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In Whose Interest?
Pressure Group Politics, Economic Competition and Environmental

Regulation
Author(s): Thomas Bernauer and Ladina Caduff
Source: Journal of Public Policy , Jan. - Apr., 2004, Vol. 24, No. 1, Markets and
Regulatory Competition in Europe (Jan. - Apr., 2004), pp. 99-126
Published by: Cambridge University Press
Stable URL: https://www.jstor.org/stable/4007804
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?fnl Pubi. Pol., 24, I, 99-126 ? 2004 Cambridge University Press
DOI: 10.1017/S0143814X04000054 Printed in the United Kingdom
In Whose Interest?
Pressure Group Politics, Econommic Competition
and Environmental Regulation
THOMAS BERNAUER and LADINA CADUFF' Political Science,

Swiss Federal Institute of Technology (ETH), Zurich
ABSTRACT
One school of thought in the literature on regulatory competition in

environmental and consumer policy argues that inter-jurisdictional com-
petition promotes regulatory laxity. The other highlights rent-seeking as a
major driving force, implying that regulatory laxity is rare because rent-
seeking is omnipresent. We observe that in most areas of environmental and
consumer policy in advanced industrialized countries regulation has become
much stricter since the I970s. What then has been driving environmental
and consumer risk regulation up? A popular explanation holds that large
green jurisdictions have been forcing their trading partners to trade or
ratchet up their regulation. In addition, political economists have developed
bottom up explanations focusing on interest group politics and corporate
behaviour. This article adds to the latter line by endogenising public
perceptions and by exploring the effects of corporate environmental
performance strategies on environmental and consumer risk policy. The
empirical relevance of propositions is illustrated with case studies on growth
hormones, electronic waste, and food safety.
Competition in laxit or rent-producing regulation?
The political economy literature on regulatory competition and its effects in

environmental and consumer policy is dominated by two opposing schools of
thought. One emphasizes competition in laxity, the other highlights rent-
seeking as a driver of regulation. Normatively, the first school tends to view
competition in laxity as a problem, whereas the second school highlights
problems of excessive regulation and associated economic inefficiency. In
this section we discuss the principal arguments of these two schools of
thought and assess their empirical relevance with regard to environmental
and consumer risk policy.

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IOO 77Tomas Bernauer and Ladina Caduff
Basic arguments
Many authors have argued that particularly in integrated (open) markets

states get drawn into a competition in regulatory laxity. Regulation, so the
argument, imposes costs on firms - in fact, states seem to be engaging more
and more in regulation instead of redistribution because the former allocates
the costs to those regulated whereas redistribution imposes costs on govern-
ments and taxpayers (see for example Majone I996; Kelemen 2000). Firms,
if burdened with costly regulation, are likely to vote with their feet, i.e., by
relocating to jurisdictions with laxer regulation, tax evasion, non-compliance
with regulation, and other types of behaviour. Policy-makers, for their part,
incur some of the costs of such corporate behaviour, e.g., voter dissatisfaction
due to higher unemployment when domestic firms relocate and foreign
direct investment dries up, or due to cuts in government programs when
corporate tax income declines. Because they are anxious to retain firms and
capital and attract new investments policy-makers tend to be responsive to
business demands for regulatory laxity (e.g., Daley I993; Donahue i994).
Strategic government behaviour at the international (or, inter-
jurisdictional) level is, in this line of theorizing, viewed in prisoner's dilemma
terms. In the extreme case, this argument predicts a race-to-the-bottom in
terms of ever laxer regulatory standards. In the not so extreme case, it
predicts 'regulatory chill', i.e., inability and/or unwillingness of governments
to raise existing standards.
The second school of thought was initiated by regulatory capture theory,
which challenged market failure justifications for and associated functionalist
explanations of government intervention (Bernstein I955; Stigler I97I;
Richards I999). Public choice theory has developed the capture argument
further. It treats regulation as a commodity (implying transfers of wealth)
that is sold by regulators to the politically most influential societal groups
(Stigler I971; Posner I974; Peltzman 1976; Becker I983). Public choice theory
does not argue that business will always capture regulators (Teske I99I).
However, drawing on Olson's Logic of Collective Action (I965) it holds that
industry is more likely than consumers or the wider public to be effective in
capturing regulators. Industry groups are comparatively smaller in number
and better endowed with resources. Hence they are more effective in
overcoming free rider and other organizational problems - these problems
are presumably a function of group size, resources, and per capita
stakes. Large and heterogeneous public (or civic) interest groups are at a
disadvantage in this respect (Chang I997).
Empirical relevance
In virtually all advanced industrialized countries environmental and con-

sumer risk standards have been raised substantially since the 1970s.

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Pressure Group Politics, Economic Competition and Regulation I01
Implementation of existing standards is by no means perfect, and many

environmental and consumer risk problems are far from being resolved. But
increased standards have contributed to improved environmental quality or
have at least slowed down environmental degradation. Examples include
water and air quality, waste management, energy efficiency, pesticide and
fertilizer use, carcinogenic substances in food, and deforestation. The avail-
able evidence also disconfirms claims that advanced industrialized countries
have become 'cleaner' by shifting polluting industrial activity and waste to
poorer countries with laxer environmental regulation (e.g., Wheeler 2000;
Levinson I996; WTO I999). As noted by Vogel and Kagan (2002) and many
other authors (e.g., Berger and Dore I996; Wheeler 2000), economic open-
ness has resulted neither in policy convergence nor in a race to the bottom.
Moreover, statistical analyses show that trade openness tends to have only
a very limited (and often negative) effect on emissions (e.g., Bernauer and
Koubi 2003; Sigman 2002; WTO I999). In some cases inter-jurisdictional
competition seems to have exerted a regulatory chill effect (e.g., in climate
change policy). But regulatory chill effects appear to be the exception and
not the rule, and there are extremely few examples of regulatory competition
leading to a lowering of environmental standards, for example in terms of
more inflow of foreign direct investment into 'pollution havens' (see for
example, WTO iggg; Jaffe et al. 1995; Revesz I992).
These observations challenge the first school of thought as applied to
environmental and consumer risk regulation. But they also challenge the
second school of thought, albeit in less obvious ways.
On the one hand, one may argue that deregulation and liberalization
reduce rent seeking across the board: more economic competition leads to
more heterogeneous, competing and thus politically less influential demands
for rent-producing regulations, and more liberal governments are less likely
to meet such demands. Assuming that rent seeking is a key driver of
environmental and consumer standards we should observe a stagnation or
lowering of such standards.
On the other hand, one may argue that when subsidies, price fixing,
import quotas, tariffs, and other government measures for limiting compe-
tition are dismantled firms will increasingly try to substitute these traditional
measures for more complex regulation that is easier to defend. Environ-
mental and consumer risk regulation may, in this context, serve to transfer
wealth from consumers to industry, for example by mandating higher quality
and thus more expensive products (e.g., low emission vehicles, refrigerators
without CFCs). However, the public is likely to view such measures as more
legitimate than traditional measures for limiting competition. This argument
holds that increased economic competition has not eliminated rent seeking.
But it has driven firms into new forms of rent seeking, notably rent seeking
through stricter environmental and consumer risk regulation.

