The Multinational Monitor

September 1994

Plundering the Planet: Full Speed Ahead

Table of Contents


Dumping Pepsi’s Plastic

by Ann Leonard

Ravaging the Redwoods:Charles Hurwitz, Michael Milken and the Cost of Greed

by Ned Daly


Behind the Lines

Editorial: Putting Environment Last

The Front: Pulling for the Boss

Interview: Local Control or Global Plunder

An interview with Anil Agarwil


The Demanding Side of Utility Conservation

by David Lapp

Labor: China’s Toy Industry Tinderbox

Book Review: A Fierce Green Fire

Names in the News



A Patent Point of View

James Love, in espousing the shortsighted view that weak patent protection enables a country to provide relatively cheap pharmaceuticals, misses a major point about intellectual property protection: Countries that condone pharmaceutical patent piracy discourage the development of a home-grown pharmaceutical industry. In the long run, this hurts the country’s economy.

Lax intellectual property protection can also endanger public health, as the production of a substandard, spurious and counterfeit drugs can flourish in such an environment.

And, of course, this in addition to the harm, done to U.S. and other research-based pharmaceutical companies. Pirate companies in Argentina and Brazil alone, by copying drugs without compensating the inventor, rob the U.S. drug companies of $1 billion a year in lost export revenues. This is money that might have been invested in research and development of new life-saving medicines that could benefit patients all over the world.

Gerald J. Mossinghoff


Pharmaceutical Research and Manufacturers of America


Mr. Mossinghoff’s letter says that countries that do not protect patents on drugs will likely discourage the development of a home-grown pharmaceutical industry. This is clearly not true, if you consider the non- R& D sector of thepharmaceutical market. Argentina boosts a large domestic industry precisely because it allows domestic firms to produce and sell drugs that are protected under patents in the U.S. and elsewhere. If Argentina introduces 20 year patent protection without compulsory licensing, it will see a significant decrease in the sales from its domestic pharmaceutical industry.

Very few if any developing countries can reasonably expect to develop an important R& D pharmaceutical sector, not matter what changes are made in domestic patent laws. Even in developed counties, the evidence is that R& D is principally driven by public investments in R& D, which make private sector investments far more likely. In Argentina and elsewhere, we have encouraged governments to increase public spending on drug development R& D.

This allows governments to focus research on health problems of particular interest in those countries, to build the research capacity of domestic academic institutions, and to benefit domestically owned companies, as is often done in the United States, by the National Institutes of Health (NIH), which clearly favors firms with significant U.S. investment and employment over "foreign" companies.

Mr. Mossinghoff has described the domestic pharmaceutical companies in Argentina and Brazil as "pirates," which are robbing U.S. drug companies of $1 billion in export revenues. Mr. Mossinghoff doesn’t mention that changes in patent laws will be accompanied by other changes in the terms of trade between the U.S., Argentina and Brazil, which will likely hurt other U.S. businesses. More important, however, from my point of view, is his contention that pharmaceutical prices should be solely viewed in the context of export earnings and trade agreements. I was in Brazil in August, and I had the opportunity to experience first hand the hardships faced by a population that earns very low wages. The minimum wage for Brazilian workers in Sao Paulo was $65 a month. The U.S. embassy told me that drug prices in Brazil were about one fifth the price in the U.S. If Brazil takes actions that raise drug prices, it will cause millions of Brazilians, including children, to forgo needed medical attention. I do not believe that the U.S. government should force the Brazilian government to raise drug prices as its highest bilateral trade priority.

Our advice in Brazil was similar to the advice given in Argentina. We urged the government to impose an R& D royalty on drug sales, and to use that money to fund R& D on problems that were particularly important to the citizens of Brazil. We believe this would greatly benefit the world, particularly given the rich biological resources in Brazil. However, while I was making this argument, the Brazilian representatives of PhRMA were telling the government that the cost of development of a new drug was $359 million, and that each investment was a 5,000 to one risk. Since this is an expected development cost of $1.8 trillion per drug, the government was momentarily persuaded that it was just too expensive for Brazil. Of course, the absurdity of the PhRMA assertions on drug development costs were soon appreciated, but clearly PhRMA was actively discouraging the government from funding pharmaceutical R& D. Of course, in the United States, PhRMA is extremely supportive of the large NIH R& D budget, which is used to underwrite the cost of R& D for many of the most important new drugs that enter the world market.

Wrong Impression

An article titled "Monkeying With the Milk," in the June issue of Multinational Monitor was a well-researched and generally accurate account of the debate over recombinant bovine growth hormone (rbGH). But, in quoting the Consumers Union’s Michael Hansen, your report unduly emphasized a narrow technical issue and left an erroneous impression of why CU opposes the use of rbGH.

Dr. Hansen did indeed note that the hormone insulin-like growth factor 1 (IGF-1), which is found at elevated levels in milk from cows treated with rbGH, has been shown to promote the growth of tumor cells in laboratory experiments. However, he made that point in the context of explaining some of the unanswered questions about possible long-term public health impacts of rbGH use. Exposure to IGF-1 is one of several issues on which CU believes more and better scientific data are needed. But by emphasizing this point, your report implied that CU currently believes the use of rbGH increases consumers’ cancer risk. That is not the case.

CU has spoken out against the use of rbGH for several years, and we will continue to do so. Our posture is based on a broad analysis of the benefits, costs and risks to consumers of the use of this hormone, not primarily on the narrower and largely theoretical possibility of increased cancer risk.

Whatever its perceived benefits to the drug companies who sell it and the dairy farmers who choose to use it, rbGH offers no clear benefits to consumers. The drug’s purpose is to boost milk production, when the United States already suffers from a surplus of milk. Economic analyses indicate that the retail prices of milk and milk products do not go down in response to an increased oversupply. But the federal government is committed to buy up surplus milk, and the cost to taxpayers of that dairy- industry support program could increase by hundreds of millions of dollars in the next few years because of rbGH use.

CU, like the FDA, believes that use of rbGH will increase the risk of udder infections in treated cows, which in turn is likely to result in increased antibiotic use, and may produce a slight decline in the average quality of milk from rbGH-treated herds.

Given these likely impacts of rbGH use, and the lack of any tangible benefit to consumers to offset concern about unresolved questions of long-term health impacts, we are not surprised that surveys show a large majority of the public would prefer not to buy milk from rbGH-treated cows. CU believes consumers have the right to make that choice, and the fate of rbGH should be decided by market forces. For those reasons, we will continue to press for appropriate labeling of milk and dairy products from rbGH-treated cows.

Rhoda Karpatkin,

President, and

Edward Groth III, PhD,

Director, Technical Policy and Public Service

Consumers Union

Behind the Lines

Populist For Hire

EVIDENCE GATHERED BY THE the Washington, D.C.-based magazine Counterpunch indicates that self- styled populist James Carville has acted as a paid adviser to Brazilian pro-corporate presidential candidate Fernendo Henrique Cardoso.

Carville, who coordinated Bill Clinton’s presidential campaign in 1992, remains a close advisor to Clinton. The Counterpunch article, written by Ken Silverstein and published in the September 1 issue of the magazine, reports that "it appears [Carville] was hired about four months ago. He did not list Cardoso, or any Brazilian client, on a financial disclosure statement filed in June. The filing came after Republicans complained that Carville and three other close Clinton advisers ... should be required to reveal whom they worked for while advising the president."

Cardoso is the former finance minister of Brazil and is the author of country’s new anti-inflation economic plan, the "Plano Real." Cardoso’s main opponent is Luiz Inacio Lula da Silva, head of the Workers Party [see Brazil: A Time for Revolution: An Interview with Luiz Ignacio ‘Lula’ da Silva," Multinational Monitor, January/February 1991 ]. Lula had a commanding lead in opinion polls until recently, when public support shifted to Cardoso, primarily in response to the plan’s success.

"The total fee being paid to the U.S. consultants is believed to be in the neighborhood of one million dollars," according to Counterpunch. "Big money, but not a burden to Cardoso’s campaign, which is flush with deposits from businessmen terrified at the prospect of a victory by [Lula]. Someone familiar with the negotiations between Carville and [Cardoso’s Brazilian Social Democratic Party] said, ‘They (the party) have got more money than God.’"

The article noted that several other Washington, D.C. consultants were reported to be working with Carville on the Cardoso account, including Grunwald, Eskew and Donilon - headed by Mandy Grunwald, another Clinton confidante - and the public relations firm Chlopak, Leonard, Schecter & Associates.

None of the consulting firms responded to requests for comment.

Labor Round-Up

LEADERS OF INDONESIA ’S only independent trade union, SBSI, have been arrested and are facing trial in connection with worker unrest in the North Sumatra capital of Medan in April 1994. Some of these demonstrations turned violent, damaging ethnic Chinese-owned property and killing one ethnic Chinese factory owner.

Dr. Muchtar Pakpahan, chairperson of SBSI, was arrested in August 1994 and charged with "spreading hate" and organizing demonstrations without permission. According to SBSI spokesperson Tohap Simanungkalit, Pakpahan is likely to be tried for "masterminding" worker actions in Medan in April, when tens of thousands of workers took to the streets to demand wage increases, freedom of association and an investigation into the death of a worker named Rusli, whose body was found in a river after a workers’ rally in Medan in March.

The leaders maintain that, while they were involved in organizing the worker demonstrations, the ethnic riots that followed were incited by outside elements.

Pakpahan and the other union leaders have been subjected to interrogation, which is routinely violent in Indonesia.

"The clampdown on SBSI leaders in Medan and now the arrest of its general chairperson is clearly aimed at decapitating the union and thereby forcing it out of existence," asserts Pharis Harvey, executive director of the Washington, D.C.-based International Labor Rights Education and Research Fund. "The government-backed SPSI has never supported workers’ rights and sides with the bosses in most labor disputes."

The U.S. government is currently considering Indonesia’s labor rights practices in its ongoing review of Indonesia’s preferred trade status under the General System of Preferences (GSP). "The U.S. embassy is concerned about Mr. Pakpahan’s arrest and detention," an August 16 U.S. embassy statement said. "With respect to the ongoing dialogue between the United States and Indonesia concerning GSP, worker rights and human resource development, the Pakpahan case may come up during the course of that dialogue. We do not expect any announcements on GSP to be made while that dialogue is continuing."

The Indonesian embassy did not respond to questions posed by Multinational Monitor.

Sprint’s Union-Busting

THE NATIONAL LABOR RELATIONS BOARD (NLRB) will seek an injunction to require a Sprint subsidiary, La Conexion Familiar (LCF), to reopen its San Francisco facility and rehire those it fired when it closed the facility in July 1994, shortly before a scheduled union representation vote.

The injunction follows an investigation of a complaint filed against LCF by the Communications Workers of America (CWA) in September 1994. The complaint alleges that LCF unlawfully closed the San Francisco facility in response to a union organizing drive. The plant was closed on July 14, a week before the scheduled July 22 union election. The CWA complaint also charges that LCF engaged in more than 50 other unlawful practices relating to the organizing effort, including threatening and intimidating workers and union supporters. The trial for the complaint is scheduled for November 8, 1994.

"Sprint’s intention was to send the message, ‘We will not be unionized, and this is an example of how far we will go to keep from unionizing,’" claims CWA spokesperson Jeff Miller.

"I am very pleased that the Board has authorized us to seek the injunction," says NLRB General Counsel Fred Feinstein. "We hope the court will act promptly and will grant the relief we have requested for the many affected employees."

Sprint did not return calls made by Multinational Monitor.

- Aaron Freeman

Editorial: Putting Environment Last

NEARLY TWO YEARS INTO BILL CLINTON’S TERM, and with "environmental extremist" Al Gore at his side, it is time for environmentalists to assess the Clinton administration.

The Clinton administration’s policies have weakened the already minimal restraints on environmentally destructive corporate behavior, giving corporations an even longer leash to strip the lands, pollute the air and water and poison the citizenry. As Peter Montague of the Environmental Research Foundation noted, "Clinton has shown himself willing to sell out the American public on essentially every important environmental issue, whenever corporate executives tell him to."

