Topic Area: Environmental Entrepreneurialism

Geographic Area: Rain forests of Costa Rica and Ecuador

Focal Question: Are environmental and business interests mutually exclusive?

Sources:

Preserving Rain Forest Ecosystems and preventing widespread deforestation are not new movements in environmentalism; however, recent conservation efforts have been revamped in favor of more economically efficient measures. Traditionally, environmental movements relied on altruistic behavior and support of charities–conservation for conservation’s sake. Such measures were economically unattractive because they prohibited any commercial use of an area of forest; these efforts conflicted with the interests of industry and immediate local economic incentives and thus created difficulty in terms of support and enforcement. Logging and agricultural interests overpowered these misguided policies; the immediate financial gains from clearing new land for farming and cutting timber were more tangible and hence more convincing than abstract notions of future welfare. As a result, deforestation and degradation continued. Recent measures reveal a movement towards more efficient measures of protection through entrepreneurial leadership: "Environmental groups are now targeting their efforts toward developing commercially viable and sustainable uses of the rain forest"(Carr 14). Environmentalists gain from decreased degradation and firms are making profits–new policies represent a win-win relationship for both industry and the environment. The following brief examines several newly developed industries that exemplify the mutually beneficial relationship between industry and environment: the Tagua Initiative(buttons made from Ivory-like seeds), Shaman Pharmaceuticals (searching for medicinal remedies from rain forest plants), and management of eco-tourism.

Several conditions of efficiency must be considered when looking at these developing industries. First, local inhabitants must be compensated for any negative effects of regulation. For instance, if indigenous people survive on the sale of firewood or timber or the crops raised on cleared land, they must receive a share in the profits from the product equal to their lost income. Second, the firm must channel some income back to the local inhabitants as rent, over and above the compensation from changed lifestyle. Third, if a product’s popularity places additional pressure on supply, it must not translate into increased harvesting or degradation to the ecosystem. With these conditions met, the industry must be successful in the market and produce a viable good or service absent of subsidy.

The Tagua Initiative exemplifies the symbiotic relationship between rain forest and market. "The Tagua nut is an ivory-like seed that is harvested from tropical palm trees to make buttons, jewelry, chess pieces, and other arts and crafts" (Carr, 15). The nuts are sustainably harvested, and so the industry does not present any harm to the forest. Started by Conservation International, a Washington D.C. based environmentalist organization, the program "links button manufacturers [such as Smith and Hawken, Espirit, J. Crew, and L.L. Bean] with rural tagua harvesters in the endangered rain forests of Esmeraldas in Ecuador"(33). It has been a tremendous success. Since its February 1990 genisis, tagua nut sales have accounted for $2 million in sales worldwide, and the program is now a role model for other sustainably harvestable products like "Brazil Nuts and pecans from Peru, fibers for textiles, and waxes and oils"(33). Clearly a success from a market perspective, the Tagua initiative also "[provides] 1,200 local harvesters with an attractive price for tagua so that they have an incentive to protect the standing forest"(33). The Tagua initiative speaks well for the viability of green business. It has created a thriving and growing industry from sustainable harvests. Additionally, it creates jobs for local inhabitants, thus eliminating the incentive for locals to destroy the surrounding forest for firewood, timber and farming. Finally, the project channels income from developed countries into one of the poorest countries in the world, thus ameliorating living conditions there

Development in the Pharmaceutical industry are similarly successful as models of sustainable rain forest commercialization. Founded in 1989, Shaman Pharmaceuticals, Inc. has capitalized on the biodiversity of the rain forest as well as the local knowledge of indigenous medicine men (shamans) while operating under sustainable conditions. Shaman attempts to "tap into the knowledge of the shamans [to] reduce the costs of identifying plants with beneficial medicinal properties" and "increase the chances of success in the screening process." Their development process involves "screening plants in biological models, identifying active plant extracts, isolating and identifying active compounds, [and] profiling and prioritizing promising candidates for clinical development"(shaman). Shaman acts as a middle man between local inhabitants/local knowledge and the pharmaceutical industry: "Inverni della Beffa invested $500,000 in Shaman; Eli Lilly committed $4 million..., and Merck & Co. is working with Shaman on projects targeting analgesics and medicines for diabetes"(34). In Costa Rica, InBIO developed a similar agreement with Merck & Co 1991(Blum 20). These relationships have been immensely successful for all involved. By 1998 Shaman had identified 21 compounds for the treatment of type II diabetes, five of which have already been patented and several others are pending(shaman). The host countries, Ecuador and Costa Rica, also benefit from this relationship: "one of the most important yet least tangible benefits incurred by Costa Rica, [Brazil and Ecuador] is the ability to use its natural resources in a sustainable way while concurrently strengthening their economies"(Blum 20). Merck paid $1 million to Costa Rica and agreed to pay royalties for any drugs developed from the agreement. "Shaman donated 13,333 shares of its own stock to the [Ecuadorian] conservancy and plans to channel future product profits into projects that benefit the people of the source country"(Carr 35). In short, this symbiotic relationship represents another opportunity for sustainable growth driven by market based incentives.

Eco-tourism, when properly managed, can also benefit both the private firm and the environment. Defined as "purposeful travel that creates an understanding of cultural and natural history, while safeguarding the integrity of the ecosystem and producing economic benefits that encourage conservation," eco-tourism has various benefits. First, it stimulates the economy by producing jobs such as tour guides, accommodations, transportation, upkeep, etc. Second, it generates large amounts of revenue, and so the preservation of the environmental amenity has immediate, tangible financial value. Some of this revenue can be rechanneled to those people who once survived by selling timber or firewood, therefore compensating the losers and satisfying paretto optimality. Eco-tourism also educates the lay-man about the benefits of biodiversity which may indirectly lead to a higher value being placed on the amenity. However, if poorly managed eco-tourism can be harmful. Increased traffic at environmental amenities, commercialization, and erosion from the development of new roads are possible stresses; however, those who gain the most from eco-tourism will also have the greatest incentive to reduce the potential destruction because it is their money on the line. Therefore, theory suggests that whatever flaws initially accompany eco-tourism will be worked out as the industry develops.

Finally, commercialization and environmentalism are not necessarily at odds with one another. In fact, these three developing industries illustrate that the preservation of natural resources can be profitable if looked at from the right perspective.