Tuesday, March 11, 2008

Overcompliance

A couple of posts ago, I mentioned that I wanted to write about consumer mandated excellence and government mandated compliance.

I consider Plan A's survival in the face of financial difficulty an example of consumer mandated excellence. There are no laws demanding that Marks & Spencer go carbon neutral and landfill zero waste starting in 2012, but Marks & Spencer had made a promise to its customers, and they were not willing to face the consequences of breaking that promise.

Through the work I'm doing for Acorn, I've stepped squarely into the world of government mandated compliance. We are watching with interest a particular coal effluent mercury sequestration technology, and demand for that technology will be tied quite closely to regulation decisions made by both state and federal governments in the USA. The key competitive advantage of the technology has to do with the chemical state of the mercury it sequesters. It is, apparently, not nearly as dangerous as mercury sequestered using more common activated carbon based processes. If the US government gets tough on mercury emissions and sequestered mercury storage, this new technology could do very well.

Maybe I'm leaping a bit logically here, but I see a fundamental difference between a consumer mandate and a government mandate.

A consumer mandate, if directed properly, should produce a race to the top. Imagine consumers want running shoes made from continuously recyclable plastics with biodegradable, replaceable soles. Nike makes a beautiful shoe that meets expectations: everyone flocks to Nike and buys their shoes. Adidas makes an even cooler, even greener shoe: everyone flocks to Adidas. Nike one ups Adidas. Adidas one ups back. The process continues, and we live happily ever after.

A government mandate, however, has a hard time making that happen. Without cooperation from consumers, government mandates produce races to the middle. The government makes a law about disposal of sequestered mercury. If coal plants break the law and get caught, they get fined, so they bust out their calculators, do a little addition, and change their business. Marginally. They invest in better mercury sequestration and disposal technology, raise the price of the electrons they produce to cover their investment, and forget about it until the next round of regulations comes along. The plants have no incentive to go above and beyond.

I realize that this is an outrageous oversimplification. Assuming an unobstructed path to sustainable sneakers is an exaggeration. Ignoring the power of strategic persuasion mischief (greenwash) is overoptimistic. Intentionally avoiding more complicated (and maybe more effective) government mandated market-based solutions like capping and trading is unfair. And comparing brand name shoe companies with anonymous coal fired electricity producers clearly makes no sense.*

Regardless, it's an illustration of my developing suspicions and unseasoned opinion. We simply cannot settle for races to the middle, and I'm not convinced that government can lead a race to the top. It has a role to play. We need rules and regulations. We need an end to subsidies to industries that already externalize massive costs to society (oil, corn, etc.). We need thoughtful, committed, uncorrupt leaders. But, ultimately, we need consumers to demand that companies do the right thing.

Compliance is nice, but we need overcompliance.

*Note: I was going to say something about apples and oranges, but, given my heightened awareness to metaphors, I thought it might be funny to say something instead about snails and pterodactyls. Then I realized that other people probably wouldn't be as amused as me. It still makes me laugh, though. Mostly because the word pterodactyl is funny, but also because I recently read about Paul MacCready and the fact that he once built a life size, flying, remote control pterodactyl.

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