Many of the administration’s policy decisions will undermine the ability of citizens and government agencies alike to control corporate polluters.

o The North American Free Trade Agreement will exacerbate the toxic mess on the U.S.-Mexican border. In the United States, its broader impact undermines local, state and federal efforts to implement or enforce tough environmental regulations.

o The new General Agreement on Tariffs and Trade (GATT ), which the administration hopes Congress will approve this year, could subject U.S. federal and state environmental laws to GATT challenges, and exercise a chilling effect over the development of new environmental standards. The new GATT would require member countries to use the "least trade restrictive" means of achieving a particular environmental goal.

o The appointment of Justice Stephen Breyer marked the ascendancy to the top of the judicial hierarchy of the cruel practitioners of "risk-benefit analysis." Like other devotees of this allegedly objective mode of analysis, Justice Breyer has involved risk analysis to belittle environmental and health and safety risks and to overstate the costs of protective measures.

The administration has displayed a penchant for compromises that elevate mercantile interests over environmental values.

o In seeking to sell a pesticide reform package to both environmentalists and industry, the Clinton Environmental Protection Agency sought to abolish the Delaney Clause, the federal law which prohibits the use of cancer-causing pesticides that concentrate in processed foods. The chemical industry despises the Delaney Clause’s firm zero-risk policy and its emphasis on prevention rather than control of environmental harms.

o In land-use disputes in the Pacific Northwest and South Florida, the administration has forcefully advocated "compromises" that would open millions of acres of old-growth forest to logging and permit sugar barons to continue siphoning clean water from Lake Okeechobee and releasing fertilizer- contaminated water into the Everglades ecosystem.

There is very little on the positive side to counterbalance Clinton’s sell-out on the environment. Even where the administration has backed pro-environment positions, it has failed to support them with enough vigor to shepherd legislative proposals through Congress in the face of an emboldened business community. A case in point is the administration’s failed effort to overturn the Mining Act of 1872, which lets mining companies stake claims to federal lands for $5.00 an acre or less, pay no royalties on the riches they excavate and decimate environmentally sensitive areas.

While many have characterized the administration’s policies as incoherent, there is a consistent thread that links Clinton’s environmental agenda: The corporate agenda is paramount. Since his election, Clinton has yet to show any commitment to leveling a playing field on which corporations dominate citizens.

Leaders of the Big 15 environmental groups, in an unprecedented urgent appeal issued in July to their members, acknowledged that "even during the Reagan/Watt/Gorsuch years, we have never faced such a serious threat to our environmental laws in Congress." Having a Democrat in the White House has not blunted the corporate assault on environmental policymaking.

While the Big 15 letter outlined three chief threats that the administration has not addressed - risk analysis, unfunded federal mandates and the so-called "takings" movement that claims environmental laws unconstitutionally acquire private property - the letter conveniently ignored the corporate interests that advance these environmental threats.

It is time for the mainstream environmental movement to recognize that it is significantly responsible for the desperate straits in which it finds itself. After the Clinton election, protest and resistance strategies were traded for political access. Leaders of environmental groups huddled with Clinton officials behind closed doors as business groups mobilized their forces in the public arena. The de- mobilization of the national environmental groups set the stage for corporate polluters to ascend.

The Big 15 letter drew a rapid response from 173 citizens. These people, who included "trade union, religious and electoral activists, as well as survivors of industrial disasters and shareholder rights advocates," acknowledged the Big 15’s assertion that "we have never faced such a serious threat to our environmental laws in Congress," and noted that the Big 15 have "not identified those subverting Congress as our real adversaries in the struggle to save our communities and the natural world: the leaders of today’s giant corporations, and the powerful corporations they direct."

The citizens asked leaders of the Big 15 to meet with them to discuss ways to confront the corporate threat to the environment. Thus far, only one - the Wilderness Society - has expressed a willingness to do so.

Given Clinton’s dismal track record, and the fact that the new Congress is likely to be significantly more conservative than the current one, the current strategies of mainstream environmental groups are unlikely to win genuine environmental victories at the national legislative level in the next few years. Environmental groups should join those fighting the battles at the grassroots and work to support them by addressing the problems of corporate power and corporate greed - issues that Clinton and Congress would rather ignore.

The Front

Pulling for the Boss

LAST SPRING, These companies are among a growing number of employers which are using a tactic that became popular during the debate over the North American Free Trade Agreement (NAFTA ) - enlisting workers to lobby Congress on behalf of a company’s interests.

But as companies increasingly use workers as political foot soldiers, critics are challenging the propriety of the practice.

It is inappropriate for an employer to ask workers to support its political position, contends the American Civil Liberties Union (ACLU). "Employers shouldn’t conduct themselves that way," says Milind Shah, assistant to the director of the ACLU’s National Task Force on Civil Liberties in the Workplace in New York. "Not only is it unethical, it detracts from the political process. Employers should not use their position of power in the employment contract to force employees to take their political views," Shah says

"The boss is the boss, and the employment relationship is such that you do what he asks you," says Greg Denier, spokesperson for the United Food and Commercial Workers Union, about corporations’ efforts to enlist workers in their political lobbying. "Introducing politics into that relationship causes us some concern."

But employers say what’s bad for the company may also be bad for employees, and there’s nothing wrong with telling them so. "You try to go to workers when it’s an issue of general interest to them and will affect them," says Austin Sullivan, vice president of public affairs at General Mills. "I think it’s absolutely appropriate to do that as long as you treat [workers] with respect and don’t expect them to walk lock-step with you."

Sullivan says the company is simply another information source on important legislation. "Why shouldn’t we be one of those sources? No one would have a better idea about what will affect our company than us."

But worker advocates and civil libertarians worry about the potential fallout for workers who don’t toe the company line. In contrast to legal prescriptions on discrimination based on age, sex, race and religion, U.S. law does not clearly protect workers with dissenting political beliefs from being discriminated against or even fired, although government workers’ political views are protected by the First Amendment. And some states do have anti-retaliatory statutes that cover harassment, discrimination, demotion or dismissal on the basis of political views. Even in states with minimal protections, employers maintain a great deal of discretionary power. For example, legal experts say employers can probably force workers to attend meetings about, say, health care, even if workers do not want to. "As long as the employer makes it very clear they will tolerate dissent and that they will not coerce you to take their view, they can [call the meeting]," the ACLU's Shah says. "It’s not like a religious discussion," Shah says. "Your political beliefs can be openly debated in the workplace."

If an employer makes a political meeting mandatory, says Charlotte, North Carolina attorney Margaret Errington, "I think it’s grossly offensive, but I’m not sure it’s illegal." Errington, an employment discrimination attorney at Ferguson, Stein, Wallas, Adkins, Gresham & Sumter, says workers may be protected by case law, or precedent-setting court judgments, however.

Business ethics professor R. Edward Freeman says it’s impossible to separate politics and business. "The political life is already there," says Freeman, director of the Olssen Center for Applied Ethics at the University of Virginia’s Darden Graduate School of Business Administration. "There isn’t a company that isn’t involved in the political arena. ... Politics affects business. To say that we ought to keep it separate or private is not realistic."

When the issue affects the company as well as the worker, it’s entirely proper to ask workers to take on the cause, he says. An example of that was when tobacco companies enlisted workers to protest the cigarette tax, says Freeman.

Freeman adds that the workplace can be a marketplace of ideas where workers and employers can exchange political views. There is no harm, he says, "as long as I have an option to refuse [the opinion] and there is no coercion."

Employers say they encourage workers to support their position on various issues, but do not coerce them to do so.

IBM ’s health-care memo was the second time the company asked workers to call Congress. Last fall, IBM asked employees to call legislators in support of NAFTA. In both cases, "We said, ‘If you agree, please contact your representative,’" says IBM spokesperson Loula Kontoulas. "It was voluntary."

Like IBM, General Mills says it doesn’t force workers to take the company’s side. The company has a history of sending letters and holding meetings to air the company’s positions on legislation from taxes to NAFTA, Sullivan says. Sullivan, who oversees General Mills’ communication to workers on political issues, says the company employs experts to study all sides of an issue. "We’re going to give them our very best shot at everything, and we add our opinion," Sullivan said. "We will not hide our opinion."

General Mills employs 126,000 workers - 100,000 of them in its restaurant division, which has 1,101 Red Lobster and Olive Garden restaurants. Its restaurants operate with mostly part-timer workers who do not receive health-care coverage.

Besides showing the video during the voluntary employee meetings, General Mills’ restaurant division provided workers with postcards opposing an employer mandate to send to Congress.

Sullivan says there are no ways of measuring the effectiveness of these tactics. However, he says, "My sense is that it is effective in getting people interested in subjects that they might otherwise not have time for."

-Tawn Nhan

Reprinted by permission: Knight-Ridder Tribune News Service


Dumping Pepsi ’s Plastic

by Ann Leonard

MADRAS, Meanwhile, in the Indian capital of New Delhi, thousands of activists have vowed to disrupt the sale of Pepsi in the city. The activists have denounced Pepsi as among the most visible symbols of the multinational invasion of this country and have already succeeded in decreasing sales in government canteens and at Delhi University.

The anti-Pepsi campaign is part of a larger "Swadeshi" movement urging the boycott of many foreign goods in the country. The term "Swadeshi" has been borrowed from the movement launched by Mahatma Gandhi against British-made goods during India’s independence struggle. At that time, Gandhi called upon the British to "quit India;" now activists are calling on multinational corporations - including Pepsi - to quit India. Demands for "Pepsi Hatao" (Evict Pepsi) are now ringing throughout the country.

While anti-Pepsi sentiment has been strong since the company entered India four years ago, new charges that Pepsi is contaminating the country’s environment through plastic waste dumping and other schemes have significantly intensified national antagonism to the beverage giant.

Indian environmentalists, working with investigators from Greenpeace’s International Toxic Trade Project, have discovered that Pepsi is involved in both producing and disposing of plastic waste in India. Under Pepsi’s two-part scheme, plastic for single-use disposal bottles will be manufactured in India and exported to the United States and Europe, while the toxic by-products of the plastic production process will stay in India. Used plastic bottles will then be returned from these countries to India.

India will bear the burden of environmental and health impacts from plastic production and plastic waste, while consumers in industrialized countries will be able to continue using and disposing of massive quantities of unsustainable and unnecessary beverage packaging without absorbing the true costs - financial, health and environmental. In short, India gets shafted at both ends, while industrialized country consumers receive all the benefits.

Pepsi’s plastic dumping in India

Activists first learned of Pepsi’s waste exports to India through U.S. Customs Department Data. Greenpeace researchers discovered records listing Pepsi as the exporter of about 4,500 tons of plastic scrap in 23 shipments during 1993.

The U.S. Customs records indicated that all of the waste exports were destined for the Southern Indian City of Madras. All of the shipments left from the U.S. West Coast: eight shipments from San Francisco, two shipments from Long Beach, 10 from Los Angeles, and three from Oakland. The most frequently used shipping lines for these waste shipments were OOCL and Presidential.

Much of the waste was dumped at the site of a factory owned by Futura Industries in Tiruvallur, outside of Madras. "As we came over the hill in our auto-rickshaw, we saw a mountain of plastic waste," recounts Madras environmentalist Satish Vangal, one of the researchers who discovered the site. "Piles and piles of used soda bottles stacked behind a wall. When we got closer to the factory, we found many bottles and plastic scrap along the road and blowing in the wind. Every bottle we saw said ‘California Redemption Value.’ They were all from California’s recycling program and now they are sitting in a pile in India!" explains Vangal. "We have enough problems dealing with our own plastic wastes; why should we import other peoples’s rubbish?"

Pepsi officials in the United States acknowledge the waste is exported to India, but claim it is all recycled. Futura officials also say the waste is imported, but they admit that much of it is not actually recycled. The senior manager of the Futura plant, Dr. L.R. Subbaraman, estimated that 60 to 70 percent of the waste can be processed at his factory, but the rest is either too contaminated with residual materials or other garbage that arrives mixed in with the shipment, or is the wrong type of plastic. Subbaraman refused to disclose the fate of the waste which cannot be reprocessed at the plant.

