreneurs were seen as solitary heroes that were committed to spreading the gospel of a green vision to a naïve marketplace, today they are business people who are determined to gain a reasonable market share in the relatively competitive environment.”

Green products manufactured by green industries such as bio-based plastics, advanced-packaging, bio-chemical, phyto-pharmaceutical, advanced biofuels, automotive, eco-construction are based on renewable biological resources (specialty crops, agriculture, forestry, fisheries and the utilization of biowaste). In recent years, the emergence of green clusters from green businesses geographically close to one another gained increasing support. In addition to the environmental benefits, such a business cluster allows for economies of scale, making green businesses, often more costly to operate, more competitive on the open market. Among many others, Tagar and

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Cocklin [30] argue “that would lead to the emergence of greater collaboration among new eco-ventures in the form of pooled resources and the sharing of knowledge” [3 p.59]. 5. Risks of industrial greening

The risks associated with an extensive and fast development of green industrial clusters and global value-chains (GVCs) to support increasing levels of consumption under the same development paradigm (economic growth) relate to:

• illegal forest clearance; • exaggerated intensification of monoculture crop growing; • destroying biodiversity by massive wild harvesting; • Jevons’ paradox [1]; • rebound effect [17]; • socially irresponsible behavior of industrial clusters in developing countries [23]; • non-sustainable CSR in global supply chains [14 p. 26] due to “accumulating evidence and

recent expose´s about child labor, vulnerable workers, and abysmal working conditions in many export-oriented clusters located in developing countries”.

6. Eco-innovation in Romania The Eco-innovation index shows “the eco-innovation performance of a country compared with the EU average and with the EU top performers.” [11] EcoI Index is calculated as a composite index which aggregates 16 indicators into five components: eco-innovation inputs, eco-innovation activities and eco-innovation outputs as well as environmental outcomes and socio-economic outcomes.

Table No. 1. Eco-innovation index for Romania (2010, 2013 and 2017) Eco-innovation index (EU = 100) 2010 2013 2017

Romania 48 55 65

Source: https://ec.europa.eu/environment/ecoap/indicators/index_en While Table 1 illustrates a seemingly straight increase in Romania’s eco-innovation index,

Figure 1 shows the behavior was actually wavy. Figure No. 1. Eco-innovation index for Romania 2010- 2017

Source: https://ec.europa.eu/environment/ecoap/indicators/index_en

In 2010 (Figure No. 2), the eco-innovation index indicates that Romania’s performance is

considerably below the EU average, with a very low eco-innovation performance [9].

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Figure No. 2. Eco-innovation index for Romania (2010)

Source: EIO (2010)

Of the five components of the EcoI Index, the Socio-economic outcomes of eco-innovation has the best behavior for Romania (same as the EU average). This component shows the wider effects of eco-innovation activities for society and the economy, such as changes in employment and turnover or exports. Data for the share of goods pertaining to eco-industries in total exports is not available. If the share of the eco-industry turnover in GDP was below the EU average, this would suggest the Romanian eco-industry sector is still small, although the share of eco-industry employment in total Romanian workforce was above the EU average. This indicates the Romanian eco-industry is more labour intensive and less high-tech.

In 2013, the Eco-I for Romania is still below the EU average score (Figure No. 3). According to the yearly EIO report [10]:

“The Romanian business sector’s awareness of their environmental impact has remained low. It is estimated that Corporate Social Responsibility investments focused on the environment amount to 16% of the total areas of investments (which are more focused on education, health and social issues). On average, companies devote only 1% of their turnover to environmental issues, and most of these expenditures go for compliance with regulations, audits and environmental certifications.” [15 p. 74]

Romania’s eco-innovation activities is the only component of the EcoI index that is above the EU average. The ‘eco-innovation activities’ tracks the scope and scale of companies’ eco-innovation activities and it concentrates more on efforts and activities rather than on the actual results. Romania’s status is explained by the strong interest of firms to comply with the standardisation recquired for environmental management.

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Source: EIO (2013)

In 2017, the Eco-I Index for Romania has an above EU average performance only in terms of socio-economic outcomes (Figure No. 4) determined by the relatively high levels of employment and company revenue for firms in eco-industries although their exports are low [11].


Source: EIO (2017)

7. Some concluding remarks

This paper presents some of the main sustainable development concepts argued for to reduce the impacts of climate change. These concepts include eco-efficiency and CSR. A case study of Romania was used as an example, showing the changes that the country has undergone using data such as the EcoI Index.

However, often missed in these discussions are the possible risks associated with the ‘greening’ of industrial production. Those include deforestation, the intensification of monoculture in agricultural production, the destruction of biodiversity by massive wild harvesting, and Jevons’ paradox and the rebound effect. Furthermore, those countries that move towards green industrial production often ‘export’ their polluting production sectors to developing countries creating non-sustainable CSR in global supply chains.

Despite these risks, this paper does not argue that the ‘greening’ of industrial production is

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not an important goal in sustainability. Rather, the ‘greening’ of industrial production is an important step in sustainable development but with the caution that the risks can offset any environmentally sustainable gains and that ‘greening’ must be actual instead of theoretical. For example, this paper used the case study of Romania to show that while the country has made steady improvements in ‘green’ production, much of the ‘greening’ of production is more hype than substance. Therefore, this paper finds that sustainable development practices are necessary to ward off the negative impacts of climate change, but at the same time the negative aspects of these practices must be monitored closely so the negatives do not outweigh the positives.

8. Acknowledgement

This paper presents some results of the study Technological change and the socioeconomic

metabolism, part of the 2018 research program of the Institute for Economic Forecasting-NIER, Romanian Academy.

9. Bibliography

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resource efficiency improvements. Routledge. 2012. [2] Ayres, R.U. “Industrial Metabolism”. In Technology and Environment, J.H. Ausubel and

H.E. Sladovich (eds.), pp. 23–49. 1st. Washington DC: National Academy Press. 1989. [3] Ball, C. S. Energy Policies and Environmental Entrepreneurship: The Cases of Britain,

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[4] Bennett, S.J. Ecopreneuring the complete guide to small business opportunities from the environmental revolution. Wiley: New York. 1991.

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A global business perspective on development and the environment (Vol. 1). MIT Press. 1992.

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[32] UNIDO. What is CSR? [Online]. Available from: https://www.unido.org/our-focus/advancing-economic-competitiveness/competitive-trade-capacities-and-corporate-responsibility/corporate-social-responsibility-market-integration/what-csr

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Documents

JOHN M. POLIMENI ASSOCIATE PROFESSOR, ALBANY COLLEGE … · JOHN M. POLIMENI ASSOCIATE PROFESSOR, ALBANY COLLEGE OF PHARMACY AND HEALTH SCIENCES, USA [email protected] Abstract