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I02 7homas Bernauer and Ladina Caduff
The evidence on increased environmental and consumer risk standards

and on improved environmental and public health outcomes obviously casts
doubts on the first type of rent seeking argument. In this article's section
on industrial competition we will also challenge the second rents-focused
argument by claiming that straightforward rent seeking in environmental and
consumer policy is very rare and usually unsuccessful. Viewing the stringency
of environmental and consumer standards as a function of opportunities for
rent seeking is too simplistic and probably wrong. In other words, we agree
with both arguments that increased economic competition has reduced
opportunities for crass rent seeking. But we disagree with the first argument
that this has had a negative effect on environmental and consumer risk
regulation. And we disagree with the second argument that this has promoted
rent providing environmental and consumer risk regulation - instead we
argue that corporate environmental performance strategies, which rarely
provide rents, defined as socially costly pursuit of income and wealth transfer
(Drazen 2000: 335),2 but enhance firms' competitive position, are increasingly
important driving forces in environmental and consumer policy.
M4/hy is there vegy little competition in laxity?
Political economists and political scientists have offered a plethora of

explanations for why competition in laxity remains rare in environmental
and consumer policy.
Some political economists have pointed to the limited effect of environ-
mental and consumer risk regulation on firms' production costs (usually
around I-5 per cent) -to the extent that this effect is weak firms are
obviously less likely to fight for laxer standards (e.g., WTO I999; Wheeler
2000). Others have pointed to the so-called Kuznets effect, i.e., that
economic growth, stimulated by deregulation and liberalization, has a
positive impact in many areas of environmental and public health protection
as richer consumers and voters, particularly those in democratic countries,
successfully demand higher standards (e.g., Bernauer and Koubi 2003).
While these analyses are useful in terms of producing highly generalizable
insights, explained variance in environmental and public health outcomes
remains rather low. Moreover, policy processes that lead to particular
outcomes are not illuminated.
In explaining variation in the form and stringency of environmental and
consumer risk regulation political scientists have stressed the role of political
entrepreneurs (Wilson I980; Moe I980; Meier I989; Majone I996), the
influence of ideas (Derthick and Quirk I985; Vogel I996), and characteristics
of institutions and/or policy issues (Gormley I983, I986). They have,
notably, been interested in explaining when and how majoritarian politics
wins over concentrated business interests (Teske I99I).

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Yet other political scientists have focused on interactions between juris-

dictions, with work by Dale Murphy, Fritz Scharpf and David Vogel
providing the starting point for a growing body of literature on 'trading up'
processes and regulatory federalism in environmental and consumer policy.3
Early versions of this theory (see Vogel I996; Murphy I995) claimed that in
open markets large and green jurisdictions transmit their environmental
preferences to their trading partners. Particularly in the case of product
regulation they can force exporters to lift their standards up to the level
demanded by importing jurisdictions (e.g., Swire I996; Scharpf I996, see also
figure i, conclusion). Examples include automobile emission, food safety
standards, and CFC-free appliances.
More recent versions of this argument (e.g., Vogel and Kagan 2002;
Bernauer 2003) assume that in highly integrated markets, such as those of the
EU or the United States, where goods are by law allowed to flow freely
across the boundaries of the subunits (e.g., EU member states, US states),
differences in product and process regulation can be problematic (see also
Holzinger and Knill, this issue).
Interest group politics
All of the above explanations involve assumptions about 'bottom up' forces
in regulatory policy. For example, theories of competition in regulatory
laxity and public choice theory assume that industry interests tend to
dominate over consumer (or public) interests. In the former theories,
industry is assumed to favour laxer regulation because laxer regulation
increases firms' international competitiveness. In the latter theory, industry
is assumed to favour stricter regulation because such regulation offers rents.
Trading-up arguments, for their part, assume 'green' public preferences
in large importing jurisdictions and their transmission to firms (and
governments) abroad via international trade and multinational corporations.
We propose to refine these rather simplistic assumptions about consumer
and producer preferences and their effects on regulation and environmental
or public health outcomes along two lines. First, we develop an interest
group politics argument that endogenises public perceptions, regulators'
preferences and other factors largely ignored in theories of this nature. The
empirical relevance of this argument is illustrated with a case study on
growth hormones. Second, in the subsequent section we disentangle the
aforesaid contradictions between public choice and regulatory laxity argu-
ments with regard to producer preferences by exploring why and how firms
may seek stricter regulation to enhance their competitiveness. We also assess
the effects on regulatory policy. The empirical relevance of this argument is
illustrated with case studies on electronic waste and HACCP (a system for
controlling food safety).

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104 TIhomas Bernauer and Ladina Caduff
In this section we illuminate interactions between interest groups, voters,

and politicians. We begin with a discussion of conditions under which NGOs
can organize effectively, with a focus on the effect of public perception on
NGO behaviour. We then explore interest group strategies for influencing
politicians and voters, in particular informational activities aimed at the
larger public and policy-makers.
Public concerns over environmental or consumer issues
The starting point for an answer to why the producer dominance hypothesis
appears to be inconsistent with the empirical evidence in many cases of
environmental and consumer regulation can be found in Mancur Olson's
'Logic of Collective Action'.4
Olson observed that some groups are more likely to organize collectively
because they are more adept at overcoming free-rider problems than others.
Specifically, he hypothesized that large (latent) groups are difficult to
mobilize. The underlying logic is as follows. Consumer and environmental
organizations are pressure groups that offer a 'collective good', that is,
consumer or environmental protection. The production of collective goods
is usually plagued by a free-rider problem.
We pick up at this point and assume that NGOs are aware of their
collective action problem, and that they follow a rational strategy (such as to
try and maximize their budget or other utility). NGOs will, therefore, tend
to focus on issues that allow for maximum mobilization of membership,
fundraising, and public support more generally. Public concerns or risk
perceptions are likely to be decisive in determining the 'winability' of an
issue from an NGO perspective (Meins 2003; Gormley I986).
The extent to which public concerns become politically relevant is largely
a matter of public risk perceptions5 and the problem solving capacity of
regulators, particularly as expressed by the effectiveness of previous risk
management policies (Caduff 2003). If the public in a given country is more
critical or fearful of a particular technology (or risk more generally), in ways
and for reasons to be identified, NGOs are likely to be more successful in
mobilizing their memberships if they decide to campaign for more regu-
latory restrictions. Furthermore, if particular risk regimes are characterized
by weak institutional rules for addressing public distrust, low transparency in
decision making, delayed action in the face of critical events, and severe
implementation failures, public trust in regulatory institutions and the
creators of risk, that is, industry, will erode, whereas NGOs' credibility with
the public will increase (see also Jacobsen 2002). In other words, we expect
that NGOs will organize around a particular policy issue and campaign for
regulatory restrictions more extensively and successfully if public concerns or
fears about a given technology or consumer or environmental risk are strong

13.239.75.78 on Thu, 19 Jan 2023 07:00:16 UTC
and public trust in the risk management capacity of regulatory institutions is

low.
Whether public concerns are a cause or a consequence of NGO activities,
or whether the relationship is interactive, remains unresolved in theorizing
and empirical research on environmental and consumer policy (Bernauer
2003, Berry 2ooo, Rawcliffe I998). Many analysts of environmental and
consumer policy assume that NGOs have often been the principal instigators
of public concerns over consumer or environmental risks. The above
argument suggests, however, that the cause-effect relationship may also
work the other way around, namely, that NGOs are predominantly
opportunistic actors piggy-backing on pre-existing public risk perceptions.
The propositions outlined below allow for both types of effects.
NGOs as public opinion leaders
Access to and ability to provide policy-relevant information are important

sources of interest group influence in regulatory processes. Policy-makers
tend to value such information in calculating the costs and benefits of
regulatory options and in deciding whether to change the status quo, and if
so, whether to move toward stricter or laxer regulation. Moreover, because
the average voter has little incentive to incur the cost of studying regulatory
issues in detail, the public tends to be receptive to information provided by
interest groups (Grossman and Helpman 200I: 7).
Though it can be very costly for interest groups to acquire and
communicate information on regulatory issues they have strong incentives to
do so, that is, to supply information to policy-makers and the public when
they perceive promising opportunities for shaping public opinion and
influencing policy decisions. However, interest groups find themselves in an
'informational competition' with one another. Each interest group is trying
to convince policy-makers that its favoured policy is beneficial or at least not
politically damaging to them. In addition, each interest group is trying to
convince voters who tend to update their preferences only when they trust a
given interest group's information and when that information is relevant to
voter concerns (see also Grossman and Helpman 2001: I87).
We now connect these assumptions to the above proposition on the
impact of public perceptions on NGO strategies. Specifically, we submit that
NGOs tend to become more important as an informational source of the
general public relative to industry interest groups when public concerns over
a consumer or environmental risk are strong. The stronger public concerns
are, the more effective NGOs are likely to be in shaping public opinion. And
it is primarily through their influence on public opinion that NGOs are able
to influence policy-decisions.