Subbaraman reports that Futura has imported a total of 10,000 metric tons of plastic waste from Pepsi and other companies since 1992. If only 60 to 70 percent could be processed within the Futura plant, 3,000 to 4,000 metric tons of plastic garbage have been imported which were not recyclable. A visit to the back of the plant revealed a massive pile of plastic discards.

In a process that can only loosely be termed "recycling," the plastic waste which can be reprocessed is washed, chipped and melted to be incorporated into polyester made by Futura’s parent company, Indian Organic Chemicals, Ltd. , (IOCL). Incorporating imported waste into the production process lowers the cost of polyester production but is not true recycling. True closed-loop recycling, with no new resource input and no waste output, is virtually impossible with plastic waste. Each time plastic is reheated, its chemical structure changes and the quality degrades. For this reason, a used plastic Pepsi bottle may be made into a secondary product, but cannot be made into a new Pepsi bottle.

Vangal explains that "instead of a Pepsi bottle going to a dump in California, a few months later you have a piece of polyester going to a dump here in India. This isn’t recycling. At best, this type of reprocessing delays the eventually dumping of the plastic. At worst, it encourages consumers in California to buy more plastic, since their environmental concerns are lessened by the promise the bottles are being recycled." [see "South Asia: The New Target of International Waste Traders," Multinational Monitor, December 1993 ].

Providing jobs for those in need?

Although Futura and IOCL representatives boast about how their factory provides jobs for needy low- income women in Tiruvallur, Subbaraman actually has plans to replace as many workers as possible with machines. He explains that workers cause problems. Often, he says, they are lethargic. "Later they will ask for more money, form organizations, maybe a union. We are always trying to be more machine oriented." In the meantime, while they still need manual labor, T. Gangadharam, managing director of Futura Polymers, says he prefers to hire women because "they are more adept since they have picky fingers." While they are employed, Subbaraman says, each worker receives Rs 20, or about 60 cents, a day to wash and process used soda bottles. Women workers outside the factory tell a different story. Although they work all day, they report that they are lucky if they get 30 cents a day. The workers also say that they do not have protective clothing to guard against painful hot-water washing, inhaling fumes or other exposure to contaminated plastics.

Pepsi officials in the United States, as well as their counterparts at Futura in Madras, maintain that there are no health threats posed by recycling plastic. However, Dr. Paul Johnston, of the University of Exeter in the United Kingdom, who has investigated the effects of plastic recycling, has identified a number of harmful effects of plastic recycling, including skin and respiratory problems resulting from exposure to or inhalation of toxic fumes, especially hydrocarbons, and residues released during recycling processes.

According to Johnston, "Existing data, though sparse, illustrates that health and environmental impacts can arise from a number of steps in plastic recycling processes and therefore that such operations need to achieve the highest environmental and occupational health standards. Problems can occur with both the initial sorting of waste and with the onward processing of the separated plastics."

Plastic Waste: From California to India

Rather than switching to more environmentally benign (albeit heavier, and more expensive to transport) glass bottles, Pepsi, Coca-Cola and other plastic producers and users have set up a Los Angeles-based enterprise called the Plastics Recycling Corporation of California (PRCC) to facilitate their plastic waste exports. These companies’ financial contributions to PRCC subsidize its purchase and export of the waste, virtually all to Asia.

Ron Kemalyan, the broker for PRCC’s Los Angeles office, admits that despite the company’s name, it maintains no actual recycling facilities, and only arranges for waste to be exported. "We are a brokerage. We buy the bottles at 46 cents a pound from the municipal recyclers and sell it on to anybody who will buy it. They pay eight to 10 cents a pound and the difference is made up by the soft drink companies who set up this company," he says.

Futura Polymer’s T. Gangadharam says it makes economic sense to treat "this junk" from PRCC in India since it is cheaper to handle the waste there than to recycle it in the United States or transport it to U.S. landfill sites. "PRCC is very happy [that we import the waste.] We have taken a big load off their head," Gangadharam explains.

While officials from Pepsi, PRCC and Futura and its parent IOCL all maintain that the plastic waste imports are legal, the shipments may violate both Indian law and the terms of an international treaty.

Last April, Commerce Minister Pranab Mukherjee banned the import of plastic wastes into the country. In addition, India is a party to the United Nations’ Basel Convention on the Control of Transboundary Movements of Hazardous and Other Wastes. This convention regulates the international waste trade. While not listing plastic waste as a separate category, the convention does include "wastes collected from households." Much of the plastic waste shipped to Asia by Pepsi or PRCC are plastic wastes collected from households in U.S. recycling programs, so this waste is covered by the Basel Convention.

The Basel Convention prohibits the trade of Basel-covered wastes between parties to the convention and non-parties unless the countries have a separate waste trade agreement in place. Since India is a party to the Basel Convention while the United States is not, waste shipments between the two violate the terms of the Basel Convention.

Pepsi’s plastic production plans

Waste disposal is only one part of the problem with plastic.
Plastic production poses even more severe threats to the environment and public health than disposal. While Pepsi is exporting its plastic waste problems to India, it is also quietly setting up new plastic production plants there.

The Indian Foreign Investment Promotion Board (FIPB) has already cleared Pepsi’s proposal for a joint venture with IOCL to set up a $25 million plant to manufacture plastic PET bottles. Pepsi Foods Limited will hold 51 percent equity in the new company with IOCL holding a 49 percent share.

The factory will be set up in the same region where the used Pepsi bottles are sent, near the Southern city of Madras, and will produce polyester chips and pre-forms for PET soda bottles. PepsiCo Inc. has promised to buy 100 percent of the Indian company’s output for its European and U.S. operations.

Greenpeace has denounced the project as an example of the unacceptable practice of a U.S.-based corporation locating its toxic operations in less-industrialized countries in order to avoid strict domestic environmental and labor laws. Marcelo Furtado, a toxic technologies expert with Greenpeace, says, "Single use plastic soda bottle production is an example of a hazardous and totally unnecessary technology. Instead of shifting this polluting technology to the Third World, Pepsi should bring back clean, safe, refillable glass bottles, like those used throughout India."

Many Madras citizens have also expressed opposition to Pepsi’s construction of plastic-producing facilities in their communities. Madras activists point out that plastic production generates far more toxic emissions and waste than glass production and poses a much higher risk for chemical accidents than glass production. Says Vangal, "Westernized countries should worry about reducing their consumption of plastic, instead of quietly moving their hazardous plastic factories and shovelling their plastic wastes into my country."


Dangers of Plastic Production

Independent consultants Henry Cole and Ken Brown, in their recent report "Advantage Glass," explained that "the major ingredients used in glass production are naturally occurring minerals including sand, limestone, soda ash and feldspar. These materials are solid, inert, non-flammable, and are largely non- toxic. ... The major chemicals used to make plastic resins pose serious risks to public health and safety. Many of the chemicals used in large volumes to produce plastics are highly toxic. Some chemicals, like benzene and vinyl chloride, are known to cause cancer in humans; many tend to be gases and liquid hydrocarbons which readily vaporize and pollute the air. Many are flammable and explosive. Even the plastic resins themselves are flammable and have contributed to numerous chemical accidents."

"The production of plastic emits substantial amounts of toxic chemicals (eg. ethylene oxide, benzene and xylenes) to air and water. Many of the toxic chemicals released in plastic production can cause cancer and birth defects and damage the nervous system, blood, kidneys and immune systems. These chemicals can also cause serious damage to ecosystems."


Ravaging the Redwood: Charles Hurwitz, Michael Milken and the Costs of Greed

by Ned Daly

The fate of the largest unprotected redwood forest in the world may now rest in the hands of an unlikely savior, the Federal Deposit Insurance Corporation (FDIC).

Since the 1985 MAXXAM takeover of Pacific Lumber , the redwood ecosystem known as the Headwaters Forest, located in Humboldt County on California’s North Coast, has been under siege. Lawsuits, direct action, legislative efforts and all other attempts at preservation have so far failed to curb MAXXAM’s ravenous appetite for redwood lumber. Now many environmentalists and community activists are hoping the FDIC can stop the forest from falling victim to corporate greed. The federal agency may be able to acquire the redwood forest as partial or full payment for the $548 million outstanding claim against the United Financial Group (UFG), a holding company for United Savings Association of Texas (USAT), a failed savings and loan controlled by MAXXAM and its chief executive officer, Charles Hurwitz.

Hurwitz is not averse to transferring part of the Headwaters Forest to federal government control, but he is insisting on rather different terms than environmentalists are proposing. Ignoring the fact that a company he controls, UFG, owes $548 million to the government, he has asked the government to pay him $600 million cash for a small grove of redwoods; if the offer is refused, he has threatened to liquidate the forest.

"If the federal government does not purchase the Headwaters Forest, Pacific Lumber will go ahead with its timber operations," says MAXXAM’s Director of Public Relations Scott Lamb.

A Wall Street Journal article said Hurwitz’s proposal "brings new meaning to the term greenmail." Hurwitz paid approximately $900 million for the 196,000 acres owned by Pacific Lumber. If the government were to accept his proposal to buy 4,500 acres for $600 million, Hurwitz would earn a profit of more than 2,800 percent.

The people of California’s North Coast know Charles Hurwitz and MAXXAM well enough to take his threat seriously. Twice in 1992, the company cut hundreds of trees in the old-growth grove of Owl Creek on holidays and weekends when state regulators were not working, in violation of the California Board of Forestry cutting regulations. Both times the cutting was eventually stopped by court injunction. Under current plans, MAXXAM will harvest all the remaining old-growth redwoods it owns within the next 14 years.

One of the last stands

The government’s response to MAXXAM and Hurwitz’s threat will determine the fate of a unique ecosystem.

Many trees in the Headwaters Forest are as old as 2000 years. The cornerstones of an old-growth ecosystem are species diversity and a continual recycling process interlocking life and death. After a 300- foot redwood falls, it serves as a nurse log to help new seedlings grow. The seedlings grow right out of the nurse log, which provides nutrients to the new trees as it decays. As the older tree falls, it creates one of the few canopy breaks in an otherwise shady forest floor. The nurse log lies basking in the sunlight, offering the new seedlings essential light as well as nutrients.

Logging, especially clearcutting, stops this ecological recycling process and seriously threatens the forest’s ability to regenerate. When loggers remove cut trees, they also remove the nutrients that the trees would have returned to the soil. The soil itself will be lost after a rain because it no longer has trees holding it in place. As topsoil is depleted, desertification begins.

Though the redwood forests still support a diverse array of species, including California black bear, mountain lion, Pacific fisher and steelhead trout, logging is taking a severe toll on forest wildlife. Many rare and endangered species also call the redwoods of Humboldt County home, among them the northern spotted owl, marbled murrelet, pacific giant salamander, tailed frog and coho salmon. Their survival is dependent on a diverse and healthy old-growth forest.

Carl Ross, co-director of Save America’s Forests, the nation’s largest grassroots forest protection organization, says, "If we fail to protect these last stands of redwoods, we will lose one of the greatest wonders of the living world for all time. Less than 4 percent of native redwoods are still standing, and that tiny percentage is being hacked and cut for the last shred of money that can be sawed from their red roots. If we allow the extinction of these largest of all living things, we will be condemned as a society that knew the price of everything and the value of nothing."

Takeover plunder

The redwoods of Humboldt County may seem a long way from Houston, and United Savings Association of Texas, but whether the FDIC decides to pursue the connection may determine whether the Headwaters Forest survives.

There was little need to worry about the Headwaters Forest before Hurwitz’s takeover of the Pacific Lumber Company. The family-run business was one of the most economically and environmentally sound timber companies in the United States. Pacific Lumber rarely if ever clearcut; it generally left standing 30 to 50 percent of the timber in a harvested area. This not only created natural canopy break for new growth, it also kept much of the soil stable, increasing the forests’ growth potential.

The company was also generous to its employees. Pacific Lumber rented housing at below market rates to employees and maintained a "no layoff" policy despite downturns in the timber market. The company also funded a very generous pension fund.

