Devil's Advocate: Regulating the environment

Who would think global warming and the EC's case against Microsoft have much in common? Martin Brampton, that's who.

Microsoft is on a collision course with the European Commission. The global environment is under threat from global warming. Could there be a connection between these apparently disparate issues?

Our concept of a free market is still based on an image of small producers trading products. Marx wrote of people such as the tailor who made coats, the farmer who grew grain and the distiller who turned grain into whisky. He knew, of course, that most production was at a much less homely scale. But the market assumed free exchange of simple commodities, and indeed some sectors of IT, such as the production of PC motherboards, are highly competitive and innovative.

But the broader reality is that commercial companies have a natural tendency to seek ways to undermine competition. That is precisely the complaint of the European Commission against Microsoft. The software company is threatened with a fine up to 10 per cent of its turnover. Microsoft is strenuously resisting (although it is one of the few IT companies that could easily afford such a fine). Doubtless there will eventually be some kind of compromise settlement.

Companies also seek to turn regulations to their own advantage. We have seen before how company reports have consistently failed to deliver the level of profits that were earlier announced to stock markets as 'pro forma' earnings. Enron was the most extreme example of a company that interpreted accounting regulations to serve its own immediate goals.

Unfortunately, one of the casualties of all this is the global environment. We would all be happy if the only consequence of global warming was long, hot summers in England. In fact there seems to be growing evidence for a decisive increase in extreme weather events, some of which are very unwelcome. The pessimists even suggest that the Gulf Stream, which keeps the UK much warmer than one might expect for its latitude, could go into reverse to make the UK much colder.

Now the trouble with environmental problems is that there is no natural mechanism to ensure that “the polluter pays”. Economic theory gaily assumes that rational decisions will be taken, based on the costs and benefits of various possible actions. Yet this principle collapses when costs can easily be dumped on others. Consequently, we are forced back to regulation, the area of Microsoft’s conflict with Europe.

The market cannot save the environment but governmental regulation is not well placed to do so either. Some governments, notably including the US, are very much influenced by corporate views that support only regulations (such as protection of so-called intellectual property rights) seen as beneficial. Even where governments are willing to act, they find it extremely difficult to be effective.

This is not to vilify individual company executives. They face a situation where if they do not bend the regulations, they are likely to lose business to others who will. So waste disposal contracts tend to fall to those contractors who dump illegally. Companies that are in other respects responsible find themselves contracting out disposal operations to small firms who cannot bear too much scrutiny.

In the US, the response to power failures in and around New York seems to be a loosening of already weak regulation on carbon emissions. With the US already producing more carbon dioxide than the whole of Europe, this is hardly a recipe for holding back global warming.

There seems no solution to these issues without a huge shift in power that would see governments exerting a restraining influence on polluting activity. That in itself would be an enormous political change but it will be ineffective unless it is accompanied by an equally huge shift in attitudes to compliance. The pessimists amongst us fear that such changes will only occur in response to dramatic environmental disasters.

** Martin Brampton is a director and founder of Black Sheep Research (www.black-sheep-research.co.uk ), an independent consultancy providing research, writing and speaking services on a wide range of business and technology subjects. Martin was previously a director at Bloor Research, and has worked with IT as a user and analyst for over 20 years. He can be contacted at silicon@black-sheep-research.co.uk.

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