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io6 Thomas Bernauer and Ladina Caduff
Information provided by NGOs tends to be particularly relevant to the

average voter (consumer) when it pertains to risk regulation with direct,
tangible and short-term benefits. Risks of this nature and benefits of
regulation mitigating such risks are largely individualized (Caduff 2003). In
some empirical cases it even turns out that the benefits of such risk regulation
are not public but private in character - such benefits involve private
health-related consumption goods (Reinhardt 2000). Typically, voters and
consumers tend to be more aware of such risks than of risks of a more diffuse
nature whose mitigation produces diffuse benefits for society as a whole.
While regulation on food safety tends to focus on risks and benefits of the
former nature, many environmental statutes centre on risks that materialize
mostly over the long-term and whose mitigation produces more diffuse and
indirect benefits.
Organizing around an issue of strong concern to the average voter or
consumer enables NGOs to obtain or enhance a reputation as defenders of
important public interests. It increases their credibility with the public and
therefore also their capacity to attract public trust. Public trust, in turn, is one
of the most powerful assets of NGOs in the political and market place (Aerni
2002, 2003; Rawcliffe I998). Under such conditions, the mass media can
amplify NGO influence, for it tends to have stronger incentives to provide
publicly trusted environmental and consumer organizations with a broader
platform for publicizing their statements. In some cases, the media may also
join hands with NGOs and actively support NGO demands. Increased
media coverage tends to increase public awareness and public concerns,
which increases NGOs ability to raise funds, mobilize members and
eventually attract new supporters of their cause. By using the mass media as
a low-cost vehicle for informational activities NGOs can often act as
opinion-leaders, with evident implications for voters' preferences with regard
to environmental and consumer policy issues. Interest groups opposing
stricter regulation tend to be disadvantaged in this struggle for public
support. They usually receive smaller media coverage and enjoy less public
trust than NGOs because they are perceived by the average voter as seeking
private and not public benefits. Hence they are more likely to lose on the
'information front'.
Because of their increased capacity to organize, and because they tend to
enjoy more public trust than industry interest groups, NGOs can also take
more effective action against producers. They can, for example, organize
boycotts of specific products, firms, or even entire industries, or launch
public campaigns aimed at tarnishing the image of firms, industries, or
products.6 The stronger public concerns over a particular issue are, and the
more information on this issue NGOs are able to provide, the larger the
boycott will be and the earlier it will occur (see also Baron 2002). Through
such action environmental and consumer groups can bring about changes in

13.239.75.78 on Thu, 19 Jan 2023 07:00:16 UTC
producers' preferences and behaviour in the market place, with evident

implications for regulatory processes.7
To summarize, focusing on an issue of high relevance to the average voter
enables NGOs to acquire more public trust than industry interest groups,
and to act as the public's principal source of information. As a consequence,
voter preferences with respect to the issue of concern tend to shift towards
the policy proposed by NGOs, usually toward preferences for stricter
regulation. Policy-makers know that the average voter is being informed
(and influenced) by environmental and consumer groups (Grossman and
Helpman 200I: 29). Concerned with their re-election policy-makers thus feel
obliged to opt for stricter environmental or consumer protection, no matter
whether stricter regulation increases aggregate welfare or not, and no matter
whether stricter regulation is fully consistent with policy-makers' preferences.
If NGOs can team up with producer groups, not moving towards greater
regulatory stringency would be even more politically damaging to policy-
makers. In the next section we will focus on when and why producer groups
join hands with NGOs.
Interests and influence ofproducer groups
The conventional political economy model of regulation holds that stricter

environmental or consumer protection standards are more likely to be
enacted if producers can benefit economically (in terms of rents) from the
particular regulation. In principle, stricter regulation can yield at least two
types of benefits to producers, the expectation of which motivates firms to
seek stricter regulation.
Protectionist benefits. Environmental and consumer protection will tend
towards greater stringency particularly in areas where regulation can be
designed to shield import-competing domestic firms from foreign competi-
tion. The assumption here is that producer demand for import-restricting
regulation is likely to attract more political support if justified in terms of
protecting public health and the environment, rather than in terms of
protecting domestic firms. The latter is more difficult to justify and defend
because it transfers wealth from domestic consumers to domestic producers.8
Domestic economic benefits. Similar to the argument on protectionist rents,
this argument assumes that firms' interests are shaped by industrial structure
and that firms seek to improve their competitive position through regulation.
But in contrast to the regulatory capture and rent-seeking argument in
conventional economic theories of regulation9 this second argument does not
assume that there is a single industry with homogeneous interests within a
given country. Individual firms or groups of firms within a specific industry
may lobby for stricter or laxer regulation, and for harmonized or particu-
laristic regulation, depending on differences in industrial structure and

13.239.75.78 on Thu, 19 Jan 2023 07:00:16 UTC
io8 Thomas Bernauer and Ladina Caduff
competitive position. For example, some large firms may lobby for stricter
environmental or consumer regulation that would be too costly for smaller
firms to implement, whereas smaller firms within the same industry and the
same country oppose such regulation.'0
We now connect these arguments to the above proposition on the political
power of NGOs. An issue of high concern to the average voter and
associated campaigns by environmental and consumer groups can exert
'pull' and 'push' effects on producers (industry). Public concerns and NGO
campaigns can act as facilitators for rent-seeking by producers. 'Strange
bedfellow' coalitions of environmental/consumer and producer interests that
lobby for the same stricter regulation, but for different reasons, are
expressions of this possibility. Such pull effects can weaken producer
coalitions that oppose stricter regulation to the extent that incentives to
'piggy-back' on public concerns and NGO campaigns differ across firms or
types of producers in a given industry. Public concerns and NGO campaigns
can also exert 'push' effects by coercing producers that do not expect to
benefit from stricter regulation into supporting or tolerating such regulation.
Again, differences in industrial structure and competitive position of firms
are likely to determine the extent to which particular producers in a given
industry are more or less susceptible to push effects. For example, some
producers may be more vulnerable to public pressure and NGO campaigns
than others because they have valuable brands to protect, or simply because
they are bigger, which makes them a more attractive target for NGOs. In
addition, organizational and economic rigidities in particular economic
sectors may also shape the extent to which push effects translate into changes
in industry behaviour. For example, low economic concentration and poor
political organization may (paradoxically, at first glance) make certain
industrial sectors less vulnerable to NGO campaigns.
In summary, the argument outlined here holds that public concerns and
NGO campaigns generate pull and push effects on producers. Contingent on
differences in industrial structure, the extent to which these effects weaken
producers' political power will vary across issues and countries.
Empirical illustration: growth hormones in beefproduction
Hormones can be administered to animals to promote faster growth and

muscle build-up. " On average, a hormone-treated animal will grow faster by
I5 percent. The associated decrease of production costs for the farmer is io
to I5 percent. The economic benefits of growth hormone administration are
most substantial in large-scale meat production, where the amount of feed
and the attainment of the proper slaughter weight within a fixed time-period
are crucial in determining profits.

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In I985 the EU banned the use of hormones for purposes of growth

promotion in beef production. The relevant regulations have been justified
as reducing health risks posed by the banned practices. The EU's regulatory
activity in this area started in I980, when hormone use in livestock breeding
developed into a controversial public health issue that culminated in the veal
hormone scandal of I980, the so-called 'Italian infant scandal'. This case,
and others which became public in Europe around that time, were traced
back to the injection of prohibited anabolics into the edible tissues of calves
(European Parliament 1995/W12:7). This practice had contaminated entire
foodstuffs, for example, baby food produced in Italy, which contained traces
of diathylstilboestrol (DES), an illegal synthetic hormone (Die Zeit I988/44).
The press soon thereafter reported that DES-enriched veal in baby food had
led to abnormally large genitals and the onset of menstruation among young
children.
European consumer organizations immediately organized around the
issue and began campaigning for a ban on growth hormones. Taking
advantage of pre-existing public concerns about food safety they followed a
strategy of amplifying public concerns over hormone treated beef. In so
doing, NGOs engaged in a broad range of informational activities: they
released several scientific reports on the health risks of hormone use,
published a substantial amount of articles in the daily press, and invested in
TV campaigns aimed at informing the public of the risks of hormone treated
meat. The media largely supported NGOs in their lobbying against growth
hormone use, arguing that the long-term health effects of these hormones
were not known, and that the hormone scandals had clearly shown that
existing regulations could not sufficiently protect consumers. NGOs also
received support from the European Parliament (EP), which, as many
observers have noted, took advantage of the controversial and highly
publicised debate on consumer protection to establish a stronger position
within the EU system (see for example Eichener I996). By confronting
the obvious abuse of growth hormones, consumer organizations, supported
by the media and the European Parliament, positioned themselves as
trustworthy promoters of 'the public interest'.
Consumer organizations also engaged in more costly forms of lobbying
activity, including the initiation of boycotts against hormone treated meat.
When NGOs realized that many consumers began boycotting veal products
on their own (Die Zeit ig8o/No.44), they started to take direct action against
producers. In France and Germany, the French Consumers Union organ-
ized a veal boycott, which, with the help of the European Consumer
Organization (BEUC), spread to the whole of Europe. As a consequence,
food product chains like Alete and Hipp pulled their veal products off the
market (Der Spiegel I985/46: I53). Veal prices dropped by I3 per cent in
France, and fell in Belgium, West Germany, Ireland and the Netherlands