Pacific Lumber’s strength soon became its weakness, however. The pension fund was overfunded by $60 million, and, because of its sustainable cutting practices, the company held tremendous assets (old- growth redwoods) that could be liquidated quickly. Assessing Pacific Lumber in 1985, Charles Hurwitz decided it was ripe for a takeover, and he plucked it in the fall of that year.

Almost immediately after the takeover, Hurwitz raided the pension fund and doubled the rate of cutting to pay off the loans and junk bonds used to finance the takeover. If there was any doubt about Hurwitz’s intentions and his dedication to preserving the sustainability of his new acquisition, it was cleared up in his first meeting with the workers of Pacific Lumber. Hurwitz was quoted by Time magazine as telling his new employees, "There is the story of the golden rule: he who has the gold rules."

Creative financing

The story of MAXXAM’s takeover of Pacific Lumber is itself a tale of intrigue, shady dealings and questionable business practices. MAXXAM announced that it would make a cash tender offer for Pacific Lumber on September 30, 1985. Drexel, Burnham, Lambert structured the financing, which consisted of a $300 million short-term loan from the Irving Trust Company and $450 million dollars worth of junk bonds sold by Michael Milken’s high-yield bond department at Drexel Burnham.

Shortly after MAXXAM made its offer, the New York Stock Exchange (NYSE) initiated an investigation into the heavy volume of trading in Pacific Lumber stock which took place in the days before MAXXAM made its offer. A House Energy and Commerce Subcommittee on Oversight and Investigation report states that the NYSE investigation uncovered significant evidence of insider trading and parking stock, although no civil or criminal actions were brought against MAXXAM or its associates for their activities related to MAXXAM’s purchase of Pacific Lumber.

The NYSE investigation, the subcommittee’s report and subsequent congressional hearings all make a strong case that stock parking took place. Parking stock is the practice of buying stock for another party in order to conceal the identity of the true or eventual owner. If Hurwitz had someone park stock for him, he could have accumulated Pacific Lumber stock anonymously and at a lower price than after the company was put "into play" (when it became known a single party was accumulating large blocks of the company’s stock), which would drive the price of stock up almost immediately.

Boyd Jefferies, former chairperson of the Los Angeles brokerage firm Jeffries Group, Inc., who later pleaded guilty to parking stock for Ivan Boesky, accumulated 539,600 shares of Pacific Lumber stock and sold the shares on September 27 to MCO Holding Company, a Hurwitz-controlled enterprise. Presumably, this purchase gave Hurwitz enough stock to begin the hostile takeover of Pacific Lumber which he commenced three days after MCO purchased the stock.

Hurwitz and Jefferies both deny any prior agreement to park stock, but Energy and Commerce Committee Chair John Dingell, D-Michigan, and Representative Ron Wyden, D-Oregon, concluded in October 1987 that it was unlikely that the sale took place without a prior agreement, because the stock was sold well below the trading price on September 27, 1985. Since there had been so much trading before Hurwitz’s offer, the stock price had already begun to rise. On September 27, Pacific Lumber was trading at close to $34 per share. In what was probably one of the more philanthropic stock sales ever seen on Wall Street, Jefferies sold the Pacific Lumber stock at $29.10 rather than its market trading price of $34. The discount sale was not attributable to a prior agreement, according to both parties, but apparently to the fact that Boyd Jefferies felt good-hearted that day.

Jefferies’ generosity was not enough to ensure the financial stability of the newly acquired company. Though the interest payments on the junk bonds Hurwitz and MAXXAM used to finance the takeover were not due for four years, it was evident soon after the purchase of Pacific Lumber that it would be difficult to cover the debt. The annual interest payment on the junk bonds was more than the historical annual profit of Pacific Lumber.

To make the bonds more attractive to potential bidders, MAXXAM announced it would terminate the pension plan and sell most nontimber assets to pay the bank loan. MAXXAM also decided it would increase Pacific Lumber’s timber cutting rate to pay off the junk bonds.

Getting to the pension fund required some slick maneuvering. According to William Bertain, a lawyer representing shareholders in Pacific Lumber and residents of Humboldt County in a suit against Pacific Lumber, the company attempted to protect the pension fund before Hurwitz’s raid by declaring that the pension fund’s excess $60 million would vest directly to the employees and retirees in the event of a hostile takeover.

Under pressure from a suit by MAXXAM, the Pacific Lumber board of directors agreed to a "friendly takeover," and MAXXAM agreed to defend the Board if it was found to have breached its fiduciary duty to the shareholders. MAXXAM increased its offer by $1.50 a share, for a total increase of approximately $33 million. But since it was now undertaking a friendly takeover, MAXXAM had access to the $60 million excess in the pension fund - so MAXXAM came out $27 million richer, despite the higher price paid.

Hurwitz was later sued by the U.S. Department of Labor and employees for investing Pacific Lumber’s pension fund with the now-failed Executive Life Insurance Co. allegedly in return for Executive Life’s junk bond financing of the Pacific Lumber takeover. The suit is still pending.

Failing Finances

Three years after MAXXAM’s takeover of Pacific Lumber, another piece of Hurwitz’s empire, United Savings Association of Texas, failed. The circumstances of the failure remain hazy. Although MAXXAM’s Lamb claims that "USAT’s decline can be attributed to a decline in the Texas real estate market," the S& L’s deep involvement in Michael Milken’s junk-bond schemes appears to have been an important factor in its downfall.

By the time USAT failed in 1988, Hurwitz had already gained the attention of regulators. In 1971, Hurwitz was sued by the Security and Exchange Commission for alleged stock manipulation, and charged by New York State regulators with looting Summit Insurance Company. Hurwitz was not found guilty in either case.

In the three years prior to its failure, USAT purchased more than $1.3 billion worth of junk bonds underwritten by Drexel Burnham. During those same years, the Milken group raised about $1.8 billion for Charles Hurwitz and his takeover ventures, including the takeover of Pacific Lumber, according to a FDIC lawsuit against Michael Milken.

The FDIC told the United Financial Group (UFG) that the company and its officers are liable for breach of fiduciary duty for wrongfully failing to maintain the net worth of a failed savings and loan. The FDIC also alleges that Hurwitz used USAT to aid Michael Milken’s scheme to manipulate the junk bond market. And the FDIC accused UFG of wrongfully causing USAT to pay dividends to UFG.

At the time of the failure, MAXXAM owned approximately 22 percent of USAT and 28 percent of United Financial Group, the thrift’s holding company. Charles Hurwitz was chair of both MAXXAM and UFG when USAT failed.

The questions of propriety surrounding the takeover of Pacific Lumber and the collapse of USAT may provide hope for the preservation of the Headwaters Forest, as Congress and environmentalists try to fashion a response to Hurwitz’s demands.

One possibility is for the government to accede to the proposal for a $600 million cash buyout of the forest. The Headwaters Forest Act, introduced by Representative Dan Hamburg, D-California, would authorize the Department of Agriculture to buy 44,000 acres of the forest. Because of Congress’s understandable reluctance to pay $600 million, the bill leaves the amount and method of payment open to negotiation between the Department of Agriculture and Hurwitz.

Hamburg’s bill has passed the House of Representatives and Senator Barbara Boxer, D- California, has introduced a Senate version of Hamburg’s bill, but it currently has no co-sponsors.

Another, bolder approach would avoid the need for Congress to directly or indirectly authorize funds for the purchase of the Headwaters Forest. Prodded by some environmentalists, Representative Ron Dellums, D-California, Chair of the House Banking Committee Henry Gonzales, D-Texas, and other members of the House have asked the FDIC to consider "disgorging" Pacific Lumber from MAXXAM, on the grounds that MAXXAM’s takeover of Pacific Lumber was inextricably bound up with USAT’s failure.

The case for disgorgement, Dellums wrote to FDIC Chairman Andrew Hove, "is based on the assessment that MAXXAM acquired Pacific Lumber as a direct result of certain alleged breaches of fiduciary duties owed United Savings Association of Texas (USAT) by MAXXAM, as controlling stockholder, and by similar alleged breaches of duty on the part of certain overlapping officers and directors." The letter explains, "These alleged breaches include causing USAT to invest heavily in junk bonds underwritten by Drexel, Burnham and Lambert as a quid pro quo for Drexel’s underwriting of the bonds MAXXAM used to acquire Pacific Lumber."

Jill Ratner, a lawyer at the Oakland-based Rose Foundation was the first to look into the idea of disgorgement. According to Ratner, "We based our theory on the FDIC’s own allegations in a related case. The FDIC’s complaint in FDIC v. Milken alleged that Drexel, Burnham and Lambert and MAXXAM’s CEO, Charles Hurwitz, arranged for the S& L [USAT] to purchase millions of dollars of Drexel’s underwritten bonds in return for Drexel’s securing the financing that allowed MAXXAM to buy out Pacific Lumber. In the end, these alleged interested insider transactions were very much to MAXXAM’s advantage and very much to USAT’s detriment."

In sum, Ratner says, "What we’re saying is that if the FDIC can prove what it already alleged, MAXXAM should be made to surrender the profit it made on the allegedly improper financing deal, and that profit is Pacific Lumber."

The FDIC has responded to the calls for disgorgement by stating that it is still reviewing the matter, and that it has entered into an agreement with UFG and others who may be responsible for losses resulting from the failure. The parties have all agreed to hold off legal actions and negotiate toward a settlement.

Disgorgement would put the Headwaters into federal ownership, but many in the communities throughout Humboldt County would like to see Hurwitz pay for his actions with more than just trees. Darryl Cherney, an Earth First! activist in Garberville, California, has been working on this issue since MAXXAM took over Pacific Lumber. Cherney has a deep disgust for Hurwitz and his business practices. "Hurwitz has pilfered the Pacific Lumber pension fund, ripped off the redwoods, and swindled a savings and loan to do it. We say three strikes and you’re out. The only thing that is up for negotiation as far as old growth redwoods are concerned is the length of Hurwitz’s jail sentence."


Local Control or Plunder

An interview with Anil Agarwal

Anil Agarwal is director of the Center for Science and Environment, a non-profit research institution in India that conducts public interest research on environment and poverty issues.

Multinational Monitor: What are your criticisms of the work that industrialized country environmental groups have done on global warming?

Anil Agarwal: I would not say that we have been critical of most of the NGOs and environmental groups in the North.

But we have definitely been critical of a few groups. We believe that the way to look at global environmental problems is in terms of looking at the environment as a global common property which we all share, and which is literally the source of our survival. Therefore, the manner in which we manage the earth and its common resources should be such that it brings equal benefits to all humankind. And we felt that this was not the approach that was being taken. Instead, the approach was to attempt to ameliorate a problem, greenhouse gas emissions, without considering who has created the problem.

This is a very status quo approach in which the rich and the powerful keep creating problems, and then the rest of the world, once those problems are created, must get together and try to solve them. It is not a systemic approach. The atmosphere is a global common property resource, and the benefits of that belong to all humanity. If one group is overusing the atmosphere, then it is not only just damaging the atmosphere, but, in social and in economic terms, it is using up a resource that belongs to somebody else.

MM: Which of the Northern groups have you had disagreements with, and what, were the specific disputes about?

Agarwal: In 1990, the World Resources Institute published its World Resources report in which it claimed that, apart from the United States and the European community, three developing countries - India, China and Brazil - were also major sources of the global warming problem, and that they were producing a very large proportion of the greenhouse gasses. We pointed out that it is not the amount of greenhouse gasses that one produces, but the amount of greenhouse gasses which accumulate which creates the environmental problem.

Concretely, they said that the total amount of greenhouse gasses produced every year is equivalent to 8 billion tons of carbon, of which 5 billion tons were getting absorbed, but 3 billion tons were accumulating in the atmosphere every year.

The question was not how much each nation produces, but how much of what each nation produces contributes to the 3 billion tons accumulating in the atmosphere every year, because that is what is leading to the global warming problem. As long as whatever you produce is part of the 5 billion which is getting absorbed by the various sinks that exist, then you are within the limit of what the earth’s environment can sustain.

So, the key issue really was: how are we going to share the 5 billion tons of carbon that the earth’s environment can absorb. Ideally speaking, each nation should have its own quota of what it can emit, within the global limit of 5 billion tons.

