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josrnal oJEo nornic Per edivu-
9
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Fall 1995
Pages 97 118
Toward a New Conception of the Environment-Competitiveness Relationship
Michael E Porter; Claas van der Linde
The relationship between environmental goals and industrial competitiveness has normally been thought of as involving a tradeoff between social benefits and private costs. The issue was how to balance society's desire for
environmental protection with the economic burden on industry. Framed this way, environmental improvement becomes a kind of arm-wrestling match. One side pushes for tougher standards; the other side tries to beat the standards back.
Our central message is that the environment-competitiveness debate has been framed incorrectly. The notion of an inevitable swggle between ecology and the economy grows out of a static view of environmental regulation, in which technology, products, processes and customer needs are all fixed. In this static world, where firms have already made their cost-minimizing choices, environmental regulation inevitably raises costs and will tend to reduce the market share of domestic companies on global markets.
However, the paradigm defining competitiveness has been shifting, particularly in the last 20 to 30 years, away from this static model. The new paradigm of international competitiveness is a dynamic one, based on innovation. A body of research first published in Tlu Comfxtitive Advantage ojNatioru has begun to address these changes (Porter, 1990). Competitiveness at the industry level arises from superior productivity, either in terms of lower costs than rivals or the ability to offer products 1 Michael E. Porter is the C. Rolartd Guisteruen Projessor ojBusiness Administration, Harvard Business School Boston, Mossachtaetts. Glass van der hinde is on the jacuhy of the International Management Ratarch Institute of St. Gallon University, St. Gallon, Smitrerland.
with superior value that justify a premium price.' Detailed case studies of hundreds of industries, based in dozens of countries, reveal that internationally competitive companies are not those with the cheapest inputs or the largest scale, but those with the capacity to improve and innovate continually. (We use the term innovation broadly, to include a product's or service's design, the segments it serves, how it is produced, how it is marketed and how it is supported.) Competitive advantage, then, rests not on static efficiency nor on optimizing within fixed constraints, but on the...