13.239.75.78 on Thu, 19 Jan 2023 07:00:16 UTC
I1I0 Thomas Bernauer and Ladina Caduff
(Cohen I980: 2). Sales of meat dropped by 50 per cent in France and West
Germany during the boycott (Der Spiegel I982/3:76). Since the agricultural
policy of the EU at that time provided for guaranteed fixed purchases, the
unsold veal of that year resulted in a loss of io million ECU to the EU's
budget (Europe Daily Bulletin I985/4042:8).
European producers of growth hormones, organized in the Federation of
Animal Health (FEDESA),12 tried to convince the public and policy-makers
not to prohibit growth hormones, but to begin more systematic scientific
investigation of their public health effects (Economist I984, Feb 25). FEDESA
even tried, unsuccessfully, to shape public opinion by warning regulators and
the public that banning growth hormones could lead to more illegal and
dangerous growth hormone use: 'Remember the US alcohol prohibition
laws? Contraband was rife and the black market flourished!' (FEDESA
campaign, quoted in Brand and Ellerton I989: 4,5).
Producers were clearly disadvantaged in competing for influence on
public opinion, mainly for two reasons. First, highly publicised hormone
scandals and associated NGOs campaigns had led to an erosion of public
trust in producers and regulatory institutions, whereas NGOs' credibility
with the public increased. FEDESA's large investments in public relations
campaigns failed in turning this trend around (Brand and Ellerton I989).
Moreover, government authorities failed to fully inform the public on the
issue, which added substantially to escalating public fears of growth
hormones (European ParliamentWI2/I995:8). Second, FEDESA's position
on the issue was weakened by the fact that some producer groups joined
hands with NGOs. Through boycotts and lobbying activity, consumer
groups exerted 'pull' and 'push' effects on producers. On the one hand,
public concerns and NGO campaigns facilitated rent-seeking by some
producer groups, notably, import-competing, family-owned farmers in Italy,
France, and some other countries, which did not use growth hormones.
These producers tried to capture protectionist rents vis-'a-vis foreign com-
petitors as well as domestic economic benefits vis-'a-vis more efficient,
large-scale EU meat producers. On the other hand, market developments
made clear that consumers demanded 'natural' products. This had evident
implications for farmers using growth hormones, wholesalers, and retailers.
Fearing further losses, these producers decided to provide higher beef
quality, that is, hormone free beef. To avoid competitive disadvantages
(hormone use lowers production costs), however, they demanded strict
implementation of the ban in all EU member states, as well as an
internationalization of EU policy, i.e., an import ban on hormone-treated
meat from third countries. These demands were met in I989.
When, in I989, the EU's hormone ban was extended to imports from
third countries, US meat producers began to experience annual losses in
the order of $I30 million per year. Though this loss has amounted to only

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Pressure Group Politics, Economic Competition and Regulation III
o.I per cent of the EU-US annual trade volume, the EU's hormone ban has
led to one of the longest and most acrimonious transatlantic trade disputes.
By I999, the dispute had moved through the WTO's dispute settlement
mechanism. The final verdict supported the US claim that the European ban
on hormone' treated meat was not based on sufficient scientific evidence. The
US and Canada have since been retaliating against the EU's restrictions.
To summarize, by means of their various informational and lobbying
activities, NGOs offered an effective avenue for translating widespread
consumer concerns into political and market initiatives. Taking advantage of
pre-existing public concerns, they were largely successful in amplifying these
concerns. As market developments made clear, many consumers in Europe
perceived hormone-free beef as offering a health benefit to the individual
consumer. And policy makers and producers in Europe had to acknowledge
that fact. As noted by the EU's Council of Ministers: 'Because of campaigns
by consumer organizations, the consumption of meat had, in the past, at
various times, noticeably declined. These campaigns are not just based on
concerns as regards the health hazards of hormones, but express a general
tendency in public opinion, namely the aversion to the use of chemicals in
agriculture. A legalization of hormones would, therefore, lead to an even
more extensive wave of protest and an even greater decline in meat
consumption' (quoted in European Court ofJustice I988: 4045).
Industrial competition and regulation
Conventional political economy theories of regulation as well as the interest

group explanation developed in the previous section offer very litde analysis
of the strategic behaviour of firms and its implications for environmental and
consumer risk regulation. Most theoretical work along these lines focuses on
industry-wide behaviour and relies on simple assumptions about corporate
interests (notably, rent seeking).'3 In this section we offer a more sophisti-
cated view of corporate interests and behaviour and its effects on regulatory
policy.
In the mid-iggos Porter, van der Linde and others'4 suggested that stricter
environmental regulation, rather than providing (inefficient) rents, promotes
technological innovation and competitiveness. In the meantime, a large body
of literature has emerged that seeks to test what has come to be called the
Porter hypothesis.'5 The evidence available thus far suggests that stricter
regulation may at least in some cases be beneficial to regulated firms and the
environment. The innovation-inducing effect of regulation highlighted by
the Porter hypothesis implies that firms may benefit from stricter regulation
in ways entirely different from the conventional rent seeking assumption.
One may argue in fact that because economic liberalization is making crass

13.239.75.78 on Thu, 19 Jan 2023 07:00:16 UTC
112 Thomas Bernauer and Ladina Caduff
rent seeking harder (see also above) firms are increasingly using environ-
mental performance strategies to enhance their competitive position in
domestic and international markets (Hoffman 2000).
As a starting point we submit that firms are increasingly engaging in
environmental performance strategies and are pushing for stricter govern-
ment regulation to back these strategies. We also submit that these processes
have, under conditions to be specified, positive effects on environmental and
public health outcomes. Analysis of this hypothesis requires answers to two
questions. First, what is motivating firms to pursue environmental perform-
ance (or, 'beyond compliance') strategies, and when and why are firms
pushing for stricter public regulation to back these strategies? Second, when
and why do corporate environmental performance strategies and stricter
public regulation improve corporate competitiveness and/or environmental
(or public health) outcomes. In this article we concentrate on the first
question because we are interested in the driving forces of increasing
regulatory stringency.'6
Our research to date suggests that firms engage in corporate environ-
mental performance strategies (which may involve over-compliance with
public regulation) for several reasons, including the following:
to cut production costs and thereby improve competitiveness on the supply side: strategies to that
end focus on reducing materials and energy use and waste, on more efficient
product and production process design, on developing environmentally friendly
product substitutes, and on reducing business risks and their financial implications
(e.g., reducing exposure to product liability or compensation claims, shielding
against non-insurable risks, reducing insurance costs);
to improve competitiveness on the demand side: measures to that end focus on product
development programmes intended to meet consumer demand for green and/or
healthier products, and on corporate marketing and public education programmes
designed to meet existing or create new demand for green and/or healthier
products. They also focus on promoting industry standards that require green
and/or healthier products and/or create or enhance beneficial market segmenta-
tion for particular products - e.g., through labelling standards and/or product
quality standards that define niche segments offering price premiums (e.g., sustain-
ably produced timber, organic food). They also focus on creating good will and
increasing the value of brands.
Moreover, and crucial from the viewpoint of public interests and regula-
tion, firms may push for public regulation that supports supply- and demand-side
environmental perfornance strategies. Such regulatory strategies may permit par-
ticular firms to capitalize on proprietary technologies, product qualities,
or advantages in marketing and distribution, for example, by requiring
specific products (e.g., substitutes for pollutants, as in the CFC case). Also,
they may help firms in defining market segments for products, in creating