But there was no evidence in the World Resources Institute report that they had tried to think in terms of any equitable sharing of the sink. On the contrary, when we looked into the mathematics, they had divided the sink, but they did it in such a way that the larger the amount of carbon dioxide a nation produced, the larger a share of the sink it would receive.

We felt this was totally wrong; if you are a bigger polluter, then you should be more penalized, not benefited. We recalculated the contributions of different nations to the problem of global warming by giving each human being an equal share in the global sinks. And we found that a lot of nations in Africa, South America and Asia were not contributing anything to what was accumulating in the earth’s atmosphere. We found, of course, a large number of industrialized nations which were the main cause of the accumulation that was taking place. In other words, they were using much more than their rightful share of the atmosphere’s benefits.

MM: You have also been critical of one of the international agreements that is viewed as a prototype for dealing with global environmental problems, the Montreal Protocol. What’s the essence of your criticisms on this issue?

Agarwal: We have the same sorts of concerns here. The sharing and allocation of common environmental resources should be built on principles of entitlement and liability, which are the basic principles on which most societies function.

As I said, the environment is something that belongs to all of us, and it has been degraded. Therefore, several questions arise. In the case of the atmosphere and global warming, nobody can argue that we should not produce any carbon dioxide. Production of carbon dioxide is essential for our survival. The question is how much to produce.

In the case of the ozone layer, the issue is slightly different. The issue was that we should phase out the production of chlorofluorocarbons completely, and there should be no production of CFCs at all. In that case, the right approach was to recognize that the ozone layer belongs to everybody and provides benefits to all humankind. Then the question should have been asked: who is responsible for the destruction of the ozone layer; and the people who are responsible for it should be held liable. And it’s obvious that the ones who should have been forced to pay the price are producers of the chlorofluorocarbons, the producers of appliances that use chlorofluorocarbons and the consumers of these products, whether they are in the industrialized countries or whether they are in the developing countries, particularly the richer sections of the developing countries which use appliances with chlorofluorocarbons.

That is not the approach which was taken, however. None of the companies which are producing chlorofluorocarbons were penalized in any sense of the word; nor were the consumers, except of course to the extent that we will have to pay for slightly more expensive products when we make the switchover. Essentially, it is the state which is going to be responsible for the switchover to non-CFC-reliant technologies, and the cross will be borne by state treasuries.

Developing countries will be given aid by industrialized countries to make these switchovers. But I thought the liability approach was far more important than this kind of aid-and-charity approach.

MM: The effort to develop a U.N. code of conduct for trans- nationals seems to have pretty much died now, but if you were to formulate such a code on your own, what would be the key elements of it?

Agarwal: For a person who is keenly interested in issues of the environment, one of the central issues would be that the use of the earth’s resources by these companies would have to be very strongly regulated. But I’m not really convinced that state regulation of multinational corporations works very well.

We will have to look at different systems. We will need national legislation which provides communities dependent on their resources with a much greater say in whether any foreign company can come in and use those resources. In the long term, this will be a process in which there will be far greater control over multinational companies and local and foreign companies’ exploitation of resources.

I’m not sure whether an international code per se will be able to control multinational corporations very much however. I see the future of developing countries as not being very bright because they are going to be heavily dependent on multinationals. As populations grow in developing countries and as the aspirations of the populations grow, there will be a tremendous need for greater foreign investment, and, with aid channels not increasing, these countries are going to be more and more dependent on investments from big multinational corporations. The World Bank structural adjustment programs are also pushing very much in that direction. In that kind of scenario, governments are going to be much more interested in balancing their books, just like any company. Foreign transactions and foreign exchange reserves and so on will be the top priority of many of the finance ministers of developing countries.

When you are so strongly focused on macroeconomics of a nation, you inevitably tend to forget the microeconomics of your country, which is what most small communities and small groups of people are dependent on. At that point, the national bureaucracies very quickly form a nexus with the powerful interests and powerful institutions like foreign companies.

It is absolutely critical, then, that some of the power to decide who is going to use what resources devolves down to the very people who depend on those resources. I’m sure they will display much more wisdom in deciding how their resources should be used, because if they were to decide wrongly, they are the ones who would suffer.

MM: What kinds of instruments would you like to see placed in the hands of local communities?

Agarwal: Mahatma Gandhi used to talk about a concept called the "Village Republic." He used to say that India is a country of 560,000 village republics.

Each village, or each community - this idea is applicable to towns and cities as much as villages - has control over its environment, which means that no investment can be made and no structures can be set up within it’s environment without its authorization. This environment should be legally defined and its boundaries clearly delineated. Each community knows that it has the right to decide what goes on there and no outsider, whether it is the government, a foreign commercial enterprise or a local commercial enterprise, can do anything without the community’s permission. In other words, they cannot use its water, its forests or its grasslands until the local community feels that the transaction is to its overall benefit. That’s the kind of instrument that I would like to see, which is essentially the community’s right to decide the use of its environment.

The Indian Supreme Court has reinterpreted one of the basic fundamental rights guaranteed in the Indian constitution, "The Right to Life," as including the right to an environment. The court has therefore allowed individuals to file petitions against any kind of development project which they feel is going to be harmful to the environment. But effectively, what that right does is give us the right to challenge the misuse of an environment.

But it does not give us the right to determine how that environment is going to be used. That’s far more important when we talk about the right to an environment. It is far more important that we have the right to determine the use of that environment, not just the right to appeal and to petition against the misuse of the environment.

MM: Turning to India, the country is now opening up its economy very much to foreign investment. What forces have been behind that shift in policy?

Agarwal: There are a number of reasons. One is the fact that the middle class has been augustly consuming far more than it produces, particularly in terms of foreign products. As a result, there is a foreign exchange crisis. When India asked for money from the IMF , it was told, like all other countries, that it has to restructure its economy in such a way that it can bring in more foreign exchange, which means liberalizing the economy so that you can get more foreign investment. So one aspect of the problem is the foreign exchange crisis, essentially engendered through very heavy middle class consumption. The only way in which it can be controlled is through import taxation, so that you consume only as much as you can afford and your own economy can produce, and not anything more than that.

This consumption and the new investment policy is also related to the fact that there is a growing desire among educated people to adopt more and more Western lifestyles. They see these Western goods more and more on television. They read about them. They can travel much more than ever before. There is a tremendous desire to live more like the people in the West do. It is not easy for the government or for political parties to challenge this process.

It’s really a crisis that has been growing over time. It was the Gulf War that suddenly brought it to light, because the Gulf War sent the oil prices shooting up and it also brought home a lot of the people who were working in the Gulf area, in Iraq , Kuwait and elsewhere, and who had sent in an enormous amount of foreign currency which used to shore up our foreign exchange reserves. That really squeezed the reserves we had.

MM: What is the effect on society of opening the economy?

Agarwal: Essentially, what you are doing with the liberalization process is liberalizing the entrepreneur, whether foreign or Indian, and saying that the entrepreneur can now mobilize financial resources, labor resources and knowledge and set up enterprises, and that the government will have far less control over this.

No entrepreneur can set up an enterprise unless the entrepreneur has access to natural resources, whether it is minerals or the right to be able to emit some amount of pollutants into the air. The entrepreneur needs access to all kinds of natural resources as inputs and as sinks for the waste that the entrepreneur produces.

Now the question is: who is going to control and decide on the use of those resources? If this liberalization was accompanied by a liberalization which allowed communities greater right to decide that, then I think the check and balance of the system would be much better and it would be a healthier process. But what is likely to happen is that the entrepreneur will be liberalized, but the environmental bureaucracy will control the use of natural resources.

The bureaucracy has always colluded, whether in India or in anywhere else. The Indian bureaucracy is probably as bad as any in the world in this sense. It will collude with the entrepreneur. It is in the interest of the members of the bureaucracy and the politicians to collude with the entrepreneur. If a simultaneous liberalization does not take place where the people are empowered, and if you’re only going to have the empowerment of just the entrepreneur, then you’re going to have a real disaster.

MM: What has been the popular reaction to the economic liberalization?

Agarwal: There was a lot of criticism on the liberalization process.

But it is very important to understand that many supported the liberalization process because of the fact that Indian society had become heavily bureaucratized. The state was a very dominant sector of the economy, and there was a tremendous amount of controls on all kinds of things. The idea of de- bureaucratization was definitely welcomed by a lot of people.

If you talk to a lot of activists and local leaders, for example, they consistently talk about how bad the bureaucracy is: the agricultural bureaucracy, the revenue bureaucracy, the forest bureaucracy, the water bureaucracy. Environmentalists, for instance, have constant battles with all these bureaucracies. They have to fight against the water bureaucracy and the manner in which it deals with the rural people. The same thing is true of the forest sector. The forest bureaucracy does not respect the rights of local people at all. The forest bureaucracy is as atrocious and dictatorial as any bureaucracy can be.

So there is a tremendous need for de-bureaucratization. To the extent that this foreign exchange crisis forced the government to rethink, and say that bureaucracy is not the answer to many of our problems, it was a good thing. Unfortunately, I’m not sure whether it has led to any real thinking in terms of how to cut down the bureaucracy. It is more likely that the bureaucracy that controls the interests of the big, powerful corporations and the business interests is going to be cut, while the bureaucracy that controls the lives of millions of poor people and rural people, and totally stifles their initiatives, will continue. And that would, indeed, be extremely unfortunate.

MM: Has there been any noticeable influx of foreign investors since the liberalization of the economy?

Agarwal: There was a certain amount of investment definitely growing, particularly in the agro- industrial sector. There are a lot of companies coming in to grow and export prawns (shrimp). There is also a lot of talk about groups like Pizza Hut coming into the country, which many Indians feel is totally unnecessary for their development.

That has been the initial phase; how this will grow in the future is very difficult to say.

And again, if you look at the shrimp farm issue, the same resource control questions arise. You need to have access to wetlands for shrimp farming, and this can lead to a considerable amount of environmental degradation. All along the eastern and western coasts of India, there are a lot of traditional fishermen who are heavily dependent on wetland resources. What is going to happen to them is a very central issue. Who is going to decide how these wetlands are going to be used? Who is going to be using them? What terms and conditions will be applied?

A foreign entrepreneur may come and team up with an Indian entrepreneur, and the two of them, in the new liberal atmosphere, will have easier access to these wetland resources. But the local communities will have no say in the whole matter. This is where, I’m afraid, that things can very easily go wrong and end up by being far more destructive. They may boost the macro-economy of the nation in terms of its foreign exchange reserves and things like that, but may be highly destructive to the survival of the local people and their economy.

MM: Could you elaborate on your concerns about the infusion of Western values into India?

Agarwal: This is indeed a very serious problem. In terms of purchasing power, economists say that the Indian middle class is on the order of some 200 million people. That makes it a very large number of people. If these people are going to create demands of the kind that exist in the West, then it will create an enormous political demand to allow production within the country of those kinds of products, or at least to allow the import of products from the West. If the government tries to control the import of those products, and not allow their production within India, then what you get is an enormous amount of smuggling, which is what happened during the 1960s and 1970s along the western coast of India. All this slowly began to have a tremendous impact on the politics of that area, with a nexus developing between smugglers and high government officials.

MM: Are there any mechanisms available to counteract these trends?

These are very serious questions indeed. How does one make sure that the richer segments of society conform to what the society can afford. It’s really a question of, if I can use the term, a cultural revolution. It has to come from the political system, but the political system itself over time has become extremely corrupt. It’s not an easy task at all. In fact, it is getting harder. Consider the expansion of television in India, with the growth of advertising and the kind of messages that are getting in. And now with satellite television coming in, it means that people can watch even foreign television. Even in rural areas, we are beginning to see a very strong demand emerging for all kinds of products from outside. It’s not going to be an easy task to try and reverse this process.

How one does it in any society, I’m not sure. One can try to do it through all kinds of restraints. But the problem with restraints is that they are usually imposed through the instruments of bureaucracies. The bureaucracies themselves are never very disciplined and the result is that you immediately get contradictions emerging within the society, with the bureaucracies becoming rich and forming alliances with a small section of people who are then able to maximize their own personal benefits.

