There is one industry in America that loves the idea of government-mandated environmental regulation . . . in fact, it needs more regulation to bolster its sagging profitability.
Remarkably, this industry has grown on average by nearly 20 percent a year for the past five years compared with a 9 percent annual growth rate for all manufacturing companies.
What is this miracle industry, which, by the way, did not exist 15 years ago?
Why, it's the pollution control business - the people who follow government regulators around with the devices that industry must use to reach those pollution control standards needed to clean up the air, water, sound waves and practically everything else. And it is a feisty mix of entrepreneurs, gamblers and now, large corporations like Boeing, Grumman and Corning Glass Works, hedging their bets against their own divisions likely to face major clean ups in the coming years.
A burdgeoning business with more than 2 million workers, the environmental industry is really only worried about one man: Robert Strauss, the president's chief inflation fighter. Strauss, you see, has singled out environmental regulation as a chief cause of inflation.
But the Environmental Protection Agency repeatedly has said the White House has one key problem in trying to assess the inflationary impact of environmental regulation. "While it is easy to see the cost of regulation, we have not been able to adequately judge the benefits, in terms of dollars, of cleaner air or cleaner water," EPA Administrator Douglas Costle once told a press conference. And the pollution control industry, which owes its very existence to environmental regulation, is certainly a primary benefit.
Indeed, the government has been unable even to qualify the gains accrued by some companies that found surprise cost benefits when they were forced to change production methods after the old way was found to cause pollution.
But perhaps the easiest benefit of environmental regulation to quantity has been the rapid growth of this entirely new industry to develop and manufacture the technology needed to help other industries clean up their act.
In a just-completed, but not yet released, study for the EPA, Arthur D. Little, Inc., the Cambridge, Mass., consulting firm, for the first time analyzes the pollution-control industry to see how well it is doing and how able it will be to handle future needs as dictated by the regulatory process.
The study, obtained by The Washington Post, covers companies manufacturing equipment in three major areas: air pollution control, water pollution control and resource recovery. According to the Little study, profits in those areas, although still below average, have grown about 22 percent a year, even faster than the 20 percent sales growth. For all manufacturers, annual profit growth has been about 15 percent (and sales growth 9 percent).
"In summary, the pollution control industry has generally enjoyed greater-than-average growth with only average profitability," the report states.
But the study points out that an important exception to that pattern is the water-treatment-chemicals sector, "which has been among the most profitable in American industry."
Still, the overall low level of profit worries. A.D. Little, which said "this kind of profitless prosperity mirrors the disappointment which many companies have found in this glamor industry. Growth markets usually provide higher-than-average profitabilities, which in turn stimulate needed business investments. This history of average or lower-than-average profitability is working against investment in new plants and technologies by companies within the pollution control industry."
Little is also worried that the industry does not have the financial strength to "manage the risks associated with this enforcement-driven market." Large amounts of money must be spent to research and develop equipment that could become obsolete in a short period of time.
But Richard Hoard, vice-president of Ecodyne, a New Jersey pollution control firm, and chairman of the Environmental Industry Council - a trade association - says. "I believe the industry has met the increasing demand very well. One of the fundamental reasons is that the technology required was rooted in companies that have been dealing with industrial wastes for many years, so while there was an increased demand for equipment, there was not that much demand for new technical management skills."
Hoard says his industry is made up predominantly of "small-to medium-sized divisions of larger companies. The parent firms have the research and development and major capital resources needed to keep up with a technologically changing industry and the smaller divisions allow the diversity of technology, creativity and experience that people in small firms bring."
Whenever the government makes changes in its environmental control policies, ripples go through the industry."Anytime the government changes its policy relating to a long-term goal, such as the environmental policy goal, it causes a temporary delay in the achievment of that goal," Hoard said. "Strauss" statements, and the corresponding response by the EPA and others, will cause some disruption in our market."
But Hoard emphasises that "the time we feel we have a viable market is when the public and industry finally agree on an environmental goal. In many cases most of an industry is already in compliance with an EPA standard by the time it comes out, because one of the industry associations has worked with EPA to develop the standard and the technology."
Dr. Ira Kukin is president of Apollo Chemical, a Whippany, N.J. company that has been an innovative leader in the area of chemical pollution controls - using chemical treatments, instead of mechanical or electrical devices, to get particulars out of the air.
"We have grown 50 percent a year since we started in business 15 years ago," Kukin said in an interview. "This shows that we must be doing something dramatic for industry, and we are developng a degree of credibility."
Apollo now employs 400 people and has sales in the range of $30 million.
"There was a need for someone to specialize in this field, and not be hampered by other activities which would take our focus away," Kukin said. "We dedicated ourselves to making leap-frog jumps in industry - not simply doing something better. We avoided being a me-too company. If we couldn't come up with something different, we didn't do it."
But Kukin makes an important marketing point that is really characteristic of the entire pollution control industry. "Our business depends on servicing the accounts we get, and maintaining our position of reliability. We put virtually all of our profits back into the company in the form of research and development."
In fact, according to data from the Environmental Industry Council, 44 percent of the industry's products are considered innovative, and a full 10 percent of all sales revenue goes back into new equipment research. Total expenditures for pollution abatement in 1976, according to the EIC, totalled $34.3 billion. By 1985, the council contends, that annual number will jump to $75.1 billion, in 1976 dollars. Between 1976 and 1985 cumulative expenditures will total an estimated $554 billion, the trade groups says.
Which is why EPA administrator Costle could stand up to the EIC's national conference in Washington last February, reaffirm the government commitment to a clean environment, and say, "Today, I am here to reassure you. You've got a green light and the operative word is GO!"