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Pressure Group Politics, Economic Competition and Regulation II3
cost differentials (e.g., in implementation costs of public regulation), and in

shifting liability burdens and insurance costs. Note that such regulatory
strategies are hard to locate within the conventional regulatory capture
argument. In fact it appears difficult to find empirical examples where such
strategies have - from a business viewpoint - been successfully pursued at
the expense of consumers (the public) and the environment. In most cases we
know of, attempts at crass rent-seeking dressed up as environmental perform-
ance strategies have been blocked by regulators and courts at local, national
and international levels.'7 These regulatory strategies also go much beyond
the narrow focus by most authors (e.g., Reinhardt 2000) on corporate
regulatory strategies as instruments for imposing costs on competitors.i8
Firms can choose between the environmental performance strategies just
described. In making their choices they will usually try to determine which
of these strategies, or combinations thereof, are most likely to succeed, that
is, create and capture value for the firm. In that decision process firms will
consider the economics of the respective industry, the position of the firm
within this industry, its organizational capabilities, and other socio-economic
and political factors.'9
Theorizing and empirical research on when and why firms are engaging
in environmental performance strategies, and how the pursuit of such
strategies affects public regulation, is at the very beginning. It is building on
existing market and non-market theories of the firm and theories of
regulation.'0 As illustrated by the case studies on electronic waste and
HACCP (see below), firm size and sectoral characteristics (e.g. industrial
concentration, competition over prices or quality) are likely to play a key
role. Firms using strategies aimed at influencing their competitive environ-
ment must be able to induce changes in competitors' behaviour in ways that
create first mover advantages for early adopters of environmentally superior
products or processes. To capitalize on proprietary technologies, product
qualities, or advantages in marketing and distribution firms must be in a
position to compel their rivals to follow in their footsteps, whether through
market pressure or through public regulation, or both (see also Reinhardt
2000). Preliminary evidence also suggests that there are scale economies in
implementing regulation: smaller firms incur higher costs in implementing
public regulation than larger firms. To the extent that this holds true,
corporate support for stricter rules that back advantages derived from
unilateral environmental performance strategies will often be driven by the
interest of large firms.
Empirical illustrations: electronic waste and HACCP
The first of the following two case studies, which are used to illustrate the
above arguments, adopts a firm-level perspective, focusing on Electrolux.

13.239.75.78 on Thu, 19 Jan 2023 07:00:16 UTC
114 T7homas Bernauer and Ladina Caduff
The second case-study, which focuses on food safety regulation, adopts a

sectoral perspective.
Electronic waste
Electrolux is the world's largest producer of appliances and equipment for

kitchen, cleaning and outdoor use. In 2002 it announced a strategic
redefinition of its business: shifting from an 'appliance manufacturer to an
industrial cleaning service firm'.2' Its competitive advantages as an appliance
manufacturer lie primarily in its design capabilities and its efficient and clean
production capacity, and its extensive marketing and distribution system.
The firm has yet to demonstrate its advantages in industrial cleaning
services; but environmental performance and environmental regulation may
provide a basis for establishing competitive advantage.22
Electrolux has been a leader in mitigating environmental risks of elec-
tronic equipment. However, to this point in time, it has had limited success
in exploiting its efforts at superior environmental performance. As the firm
acknowledged, it has experienced considerable difficulty with its green
marketing efforts. The reason offered was that consumers lacked knowledge
of the environmental risks associated with electronics; in particular, con-
sumers were not adequately aware of the toxic components of such
equipment.23
In view of the limited success of its environmental initiatives, Electrolux
has turned to regulatory strategies to capture the benefits of its past efforts
to design, produce and market superior and environmentally friendly
products. The competitive advantage of Electrolux in pursuing this kind
of regulatory strategies lies in its first mover status, that is, in having already
developed products that can meet very stringent regulatory standards. A
new regulatory arena in which Electrolux could obtain regulatory advantage
is that of standards affecting electronic equipment waste - e-waste. E-
waste currently amounts to 4 per cent (or 7 million metric tons) of munici-
pal waste in Europe and the US, and is growing by 3-5 per cent annually.
It is now one of the fastest growing waste streams in the industrialized
world.24
In late 2002, the European Union issued draft Directives on 'Waste from
Electrical and Electronic Equipment' (WEEE) and 'Restriction on the Use of
Hazardous Substances in Electrical and Electronic Equipment' (RoHS). The
former requires manufacturers or importers of electronic equipment to take
back their products at the 'end of life' and to ensure sorting and recycling
without additional charge to the consumer.25 It thus makes businesses
responsible for funding the management, recycling and disposal of e-waste.
This regulation also reflects an advanced stage in the European Union's
efforts to implement the 'polluter pays' principle in the form of the so-called

13.239.75.78 on Thu, 19 Jan 2023 07:00:16 UTC
Pressure Group Politics, Economic Competition and Regulation I 15
Extended Producer Responsibility (EPR).26 The RoHS directive prescribes

the phasing out of important hazardous components in electronics, such as
lead, mercury, cadmium, and brominated flame-retardants. These chemicals
will be banned in manufacture from 2007. Exceptions are granted in case no
substitutes are available.
In the United States, no similar laws exist at the federal level, and
electronics manufacturers have been rather reluctant to launch US recycling
programs. Many components in electronic equipment do not pass hazardous
waste tests, which makes them subject to the federal Resource Conservation
and Recovery Act (RCRA). But most states and federal agencies have
exempted e-waste from RCRA regulation under loosely defined waivers.27
Because much of the US e-waste, an estimated 6o-8o per cent, ends up in
developing countries or emerging markets, mainly Taiwan and China, the
US has lobbied Asian governments to include clauses in bilateral trade
agreements that allow the US to continue shipping its electronic waste
abroad.28 Nonetheless, several US states have passed e-waste recycling and
take-back legislation and other states are considering such legislation.29
Through early creation of recycling infrastructure and reduction of
hazardous materials in its products ahead of formal regulation, Electrolux
has minimized the cost and organizational implications of increasing
regulatory constraints. Electrolux, Braun, followed by HP and Sony have
taken the lead in redesigning products to enable recycling and to reduce end
of life waste, as well as developing substitutes for hazardous substances. They
have also announced that they will organize taking back and recycling old
equipment.
Because of its advantage in meeting the stricter standards that are
currently being introduced Electrolux is in a position to promote even more
stringent regulation that may provide an additional competitive edge. In
fact, Electrolux is the leading advocate of EPR. Whereas most companies in
the white and brown goods sectors prefer collective responsibility, i.e.,
sector-wide and non-profit collection schemes, Electrolux favours individual
responsibility. On the one hand, it views individual EPR as an incentive to
develop eco-designs. On the other hand, it fears that under a collective
system it would end up paying as much for the collection of e-waste as its
counterparts that have not yet invested heavily in environmentally friendly
designs.30 Henrik Sundstrom, VP of Environmental Affairs at Electrolux,
stated 'the company sees individual EPR as an opportunity to gain
competitive advantages by designing environmentally friendly products'.3'
Electrolux' position on EPR has been supported by the umbrella organiz-
ation of environmental groups in Europe, the European Environmental
Bureau (EEB), and the European consumer organization BEUC. This broad
coalition gave the European Parliament strong support for maintaining its
position on individual EPR.