The other way would be through some kind of democratic process. But even then, it’s not very clear how one can stem the onslaught of materialism, how one can maintain a certain value system where people keep control over their consumption. My own feeling, and I must say it’s just a feeling, is that if there was far greater strengthening of communities and their management of resources, people would begin to recognize that their resources are limited, that they have to depend on what resources they have, and that they therefore will learn to be a lot more careful about how they use things. That will automatically force people to rethink their consumption habits.

Take the example of water. Most Indian cities are using enormous quantities of water and then they produce enormous quantities of waste water. This process goes on, and because the cities are powerful, they draw in enormous amounts of water from all the rivers, and then the used water goes out and pollute these rivers. But the water users do not pay these costs, because rivers are under state ownership. If the state allows the pollution of a river to continue, a lot of poor fishermen who depend on that river for their survival will totally go out of business. They will have no fish left and there’s nothing they can do about it; they would have no say in the process. But if the fisherman had some rights over the pollution of the river, I’m sure they would not allow a city like Delhi to pollute the Yamuna to the extent that it has been polluted. The fishermen of the Ganga would not allow the Ganga to be polluted as it now is, because they would have a vested interest in that river. The state does not have that vested interest. The state politician is more interested in earning votes from the urban people than protecting the fishermen.

We provide a subsidy to the rich people of our country by providing them with a sewage system. The sewage technology is something that mainly benefits the rich people all across the developing world. It does not benefit the poor people. The urban poor have no access to sewage toilets and things like that. And then we provide the rich with a further subsidy of cleaning up the waste that they produce. I don’t see any reason why the rich have to be subsidized simply because they want to go to their toilet. Either we should force the manufacturers of toilet systems to produce toilets that do not use any water or use very small quantities of water, or, if anyone wants to use toilet systems which use a lot of water, then they should be forced to pay a very heavy price. But nobody is interested politically in forcing them to pay that price because there are no checks and balances within the system.

The result is that the state will go ahead and build all the dams in the Himalayas and elsewhere; bring water to all the cities, which then flush as much as 20 to 30 percent of this water down their sewer systems; and then put in further investments in sewage systems and later in treatment facilities. From a political economy point of view, it’s absolutely crazy. You’re subsidizing the richest sections of your community, and not forcing them to pay anything.

If the rivers in the Himalayas were owned by the Himalayan communities, and if the rivers in the plains were owned by the local fishermen, and communities owned the aqua systems and so on, any time there was a degradation of these resources, somebody would suffer along the line and say, "Look, this is not right." If somebody else was doing it, then they would have a fight about it in court or in the political arena. If they were doing it to themselves, then they would fight among themselves, and they would say, "This is no way to handle it. Many of us are suffering in this whole process." I think a much better system would emerge and people would realize the value of their consumption. Today, I don’t think a single Indian in the middle class sections of Delhi or Bombay, any educated Indian particularly, understands anything about the value of the water that they use. It’s just not part of our consciousness.

I may be totally wrong on this. But unless we move much more towards community ownership of resources, I don’t think, there will be much improvement in our consciousness about how we use resources and how we should control our consumption.


The Demanding Side of Utility Conservation

by David Lapp

IN APRIL 1994, Washington, D.C. regulators denied the local electric utility’s request to raise rates to cover millions of dollars in costs the company attributed to its conservation programs. Environmentalists rose in opposition to the decision, fearing the denial would dampen the company’s commitment to energy conservation. Refusing to have ratepayers foot the bill for some of the Potomac Electric Power Company’s (PEPCO ) conservation costs seemed "unduly harsh" and would likely "have a withering effect on any future efficiency investment," a group of national environmental groups wrote in a letter to the D.C. Public Service Commission.

Meanwhile, consumer advocates applauded the Commission’s oversight of PEPCO’s conservation program expenditures and praised the decision to deny $54 million of the utility’s proposed rate hike. The Commission, which had ordered PEPCO to undertake conservation initiatives about six years earlier, prevented the utility from recovering conservation costs after determining that PEPCO failed to show that its programs actually led to energy savings, spent more on the programs than projected without justifying why, and encouraged customers to switch to electricity from natural gas.

The D.C. Commission’s order - and the environmentalists’ response - is the latest scuffle in an emerging conflict throughout the United States between environmentalists and ratepayer advocates, particularly those representing low-income consumers. Although advocates for low-income ratepayers support energy conservation programs, many are raising questions about who benefits from the programs, how much they cost, and how those costs are distributed.

Ed Meyers, one of three members of the Commission, has serious reservations about how utilities are administering conservation programs, commonly known as demand-side management (DSM). "There is a lot of what we call gold plating," he says. "A lot of money is spent for consultants, administrative matters and on programs that don’t tangibly conserve energy. Those ineffective efforts have the effect of raising bills for hard-pressed urban consumers while not helping the cause of conservation."

Since low-income people spend three times the percentage of their total income on electricity than does the average U.S. citizen, they are especially vulnerable to excess costs attributable to utility conservation programs. "Some of the costs and incentives given to utilities have real impacts on electricity prices, despite conservation’s potential to lower bills for all consumers," says George Sterzinger, a former Vermont utility commissioner. As a regulator from 1989 to 1991 in Vermont, Sterzinger helped create some of the state’s first conservation programs, but he has become increasingly skeptical of the way many programs are now being implemented. He predicts a public "backlash" against high rates caused by utility-run conservation programs. "It’s really only a question of how long before people figure out what’s going on."

Energy conservation vs. profit maximization

Environmentalists began promoting DSM programs in the late 1970s as concerns over acid rain and U.S. reliance on foreign oil mounted. Physicist Amory Lovins coined the term "negawatt" for a kilowatt of electricity saved, and environmentalists emphasized that while DSM costs might raise electricity rates in the short term, they would eliminate the need for building costly power plants in the future.

After an initial period of slow growth, utility expenditures on conservation programs began to rise rapidly - from less than $1 billion in 1990 to approximately $2.3 billion in 1992. Utility expenditures on conservation programs vary tremendously from state to state and utility to utility. California and New York have spent far more than most other states, and 13 utilities (of more than 3,000) account for nearly 50 percent of the total national investment in utility DSM.

In addition to curbing the environmental effects of generating electricity, improving energy efficiency can yield enormous economic savings by reducing energy bills. Although the up-front costs of many efficiency investments are higher than their conventional alternatives, over time the energy savings make the investment cost-effective. For example, while a compact fluorescent light bulb costs 10 to 15 times more than an incandescent bulb, it lasts more than a decade and consumes one-quarter the energy of an incandescent and will pay for itself many times over its useful life.

On the theoretical grounds of the technical potential for energy and economic savings, the benefits of conservation programs run by utilities would seem indisputable. But the electric industry is profit-driven, and utilities’ profits are almost always based on electricity sales. As a result, utilities actually have a strong disincentive to reduce electricity consumption. Commissioner Meyers compares relying on electric utilities to implement conservation to "asking the tobacco industry to educate people about the dangers of smoking."

Eugene Coyle, an economist with the California consumer and low-income advocacy group Toward Utility Rate Normalization (TURN), explains, "In general, the more successful a DSM program is in reducing sales, the slower the rate of growth in earnings the utility will experience, and the lower the value of the stock."

To overcome the barriers to utility-run DSM, regulators - usually at the behest of environmentalists - permit a number of complex mechanisms intended to make conservation profitable for utilities. Although the mechanisms vary dramatically in different states (which set the terms for the utility’s recovery of costs from ratepayers), the three key ways utilities recover DSM costs are: reimbursement for program implementation and administration costs, recovery of revenues allegedly lost because of lower electricity sales due to DSM, and "shareholder incentives" that allow utilities to earn equal or greater returns on conservation investments as on investments in generating capacity.

"If I were a utility executive, I wouldn’t put my finger on DSM without some way of making it profitable," says Bruce Driver of the Land and Water Fund of the Rockies (LAW Fund), an environmental group that promotes utility DSM in many western states. "They have to get [back] lost revenues or they simply won’t do it." David Nemtzow, executive vice president of the Washington, D.C.-based Alliance to Save Energy (ASE), recounts a popular adage coined by an electric industry executive: "The rat has to smell the cheese." Ensuring utility profit-maximization "is an important element in demand-side management."

But critics of lost revenues and shareholder incentives argue that they are in fundamental conflict with the utilities’ obligation under state and federal laws to operate efficiently and in the public interest - an explicit obligation in exchange for the utilities’ exclusive franchise over retail electric service granted by government. Due to this mandate, many consumer advocates argue against any extra incentives for doing a job the utility should be doing anyway. "If you have a regulated utility that’s getting a fair rate of return, that should be enough incentive for the utility to do what the regulator wants," says Arny. "Anything beyond that is really a bribe.

Right signals, wrong people

The enthusiasm of many environmentalists notwithstanding, the efficacy of incentives in removing a utility’s desire to sell more power remains largely unproven and controversial. "The bottom line is that the utilities would rather sell more electricity because that’s how their business is measured - even if you have [recovery of] lost revenues that are supposed to keep the dollars the same," says Michael Arny, an expert in utility resource planning at the University of Wisconsin.

Complicating the problems of overcoming utilities’ disincentive to effectively conserve energy is the difficulty of monitoring and verifying DSM-related energy savings. A highly inexact science, DSM program evaluation is considered "pretty good" if estimates of energy savings are within 30 percent of the amount actually saved, a range worth millions of dollars to utilities, says Commissioner Meyers.

This fuzziness gives utilities an opportunity to manipulate the system to their double benefit, Meyers says. "The best thing a utility can do to earn money is to operate a program which ostensibly conserves energy but may not be all that effective. That way they get [program] cost recovery, lost revenues and incentives without hurting sales all that much."

An analysis by the Electricity Consumers Resource Council (ELCON), a trade association of large industrial users of electricity, concluded that New York’s DSM program is wasteful and inefficient at promoting energy conservation. ELCON estimated that only 28 percent of the more than $750 million spent on DSM in New York went to direct implementation of energy efficiency. Further analysis revealed that after discounting "phantom" savings - savings from the technical potential of conservation strategies that do not take into account the actual savings - and "free riders" - people who would have invested in energy efficiency without the program - only 2 percent went to direct implementation.

Jim Gallagher, chief of energy efficiency planning at the New York Public Service Commission, says that more recent figures show that a higher figure - in the range of 40 to 42 percent - goes toward direct implementation.

The inherent contradictions in DSM - rooted in the effort to make electricity sellers into electricity savers - are evident in the everyday operations of utilities. Despite the spread of DSM programs, electric utilities still cling to their age-old practice of aggressively promoting consumption.

In some cases, utilities even attempt to increase overall sales by marketing electricity through DSM programs themselves. For example, DSM programs that promote high-efficiency electric heat pumps can wind up boosting a utility’s overall sales growth by diverting consumers from lower-cost, more energy-efficient alternatives such as natural gas heating.

Jean Ann Fox, president of the Virginia Citizens Consumers Council, says that the design of some of Virginia Electric Power Company’s (VEPCO) DSM programs "look to us like thinly veiled promotional devices." For example, VEPCO recently proposed an "Energy Saver Home" program. The utility offers purchasers of brand new, all-electric homes that meet high-efficiency standards a $10 rebate on monthly electric bills for 10 years. The problem is that electric heat is much less efficient than other alternatives. "You ought to clean up the incentives that promote electricity before you start paying people not to use so much," Fox says.

Outside of DSM programs, utilities have many opportunities and methods of expanding their business of selling electricity. VEPCO, for example, recently proposed to charge new residences a $1,300 power line hook-up fee - but to waive the fee for homes equipped with all-electric appliances, a decidedly environment-unfriendly and economically inefficient approach.

Rick Tempchin, manager of energy efficiency policy and programs at the industry association Edison Electric Institute (EEI), says there is no contradiction between DSM programs and encouraging consumers to use electricity over more efficient competitors. "The bottom line is you always have to remember that electric utilities are competing with other fuels," he says. "Maintaining and increasing market share is a reality, so I don’t see any real conflict [with DSM]."

Poor subsidize the rich

Outside of the complexities of how well DSM works lies another area of growing concern - how DSM benefits are distributed. While large electricity consumers are troubled by the costs of many utilities’ programs, low-income people are even less likely to benefit.

Even when directed to residential customers, utility DSM programs commonly wind up benefiting middle and upper classes. Although low-income people often live in energy inefficient housing (where the greatest energy conservation savings can be reaped), they are the least likely to participate in utility conservation programs. "The burden of the cost and benefits of these programs are very unequal across income classes," says Ronald Sutherland, an economist with Argonne National Laboratory, a federal research center. "The residential households who participate and who receive these subsidies come to a large extent from high-income households. ...The rich people benefit and the poor people don’t."

In a February 1994 study, Sutherland found that most participants in residential utility DSM programs are those who would likely make efficiency investments on their own and occupy homes that are newer and more energy efficient. His analysis also finds that utility DSM programs are not necessarily directly associated with energy savings, but that energy savings occur because those not participating in the programs reduce consumption as a result of higher prices. In other words, low-income people who are unable or unwilling to participate in DSM programs - but who feel the effects of higher electricity rates - wind up having to use less electricity or risk electric bills they can no longer afford.

The Boston-based National Consumer Law Center, a low-income advocacy group, found a number of reasons why effective conservation programs must target low-income people, including the fact that low-income people are more likely to rent homes, the historical mistrust of utilities by low-income people, the ineffectiveness of rebates for efficiency investments (since rebates do not address the problem of lack of access to credit and financing for the up front customer costs of DSM programs), and the lack of education and information needed to evaluate conservation program benefits.

The resulting disparities in costs and benefits for the rich and poor are often stark. In New York, for example, low-income residents paid $4.2 million in overall DSM surcharges but received only $62,000 in rebates under a set of programs adopted by the Niagara Mohawk Power Company, according to calculations by the consumer group Public Utility Law Project (PULP). PULP also found that low-income participation in the non-rebate DSM programs was significantly lower than participation of wealthier residents.

Niagara Mohawk’s large industrial customers complained that the same programs were too costly and eventually won the ability to "opt out" of some program costs as part of a three-year experiment. Testifying on behalf of a group of low-income customers at the New York Public Service Commission, Sterzinger, the former Vermont regulator, said: "The same problems that affect these industrial customers, in particular paying for something which one doesn’t receive, affects other classes as well. ... The [New York] Commission should be very concerned about over-assigning costs to low-income residential customers who have not participated in demand-side management programs and who can ill afford to pay program costs for which they receive no benefits."

As a result of PULP’s protests, New York regulators required Niagara Mohawk to target some of its conservation efforts to low-income customers. According to PULP attorney Gerald Norlander, the resulting program was similar to the low-income programs run by other New York utilities - a small efficiency component with high administrative costs. "By and large, the utilities have loaded low-income programs with overhead and other costs rather than provide measures that really save energy," says Norlander. "We would rather see them put six inches of insulation in the wall."

Transferring costs to those who cannot or will not participate occurs as a matter of policy under the DSM cost-recovery mechanisms in New York, says Gallagher of the New York Commission. Utility "revenues stay the same as they did before the DSM program; they are just shifted from [DSM program] participants to non-participants."

Driver, of the pro-DSM LAW Fund, agrees that special attention must be paid to ensuring DSM programs do not have the "perverse" effect of transferring wealth from the poor to the rich. "Rates go up because of the lost revenue recovery. ...The problems that [Argonne economist Sutherland] raises in theory can happen. And he may have found some emperical evidence that it is happening. It just means that DSM advocates have to make sure that a wide variety of DSM programs are offered, particularly within the residential class. Or else you have an equity issue."

Driver had partial success in urging one Colorado utility to implement a low-income DSM program in 1992 that was paid for in part by federal weatherization program funds. Still, he acknowledges that the impact of DSM on low-income people is "something that we need to pay more attention to than we have so far."

Undermining conservation

Even if equity problems were solved, it is now clear that DSM will not be a cure-all for the inadequate use of existing cost-effective energy-efficient technologies. While utility-run DSM programs have undoubtedly saved energy, few environmentalists are satisfied that current investment levels will come close to achieving all the potential cost-effective savings or reduce carbon dioxide emissions sufficiently to meet international obligations. Skip Laitner, an analyst with the American Council for an Energy-Efficient Economy, says that "national projections for DSM expenditures may not be sufficient to capture the full potential for lowering overall costs of providing electric service." U.S. utilities annually spend only slightly over 1 percent of total revenues on energy efficiency and, in recent years, have cut total sales by about the same percentage. By maintaining current levels of investment, in the year 2000, energy consumption will drop by 4 percent - significantly short of the technical potential of 24 to 44 percent estimated by the electric industry’s research arm, the Electric Power Research Institute.

Even the prospects for maintaining current levels of utility expenditures on conservation measures are dimmed by the changing structure of the electric industry. The Energy Policy Act of 1992 (EPAct) removed barriers to competition within the generation sector of the industry and ensured that competitors are able to move their power across the transmission lines of monopoly utilities. (Power- producing competitors of electric utilities generally offer cheaper power.) Most industry analysts expect competition to bring electricity prices down. In addition, many utilities are saddled with large debts incurred for high-cost power plants - a result of overly optimistic projections for electricity growth and unwise investments in large power plants, mainly nuclear and large coal facilities.

As competition grows, the traditional utility - which will still have substantial opportunity to use its monopoly power to generate profits - has even less incentive to undertake effective conservation initiatives, since they can erode the utility’s ratebase and raise rates. Already, utilities positioning themselves for operating in a more competitive marketplace are cutting costs, including expenditures on social programs, which in the eyes of many utility executives include energy conservation programs. Although as recently as one year ago, analysts predicted DSM spending to continue rising, in some states expenditures have already reached a plateau or are starting to fall as a result of utility concerns over competition, according to Eric Hirst, an expert on DSM at Oak Ridge National Laboratory.

Finding new ways to conserve

With greater competition and new technologies becoming available, many proponents of energy efficiency are exploring new policies and programs to achieve their environmental and economic objectives.

While EPAct’s electricity provisions focused primarily on competition in the generation sector of the industry, the law also seeks to assure that utilities "receive no unfair competitive advantage over small businesses in implementing demand side management programs." Many options exist for using competition to keep DSM costs down. One possibility is to allow the growing number of energy service companies to compete directly with utilities to manage the programs, particularly since many are hired to implement utility programs anyway. If the utility is genuinely better positioned to do the work, as some environmentalists argue, then its bid should be lower than any competitor’s.

Once the need for new energy supplies is known, competition for DSM services could be overseen by the utility and its regulators or by the local or state government. TURN’s Coyle proposes a tax on electricity sales to fund government-administered energy-efficiency programs. With different companies competing, there would be no need to provide utilities with shareholder incentives and recovery of lost revenues. "At least that way you would know that they are really committed to doing energy conservation," says Coyle, since the competitors would not have a simultaneous interest in promoting electricity use. Moreover, it would be easier to ensure that low-income people benefit from the programs, since they could be targeted specifically. (In one such example, Vermont runs a Weatherization Assistance Trust Fund for low-income people paid for with an excise tax on fuel.) Even under a more competitive system, however, special care must be taken to ensure low-income people benefit from any conservation measures they help pay for, says NCLC’s Brockway.

American Council for an Energy Efficient Economy’s Laitner says that, in many states, community action agencies, which often implement federal energy assistance and weatherization programs, are well positioned to implement low-income conservation measures. Many of these agencies could provide more effective conservation services at a lower cost than utilities, he says. Still, Laitner points out, programs must be coordinated with the planning process in which it is decided whether a new power plant is needed or not. Otherwise, people could end up paying twice - once for energy conservation and again for a new power plant that is not needed.

A variety of other mechanisms exist to help overcome the barriers to customer investment in energy efficiency. In many ways, electricity prices fail to reflect true costs. Producing a kilowatt hour of electricity at noon in the summer is far more expensive than at midnight, for example. And utilities now use a variety of pricing strategies to promote greater electricity consumption; conversely, strategies can be used to discourage wasteful consumption and promote conservation. For example, instead of offering discounts to large electricity customers for greater consumption, rates could fall as less electricity is used.

D.C. Commissioner Meyers advocates a rate structure based on efficiency itself. "I like a market- driven approach where, if you insure that your house or office is energy efficient, you qualify for lower rates than if you’re in an inefficient house or building," he says. "With the money you don’t spend on DSM, you can establish loan programs with no-interest or low-interest loans for low-income persons."

Perhaps the most effective method of advancing energy efficiency - though politically it may be the most difficult - is by simply adopting efficiency standards. Many standards are already in place - for appliances like refrigerators and furnaces, for example. Under EPAct, Congress passed new efficiency provisions for everything from lighting and heating and cooling equipment to electrical motors, showerheads and urinals.

EPAct also requires states to adopt efficiency standards for commercial buildings and establishes voluntary guidelines and programs to help encourage energy efficiency for industry. But many of the standards remain voluntary or fall short of current technological capabilities. By incorporating even stronger energy-efficiency standards into law, more of the financial burden of transforming wasteful energy consumption will fall to the manufacturers of household appliances, the builders of homes, computer manufacturers and the makers of thousands of other consumer and building products.


China ’s Toy Industry Tinderbox

by Hugh Williamson

If the Workers’ Daily says so, it must be true. China’s official workers’ paper commented recently that "many people say [the foreign-invested economy] is China’s burgeoning new heaven. But sometimes, heaven is only a step away from hell."

The statement rings especially true for 84 former colleagues of Tao Chun Lan, a 20-year-old woman from Zhongyuan, a poor village in Sichuan province in central China. Last year, Tao and many village friends migrated to Shenzhen, the "Special Economic Zone," which borders Hong Kong and exemplifies China’s rush to open its doors to foreign business.

Tao and her friends found work in the Zhili Handicrafts factory, making stuffed toys. They earned poverty wages, about $46 a month. On the night of November 19, 1993, an electrical fault sparked a fire that ripped through Zhili’s dual factory-dormitory building. The workers were locked inside - only one of four exits was open. In all, 84 workers were suffocated, burnt or trampled to death. Most of the victims were women, and many were Tao’s friends from Zhongyuan village.

Tao was lucky. She survived, although she crushed both ankles jumping to safety from a second- floor window. Hospitalized for four months, she received no compensation from the company or the local government. "They don’t care if I’m crippled for life," she told the local press.

International toy makers and distributors refuse to acknowledge any responsibility for preventing such industrial disasters. When presented with a suggestion to adopt a toy industry code to prevent future fires like the one at Zhili, Dennis Ting, head of the Hong Kong Toy Council, which represents major investors in China, called the idea "ridiculous," and fumed, "someone is out of their minds."

Ting and others are eager to maintain business as usual. The $40 billion per year international toy industry is increasingly centered on China. The country houses the world’s biggest toy manufacturing industry, which continues to expand. The Southeast China province of Guangdong, where Shenzhen and many other special economic zones are located, is the industry’s heartland, where at least one-third of the world’s toys are made. Neighboring Hong Kong is China’s toy export gateway, shipping toys worth $8 billion in 1993, making it the world’s leading toy exporter.

Despite the economic promise of this scenario, toy industry boosters are finding it increasingly difficult to use such statistics to hide the plight of Tao and her fellow Chinese workers. A realistic picture of the Chinese toy industry is emerging - highlighted through profiles of several Asian multinational companies’ Chinese operations - revealing that many of the toys that delight children around the world are the product of rock-bottom wages, horrendous working conditions, appalling health and safety risks and a de facto ban on free labor organizing. In opposition to this exploitation, toy workers’ demands and protest actions are increasing, supported by international campaigns.

The toy industry also opens a window into broader aspects of today’s China. What is happening in the toy industry may be repeated in other sectors in the coming years. In the face of its ailing state enterprises, many reformers in China see the foreign-controlled joint ventures that dominate the toy industry as the fastest route to economic development. Yet worker hardship and industrial disasters raise questions about the sustainability of this approach.