13.239.75.78 on Thu, 19 Jan 2023 07:00:16 UTC
ii6 Thomas Bernauer and Ladina Caduff
Electrolux would clearly benefit from standards requiring EPR. Possibly

most important, it would benefit from more stringent e-waste regulation also
in the United States. In the United States, the leading electronics producers
have been opposed to EPR, be it in the US or in Europe. The American
Electronics Association (AEA), the largest trade association of electronic
companies in the US has launched a major offensive against the European
Union's WEEE and RoHS directives.32 These companies argue that the new
EU laws will pose 'a straightjacket for product innovation, and disadvantage
the consumer and the environment'.33 Rather than uniform mandatory
regulation, these US firms and organizations want industry-developed
voluntary, international guidelines to integrate environmental considerations
into product design, development and marketing. They clearly favour
voluntary responsibility for end-of-life products, which would be assigned to
a host of stakeholders, not to manufacturers and importers of electronic
equipment only.
As a first mover on EPR Electrolux has enhanced its ability to expand in
the US market as a growing number of US states move toward stricter
regulation while US competitors behave reactively rather than proactively.
Similarly, even more stringent EU regulation is likely to bolster Electrolux'
competitive position, as it could provide 'lock in' for Electrolux's techno-
logical and supply chain advantages and make it harder for smaller and
foreign companies to comply with complex new restrictions. This strategy is
costly but the benefits for Electrolux appear to outweigh the costs. Stringent
regulation will raise investment and production costs, and potentially reduce
margins, for all producers. But the biggest negative impact is likely to be on
mid-tier and small electronics vendors in Europe. Large firms will have a
competitive advantage insofar as they may have greater financial and
technology development capacity to meet stringent regulation. Strict EU
laws could also create a significant barrier to entry into European markets,
as few new manufacturers have adequate disposal and recycling strategies.
Food safety: hazard analysis and critical control point (HA CCP) systems
Many food processors and retailers in advanced industrialized countries

have in recent years established corporate food safety systems that exceed
formal government standards by a wide margin. They have done so at the
cost of billions of US dollars.34 Hazard Analysis and Critical Control Point
(HACCP) systems are a key element in most of these measures. HACCP is
a process control technique based on total quality management principles.
Thus it is a business management tool and a food safety control measure at
the same time. Firms use this procedure to identify and evaluate hazards that
affect product safety, establish controls to prevent hazards, monitor perform-
ance of controls, and maintain records of such monitoring. Ongoing

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Pressure Group Politics, Economic Competition and Regulation I I7
research by the authors of this article is trying to establish why many firms
are exceeding government set standards, what the effect of these corporate
strategies is on public health, and how these measures are affecting
regulatory processes. Our research thus far has produced four arguments
explaining why firms may engage in over-compliance.
First, in many advanced industrialized countries the industrialization of
food production, longer supply chains, and periodic occurrences of food
safety problems have led to a consumer trust deficit. Food firms have sought
to address this deficit by adopting business strategies that enhance trust-
worthiness and enable firms to allocate blame and costs efficiently should one
of their products turn out to be unsafe or experience declining consumer
acceptance for other reasons. Many firms have addressed trust deficits
through branding, which involves a privatization of consumer trust. How-
ever, branding also involves a privatization of risk, particularly if firms move
from individual brand products to turning the entire firm into a brand. In
other words, branding shields food firms at least to some extent from food
safety problems caused by other firms - in the best case, brand producers
may even increase their market share as food safety problems with
non-brand products grow. On the downside, firms experiencing safety
problems with one of their own brand products cannot externalize the costs
involved to the entire food market. And they cannot free ride on positive
externalities generated by a generally safe food supply in the respective
market. This is why food firms relying on brand products are more interested
in tougher corporate food safety systems than non-brand firms and are more
willing to adopt strict HACCP and other food safety control measures. These
systems allow firms to partition, allocate, control and reduce risks throughout
the value chain. Surveys on the beef, poultry and dairy sectors in the United
States and other countries support the proposition that brand-product food
firms are the leaders in over-compliance.35
Firm size appears to play an important role in this context. Large firms,
particularly those in concentrated markets, have much more influence on
their suppliers than small firms. Thus they can impose quality standards
quicker, more effectively and at lower cost throughout their supply chain.
One indication for this is that HACCP has proven much harder to
implement in the seafood industry, which is less concentrated and more
disaggregated, than for example in the red meat and poultry sector. At the
same time, studies on the US meat and poultry sector show that only small
plants may at times benefit from skimping on food safety efforts. Larger
plants with poor quality controls have a higher probability of exiting the
market.36 Moreover, several studies have shown that marginal HACCP
implementation costs are lower for larger than for smaller firms. A I998
USDA study, for example, suggests that HACCP cost ratios for US
producers were 3:1 in the beef sector and io:i in pork production. At the

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iI8 Thomas Bernauer and Ladina Caduff
same time, we observe a growing number of large plants at the expense of

small plants in both sectors, and large increases in margins. In the US
poultry sector, where HACCP implementation cost ratios are approximately
even, we observe less market concentration and a slower growth of
margins.37 Data such as this suggests that the introduction of HACCP may
be promoting industrial concentration. In any event we observe that in
concentrated markets, such as the food market, food safety systems of
advanced industrialized countries are increasingly driven by a few large
companies that are concerned about their brand reputation. Regulators are
struggling to follow up with formal standards that also smaller firms can
meet. Surveys on US and European food producers show that larger
companies have engaged in much more HACCP training of employees, are
more familiar with HACCP, have implemented HACCP earlier, and have
adopted HACCP at a much higher rate than smaller firms.38
Second, in the food market perceived safety problems are at least as
important as real risks because food is a credence good - consumers are
unable to reliably assess on their own the safety of such products. Firms may
thus have an incentive to enhance their competitiveness in this market by
signalling to consumers, through branding and other strategies, that my
products are safer than the products of other firms'. However, firms may also
have disincentives to pursue such a strategy. Emphasizing food safety as a
competitive issue could backfire by making consumers as a whole more
nervous about food safety. In addition, the firms involved may risk ending up
in an expensive race to the top in food safety standards. Interestingly, the
Global Food Safety Initiative (http://www.globalfoodsafety.com/) and other
private industry initiatives explicitly aim at limiting corporate competition on
food safety issues. This seems to indicate that at least some firms are
competing on food safety standards. Brand retailers also seem to worry that
if they excessively drive up standards by competing on food safety they may
lose market shares to food discounters - as long as governments are reluctant
to follow up and impose ever higher standards on all firms in the sector (see
also below).39
Third, in many countries sectoral consolidation has resulted in a small
number of very large food processors and retailers, often with global business
activity. Firms of this nature are forced to cope with multiple jurisdictions
involving a plethora of standards, tens of thousands of stores, and hundreds
of thousands of employees. Large firms thus have strong incentives to seek
private and/or public international food safety standards, such as HACCP,
so that they can implement the same standards in all plants and stores under
their control. Several studies suggest, furthermore, that implementing
HACCP may also produce economic efficiency gains for firms, notably, by
reducing costs of raw materials inspections, materials specification, raw
materials inventory and other input costs, as well as marketing and sales

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Pressure Group Politics, Economic Competition and Regulation i I9
costs. In any case, the preventive nature of HACCP appears more

cost-efficient than testing and then destroying or reworking products at the
end of the production and supply chain.40 While the first part of this
argument is reminiscent of propositions put forth by Vogel (I996), Murphy
(I995) and others, the latter part could be regarded as variant of the Porter
hypothesis.
Fourth, food firms may use private food safety standards (and over-
compliance more generally) to enhance their autonomy: adopting tougher
standards may motivate governments to 'leave firms alone' and not to adopt
and enforce tougher public standards - in other words, firms may buy
political legitimacy and public good-will through stricter private standards.
Over-compliance may also help firms in shielding themselves from vagaries
associated with changing government regulation and variation in enforce-
ment over time and jurisdictions. This argument contradicts parts of the first
argument and remains to be tested more fully. On the one hand, we have
evidence showing that in the United States large food producers pushed for
mandatory HACCP standards and their phase-in in I998, after having first
supported their industry associations' resistance against mandatory public
standards. Smaller businesses resisted the Pathogen Reduction/HACCP rule
issued by the USDA's Food Safety and Inspection Service. With a view to
HACCP implementation cost ratios and changes in plant numbers and
margins (see above) one might argue that large firms have been using public
HACCP standards as a strategy of regulatory competition. On the other
hand, the first and fourth argument may not be fully incompatible: large
firms may have been pushing for higher standards that smaller firms find
harder to meet, but they may have sought standards that are still below the
private standards adopted by large firms - which leaves the latter firms with
sufficient autonomy and other benefits involved in meeting higher private
standards.
The corporate strategies discussed here have operated primarily at the
domestic level, but to some extent have also produced international trading
up effects. For example, the United States, in its regulation mandating
HACCP for seafood processors, stated that foreign firms exporting seafood
to the United States must meet these standards. The European Union has
issued similar regulation. We return to this issue in the concluding section.
Conclusion
Empirical research on national and international environmental and con-

sumer risk regulation shows that cases of declining regulatory stringency are
extremely rare, and that standards in most countries and policy-areas tend
to move upward (e.g., Vogel and Kagan 2002). There is evidence for
'regulatory chill' effects in some environmental and consumer policy areas,

13.239.75.78 on Thu, 19 Jan 2023 07:00:16 UTC
I20 Thomas Bernauer and Ladina Caduff
though it is usually difficult to demonstrate that in the absence of deregula-

tory pressure emanating from international market integration and compe-
tition particular environmental regulation would ceteris paribus have been
stricter and/or more effective.
Regulatory capture theory, public choice theory, theories of regulatory
federalism and trading up, as well as various types of interest group theory
and theories focusing on the characteristics of risks and regulatory issues offer
a wide range of explanations for why the infamous race-to-the-bottom has
not materialized. They also offer explanations for why observed regulatory
trajectories in open economies are usually pointing in the opposite
direction - towards stricter regulation. These theories fill important gaps in
explanations focusing on more fundamental (or 'ultimate' as opposed to
'proximate') driving forces of stricter environmental regulation. Such forces
include in particular economic growth, democracy, and the 'rights revolu-
tion' (Sunstein I990) or 'total justice' (Friedman I987) trend (that is, growing
public demand for environmental and public health protection). These
driving forces are, in part, a result of growing density, frequency and speed
of social and economic interaction across national boundaries and over ever
longer distances. They do not vary much between advanced industrialized
countries. Hence it is difficult to explain existing variation in regulatory
stringency in environmental policy among these countries in such terms.
In this article we have focused on endogenising public perceptions in an
interest group model that explains regulatory outcomes from the bottom up.
We have also focused on another bottom up explanation that has thus far
been largely ignored in the political science literature on regulation, i.e.,
corporate environmental performance strategies and their effect on regula-
tion. These explanations, whose empirical plausibility was illustrated with
three case studies, will have to be developed further and tested more
systematically. They add to and refine rather than substitute for existing
explanations. Figure i shows that more sophisticated explanations incorpor-
ating public perceptions, NGO activity, and corporate behaviour can help
not only in explaining increasing domestic regulatory stringency, but also
international trading up processes.
We have focused largely on processes summarized on the left side of
Figure II. However, the large box in the middle of the figure lists political and
market mechanisms as well as enabling conditions that contribute to the
diffusion of stricter environmental standards from one country to another.
Public perceptions, interest group politics and corporate behaviour play a
key role in several of these mechanisms.
Political mechanisms. (a) The willingness and ability of country A to
exclude products from countries with laxer regulation depends in large
measure on support by the public (consumers), environmental interest
groups, and 'green' companies in A. (b) As to process regulation, where

13.239.75.78 on Thu, 19 Jan 2023 07:00:16 UTC
Public concerns over an environmental or consumer issue

=> NGO pressure via politics and markets
+
Rent seeking by fmns through stricter regulation
+
Corporate environmental performance strategies
Stricter regulation in State A
Political mechanisms => trading up

> B's product exports to A suffer unless B adapts to A's regulation (this mechanism, which involves
enforcement through market access restrictions, is less effective in process regulation due to
WTO, EU and other international constraints, and because process regulation has primarily
indirect and less visible effects on production costs). B's incentive to adapt is a function of B's
cost of raising regulatory standards and the opportunity cost of reduced exports to A. Firms in B
that are able to meet higher standards of A push for stricter rules in B to lock in this advantage
vis-a-vis other firms in B, and to benefit from economies of scale in not having to produce
according to different standards in A and B.
> Firms in state A experience a competitive disadvantage vis-a-vis firms in state B because of strict
regulation in A and lax rules in B (contingent on the size of compliance costs). They push A's
government to establish an international level playing field. Firms from A will push for trading up
in B so that transaction cost benefits due to similar regulation in A and B and improvements in
competitive position due to forcing firms in B to comply with stricter rules are eventually higher
than production cost increases due to stricter regulation in state A.
> NGOs from A form coalitions with NGOs from B and, bilaterally or through international
institutions, push B's government toward stricter regulation.
> Laxer regulation in B creates externalities for the public in A (e.g., pollution). A's government
thus pressures government B bilaterally or through international institutions to install stricter
regulation.
> Firms from A operating in B push B's government toward establishing stricter regulation to obtain
a competitive advantage over firms in B (firms from A already have the necessary technology and
assets in place to comply).
Market mechanisms => trading up
> Firms from A operating in B have incentives to use the same strict standards in A and B because
of reputation costs (e.g., pressure by NGOs in A and/or B), liability reasons, or operational
reasons (e.g., economies of scale, reduced transactions costs, expected benefits from environmental
performance strategies).
> Firms in B emulate corporate environmental performance strategies of firms from A because they
anticipate competitive advantages over other firms in B (and A).
> For reputation, liability, operational or other reasons firms from A do not do business with "dirty"
firms from B. This motivates firms from B to adapt to industry standards and government
regulation in A.
Enabling conditions
> A has a larger market than B.
> B is able to monitor and enforce compliance with stricter regulation.
> The government and firms in B are able to meet the cost of stricter regulation. If not A is willing
to fund at least some environmental improvement measures in B.
> International or transnational institutions are available to reduce transactions costs of negotiating
and implementing international standards, and to exchange technical know-how, knowledge on
beneficial effects of environmental performance strategies, and environmental values.
> Relevant industry is concentrated.
> Moderate to high asset-specificity (sunk costs, low mobility).
Stricter regulation in State B
FIGURE I Trading Up Mechanisms

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I22 Thomas Bernauer and Ladina Caduf
WTO and EU rules are more likely to cut against environmentally

motivated market entry restrictions, such bottom up pressure is even more
essential for trading up to be effective. (c) The more firms in state B have
incentives to engage in environmental performance strategies to comply with
A's regulation and obtain other competitive advantages from such strategies
vis-a-vis other domestic firms, the more likely it is that they will push B's
government to ratchet up domestic rules. (d) Public and NGO support will
help firms from A in pushing A's government into negotiations with other
governments on establishing a level playing field. (e) If NGOs in A and B
can form coalitions with each other and with firms in A and B that are
engaging in environmental performance strategies, upward harmonization
internationally is more likely to be successful.
Market mechanisms. (a) Corporate environmental performance strategies
may produce efficiency gains for firms, so that these firms eventually adopt
the same high standards wherever they operate. (b) NGOs in state A can
increase the reputation costs and liability problems of firms from A if these
firms decide to operate under laxer regulation in state B. (c) Successful
environmental performance strategies by firms in state A may motivate firms
in state B to pursue similar strategies. This emulation tends to drive
regulatory standards in B upward. (d) Firms in state A that engage in
environmental performance strategies will avoid doing business with 'dirty'
firms in state B. This motivates firms in B to raise their standards as well, and
to lobby for higher standards in B that level the playing field or equip
environmentally more innovative firms with a competitive advantage over
other firms in B.
NOTES
i. The authors would like to thank Kenneth Oye, James Foster, Niclas Adler and Christos Pitelis for
letting us use some ideas on corporate environmental performance strategies developed in a joint
project. They are also grateful to Claudio Radaelli, Richard Rose, Thomas Plumper, Frank Vibert and
anonymous reviewers for valuable comments.
2. See Tullock I967 on the concept of rent-seeking.
3. E.g. Rehbinder and Stewart I985; Scharpf I996, 1997; Murphy 1995; Vogel 1995; Oye and Maxwell
I996; Kelemen 200O, 200I; Bernauer 2000; Genschel 2000; Hix I999; Esty and Geradin 2ooi.
4. See in particular Olson (I965: 48-65).
5. Most authors argue that public concerns will grow with the extent to which a given risk is perceived
to be involuntary, uncontrollable, or invisible, has a delayed or catastrophic effect, is memorable, very
uncertain, poorly understood, unfamiliar, unfairly distributed, and a technological hazard. Public
concerns over risks with these properties tends to be even stronger in cases where less risky alternatives
exist (see Slovic 1987, 200I; Groth 1994; Wohl I998; Gaskell and Bauer 200i).
6. Friedman (i99i), Putnam (I993), and Friese (2000). For the theoretical background see Hall and
Taylor (X996) and Kitschelt (I986). See also Baron (2002). In Private Politics and Private Policy: A
Theory of Boycotts, he argues that boycotts are the result of private and not collective action, taken by
citizens in their role as customers. Thus, there is no free rider problem present in launching boycotts.
7. An early example of the use of consumer pressure to influence the behaviour of companies is Friends
of the Earth's action against Schweppes in 197I, when it returned thousands of non-returnable bottles
to the soft drinks manufacturer (Rawcliffe I998).

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8. Several authors have proposed a further differentiation of this argument by distinguishing between
regulations focusing on the quality of products and regulations focusing on production processes. They
claim that product regulations are easier to instrumentalize for protectionist purposes than process
regulations. Consequendy, product regulations, on average, tend to be more stringent than process
regulations and also vary more across countries. In many empirical cases, e.g. food biotechnology and
growth hormones, a straightforward distinction of product and process regulations is difficult. Thus we
stick to a simpler argument about protectionist benefits (see Murphy I995; Scharpf I996, I998;
Bernauer 2000).
9. See Stigler (197I) and Baron (2000).
Io. See Foster (2002).
ii. The five hormone types most widely used in meat production include three natural hormones,
oestradiol 1743, testosterone, and progesterone, and two synthetic substances, trenbolone and zeranol.
12. FEDESA represented 23 European and eight American pharmaceutical companies.
I3. The theoretical argument in this section builds on joint work with Ken Oye,Jim Foster, Niclas Adler
and Christos Pitelis.
I4. E.g., Porter 1995; Porter/van der Linde I998.
I5. E.g., Jaffe/Palmer 1997;Jaffe 1997.
i6. A larger project in which the authors are involved is also examining the second question. See also
Reinhardt 2000.
17. Examples of rent-producing regulation without apparent environmental and public health benefits
include US oxygenate ethanol and MTBE standards, Australian restrictions on salmon imports,
Japanese rules on fumigant certification of imported vegetables, and US fuel refining standards.
Communication withJim Foster and Ken Oye.
i8. As noted by Foster (personal communication), conceptualizing corporate regulatory strategy in those
terms alone would only make sense if markets had fully degenerated into commodity markets and
factors other than price played no role.
I9. For example, product differentiation strategies are more likely to be successful if the following
conditions are given. Consumers must be willing to pay for environmental superior attributes of
products. 'Greener' goods must provide comparable (to conventional products) consumer benefits at a
comparable price (Hoffman 2000: 86). Firms must be able to communicate their product's environ-
mental benefits in an obvious and credible way. Firms must protect themselves against imitation by
competitors for long enough to obtain a significant return on investments (Reinhardt 2000: 40).
20. Ongoing work by the authors is examining a variety of constraints on the successful pursuit of
corporate environmental performance strategies, for example inflexibility of environmental regulation,
bounded rationality and incomplete information, internal firm characteristics, and market structures.
Note that the industrial ecology and environmental economics literature largely ignores interactive
effects between regulation, business strategy, and environmental and economic outcomes. Instead, it
concentrates on examining the effects of regulation (usually measured in terms of compliance costs) on
innovation (often measured in terms of R&D spending or patents) or the effects of firm size, voluntary
environmental certification, and other factors, on environmental and economic outcomes. See Jaffe
and Palmer I997 and http://www.environmental-performance.org/index.php.
21. See http://www.enviroireland.com/detail.asp?item=157-
22. This case study draws on joint work by Ladina Caduff and Jim Foster.
23. See http://www.snf.se/snf/seminarier/eusem3-dok.htm.
24. See Environmental Health News, March 7, 2002. Almost go per cent of e-waste produced in the
industrialized world is land-filled, incinerated or recovered without any pre-treatment. This results in
a huge loss of valuable resources. It also presents a growing problem in the form of air, soil, and water
pollution, since such waste is one of the largest known sources of heavy metals and organic pollutants
in the waste stream.
25. The WEEE directive also states that manufacturers are responsible for recycling 'historic' waste,
which adds to the advantages of firms that established recycling networks long before EU regulation.
26. According to the EU the cost implications of the WEEE directive will be rather small (I-3 per cent
of retail prices). The EU assumes that this cost increase will be temporary: producers will eventually
improve the efficiency of products with regard to reuse and recovery of components.
27. The Resource Conservation and Recovery Act, which became federal law in I999, makes businesses,
but not households, liable for improperly disposing hazardous waste.
28. In the absence of bilateral agreements, countries that have ratified the 'Ban Amendment of the Basel
Convention on the Control of Transboundary Movement of Hazardous Waste', such as China, would
have to prohibit e-waste trading.

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29. As of 2003, California, Massachusetts and Minnesota had the most ambitious legislation. Weaker bills
were pending in New York, NewJersey and North Carolina. Altogether six to ten US states expected
legislative proposals on e-waste in 2003. See Toeffel 2002.
30. See Waste Age, March I, 200i, http://www.wasteage.com/ar/waste us_feels_effects/.
31. See http://www.appliancemagazine.com/article.cfm?articleindexid I2I6.
32. The AEA is supported by the American Plastics Council, the International Cadmium Association, the
Lead Industries Association and the Semiconductor Industry Association.
33. See http://www.chipcenter.com/eexpert/lgoldberg2/dbello2s.html.
34. See http://www.umass.edu/neI6s/; Ollinger and Ballenger 2003.
35. Ollinger and Mueller 2003. See also http://www.umass.edu/neI65/.
36. Ollinger and Ballenger 2003.
37. Communication withJim Foster and Ken Oye. See also Muth et al. 2003; http://www.umass.edu/
nei65/; Ollinger and Mueller 2003. Note that USDA/ERS has been publishing contradictory
assessments on whether HACCP implementation imposes a cost disadvantage on smaller businesses.
38. http://www.umass.edu/neI65/
39. See Jacobsen 2002.
40. See http://www.umass.edu/nei65/haccpi998/haccpig998.html.
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THOMAS BERNAUER AND LADINA CADUFF
Swiss Federal Institute of Technology (FTH) Zurich

Centerfor Comparative and International Studies (CIS)
ETH Zentrum, SEI
8092 Zurich, Switzerland
bernauer(?ir.gess.ethz.ch; cadqff@ir.gess.ethz.ch

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Pressure Group Politics, Economic Competition and Environmental

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THOMAS BERNAUER and LADINA CADUFF' Political Science,

One school of thought in the literature on regulatory competition in

Competition in laxit or rent-producing regulation?

The political economy literature on regulatory competition and its effects in

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Many authors have argued that particularly in integrated (open) markets

In virtually all advanced industrialized countries environmental and con-

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Implementation of existing standards is by no means perfect, and many

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The evidence on increased environmental and consumer risk standards

M4/hy is there vegy little competition in laxity?

Political economists and political scientists have offered a plethora of

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Yet other political scientists have focused on interactions between juris-

Interest group politics

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In this section we illuminate interactions between interest groups, voters,

Public concerns over environmental or consumer issues

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and public trust in the risk management capacity of regulatory institutions is

NGOs as public opinion leaders

Access to and ability to provide policy-relevant information are important

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Information provided by NGOs tends to be particularly relevant to the

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producers' preferences and behaviour in the market place, with evident

Interests and influence ofproducer groups

The conventional political economy model of regulation holds that stricter

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Empirical illustration: growth hormones in beefproduction

Hormones can be administered to animals to promote faster growth and

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In I985 the EU banned the use of hormones for purposes of growth

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Industrial competition and regulation

Conventional political economy theories of regulation as well as the interest

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cost differentials (e.g., in implementation costs of public regulation), and in

Empirical illustrations: electronic waste and HACCP

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The second case-study, which focuses on food safety regulation, adopts a

Electrolux is the world's largest producer of appliances and equipment for

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Extended Producer Responsibility (EPR).26 The RoHS directive prescribes

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Electrolux would clearly benefit from standards requiring EPR. Possibly

Many food processors and retailers in advanced industrialized countries

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same time, we observe a growing number of large plants at the expense of

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costs. In any case, the preventive nature of HACCP appears more

Empirical research on national and international environmental and con-

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though it is usually difficult to demonstrate that in the absence of deregula-