Further, most of the foreign companies involved are Asian-based, commonly from Hong Kong and Taiwan. The way these corporations operate in China demonstrates how the world’s "new" multinationals may approach labor-management relations in the twenty-first century.

The labor behind the labels

The toy industry’s famous brands - Fisher-Price , Hasbro , Tyco and Mattel from the United States and Europe, Bandai and Tomy from Japan - rarely appear on the name-plates of Chinese factories. These corporate giants rely mainly on original equipment manufacturing agreements with manufacturers, which then have exclusive rights to produce toys according to the specifications set by the brand-name buyers. Some of these local contractors - many of which are also multinationals, with Asia-wide operations - also sell toys under their own brandnames.

Offering labor unorganized by free unions (explicitly banned in China) at as little as 12 cents an hour, China has come to dominate major segments of the international toy trade. In Germany , the center of the European toy trade, China is the main source of plastic dolls, doll accessories, toy animals, toy musical instruments, motorized toys and toy guns.

Many toys popular in the United States come from China as well. Over 90 percent of three-to- eight year-old boys in the United States have at least one toy Teenage Mutant Ninja Turtle, according to market research in the early 1990s. Hong Kong-based Harbour Ring International Holdings, the world’s leading producer of Ninja action-figures, can be held mainly responsible. While the Ninja craze has now faded, it catapulted Harbour Ring into the ranks of Asia’s top toy corporations.

Harbour Ring , with major investments in southern China, is typical of such Hong Kong-based companies. Combined, these firms employ at least 120,000 workers across the border. Harbour Ring, which made 1993 profits of $30.1 million, started out with factories in Hong Kong, then shifted north in the early 1980s in search of cheaper labor. A family-run business incorporated in Bermuda - for tax purposes and to avoid uncertainty over Hong Kong’s handover to China in 1997 - its subsidiaries and contractors operate six factories in Guangdong, employing 10,000 to 18,000 seasonal production workers. They make 300 toy lines, mainly on contract for brand-name toy companies.

Harbour Ring itself is now moving into sales and marketing in China, where it already has 90 sales outlets and is planning more. "The one-child policy and the overall improvement in disposable income ... create opportunities for the group’s business," says Chairman Luk Chung Lam.

His workers, however, will not be customers. Harbour Ring workers earn on average only $46 to $58 a month, and, as migrants, most send part of this back to their villages, keeping only enough for subsistence needs. Rapid economic growth - reaching 30 percent in Shenzhen in 1993, double the nationwide average - has also fueled inflation, pushing up living costs, especially in industrial areas.

Working hours are long, overtime and weekend work are common and job security is low. Most of Harbour Ring’s Chinese workers are unskilled - they get less than half-a-day’s training. In the summer, Harbour Ring works at maximum production and employment levels in order to stock toy store shelves for Christmas. Each winter, it sheds about half its workforce until they need to gear up again the following summer.

There are also international factors that make this employment insecure. The issue of China’s most favored nation (MFN) status has been resolved in favor of investors in China for the time being, but Harbour Ring made contingency plans to relocate investment if the human rights lobby had won, and the company intends to follow through on those plans despite the U.S. decision to renew China’s MFN status. The company retains some production in Hong Kong, and is currently building what it calls the "largest OEM hard toy factory in Indonesia." It "promises" to pay minimum wages of $1.30 to $1.50 a day. Meanwhile, production in its Macau plant - currently the largest toy factory in that territory - is expected to expand by 50 percent.

Yet high-profile plans to build several so-called "toy production cities" show that Harbour Ring’s roots remain in China. The first such "city," in Zhongshan, is due to be completed this year, with another planned for Guangdong. With a floor area of around 600,000 square feet, the Guangdong development will be "one of the biggest toy factories in China," according to Chairman Luk.

He says the factory will bring economies of scale, but will also "improve the workers’ sense of belonging in this labor-intensive business. As many workers are from distant provinces, adequate accommodation and welfare facilities in [these] cities should help create continuity in the workforce."

Anatomy of a disaster

What such promises will mean in reality is as yet unclear. To date, Harbour Ring’s labor practices have attracted little critical attention. Its low wages are normal for the industry, and higher than those of Chinese school teachers, say industry analysts.

Yet Luk’s description of the new "city" might ring alarm bells for Tao Chun Lan and her former colleagues in the Zhili factory, since a similar rationale could have been used to justify Zhili’s factory design. If so inclined, Harbour Ring and other toy makers could learn much from what happened last November 19, and from the frequent, often fatal safety lapses which continue to occur.

The Zhili Handicrafts factory was run by a Hong Kong-Chinese joint venture, on contract to produce the Italian "Chicco" brand of stuffed toys. The plant had 472 employees, but more than one third of these were unrecorded casual laborers, a common state of affairs which led to major identification problems after the fire.

Local Shenzhen authorities had warned the factory managers about safety provisions earlier in the year - it had no fire alarm, no sprinklers or fire hoses, and no fire escapes - but no action was taken.

The windows were fitted with heavy wire mesh and most exits were locked; the bodies of 50 of the victims were found behind a locked gate. "The factory itself had the now-notorious three-in-one design," says a regular visitor to Shenzhen, Wong Wai Ling, of the Hong Kong-based labor advocacy group Asia Monitor Resource Center (AMRC). "Like many factories, the workshops, warehouse and living and eating quarters were all in one building - a major fire risk, especially when flammable materials are on site," she says.

An investigation by China’s official, Communist party-controlled trade union, the All-China Federation of Trade Unions, found the fire started in the warehouse, caused by an electrical short circuit. Raw materials and finished products partly blocked the staircase and exit that was open, endangering more lives, the union investigation found. To make matters worse, in an effort to avoid adverse publicity after the fire, the local authority held 50 or so survivors as virtual prisoners for several days in a local hall, banning them from contacting friends or relatives.

Relatives of those killed received compensation of between $2,600 and $6,500; those injured received nothing as of June 1994. In mid-January, the factory owner, Lo Chiu Chuen, and three other managers were arrested for violating state safety regulations and two local fire department officers were charged with accepting bribes.

Crisis? What crisis?

Besides bribery, which is already rampant in Guangdong, the Chinese government blames most accidents on "numb minds, lax discipline, chaotic management and unlawful operation and supervision," but it takes little effective preventative action.

Official statistics record 28,200 industrial fires in the first 10 months of 1993 in China. These fires killed 1,480 people and injured more than 50,000. There were more than 15,000 officially-recorded work-related deaths in 1992 (the latest year figures were available), and the real figures are much higher, experts say. Fires are by no means the only problem. Poisoning by chemicals and fumes is also common in the toy industry; 81 people were poisoned in three separate toy factories in Guangdong in 1993; three of them later died.

One executive from a toy industry multinational with "extensive operations" in Guangdong told the Far Eastern Economic Review in 1993 that "industrial safety is the last thing that anybody worries about in Shenzhen, or anywhere else in the province."

In January 1994, the Zhili fire and other disasters finally provoked the provincial government to pass tighter laws on factory safety. The new laws spell out standards on fire prevention, emergency exits and ventilation and ban three-in-one factory buildings. Lee Cheuk Yan, head of the Hong Kong Confederation of Trade Unions (CTU) and a leading campaigner for labor rights in China, welcomed the laws, but was skeptical about whether they would be enforced. "Although the rules exist, if the safety inspectors take bribes, employers will ignore the rules, and we will have to wait for another tragedy," Lee said in January.

Sadly, Lee did not have to wait long. On June 4, the workers’ dormitory at the Hong Kong- funded Xiecheng Plastics toy factory in Shenzhen collapsed. The factory, which, despite the new laws, retained the three-in-one system, had been illegally built on a crumbling river bed. Eleven workers were killed and 27 were injured.

Live and let die

Various international labor movement initiatives aim to support Chinese toy workers in their demands for better working conditions. The International Textile, Garment and Leather Workers’ Federation (ITGLWF) and the AFL-CIO’s youth support group Frontlash have called for "toycott" campaigns to boycott Chinese toys until labor conditions improve. Neil Kearney, ITGLWF general secretary, says "China has a live and let die approach to its workers. The only way to make China listen is to block off markets for products made in such appalling conditions." Lee Cheuk Yan, of Hong Kong’s CTU, favors boycotting "products of factories where clear evidence of poor working conditions exists."

In May, trade unions and other groups in Hong Kong launched a long-term campaign to draw up and enforce a set of "Toy Industry Safety Guidelines," to be implemented by multinationals in China and throughout Asia. The draft guidelines cover factory and job safety, a ban on three-in-one buildings and regular monitoring.

"Guidelines covering toy safety for consumers already exist in the West," says Tian Chua of AMRC, one of the groups involved. "But shouldn’t products be safe for workers too?" he asks.

It was this proposal that Dennis Ting of the Hong Kong Toy Council found "ridiculous." The fact that 189 workers, mostly women, died in a May 1993 fire at the Thai subsidiary of Ting’s Kader Industrial Company - which produces such items as Bart Simpson dolls and toy trains, sheds some light on his ardent opposition to a workplace safety code.

In China, however, the success of Kader’s employees in winning improved working conditions show that while these international initiatives are important, it is workers’ own actions, probably backed by broader political reforms, which hold the best hope of sparking widespread improvements for toy industry workers.

Kader set up a factory in Shekou, Guangdong in the mid-1980s, maintaining abysmal working conditions. A 1993 ACFTU survey identified Kader as one of the province’s harshest employers; daily wages were 52 to 64 cents, less than half the official minimum wage.

In mid-May 1993, the Kader workers refused to work overtime, extending this initiative to an all-out strike two weeks later. The strike brought results. Wages now stand at about $1.70 to $2.30 per day, and canteen and living quarters - other major areas of complaint - have been improved. Workers now occupy separate dormitories, rather than their old three-in-one building.

Duplicating these results across the toy sector and beyond in China poses an enormous challenge to Chinese workers. Strikes and free union organizing remain illegal, although workers are engaging in both activities with increasing frequency. As many as 800 underground independent labor groups exist in Guangdong, according to newspaper reports in March 1994, and in 1993, China saw 12,358 arbitrated labor disputes, a 50 percent increase from the previous year. Thousands of other disputes did not reach arbitration.

China’s migrant toy industry workers undoubtedly would like to agree with Harbour Ring’s 1994 company motto, "The future will be brilliant for the upcoming years, and the sky is the limit." But it will take an uphill struggle before workers can share this assessment.

Book Review

A Fierce Green Fire: The U.S. Environmental Movement Past and Present

A Fierce Green Fire

By Phillip Shabecoff

New York: Hill and Wang, 1993

352 pp., $10.95

Reviewed by Tarek Milleron

U.S. ENVIRONMENTALISM, once the domain of a few fierce naturalists, now impacts nearly every citizen’s life. What began with a focus on simple conservation grew to include health and safety, pollution and ozone destruction. Environmental issues pervade modern society. Phillip Shabecoff, in his book A Fierce Green Fire, unearths the crucibles of U.S. environmentalism, dissects its modern role and ponders its near future.

Shabecoff opens with a description of the United States as it stood in virtual pristine splendor under Native American stewardship just prior to the European invasion. Fortune seekers accompanied the community-minded to the new world, both with tools to conquer: technology and disease. After briefly documenting 200 years of European expansion into a land of seemingly inexhaustible bounty, Shabecoff turns to the intellectual birth of U.S. environmentalism.

The early conservationists of the nineteenth century, Thoreau, Emerson and George Perkins Marsh among others, while visionary (especially the widely-travelled Marsh, who had a twentieth century grasp of the human impact on nature), did not have much effect on policy. Conservation victories, such as California’s preservation of Yosemite, were few. Most land use policies meant giveaways to industry; the corrupt General Land Office, for example, gave 160 million acres to the railroads and accelerated timber giveaways in the West toward the end of the century.

Theodore Roosevelt’s presidency was the first major respite from the country’s historic wanton squandering of natural resources. In 1908, Roosevelt called the White House Conference on Conservation, marking a radical departure from his predecessors’ failure to take conservation concerns seriously. Yet even the young conservation movement was divided. Shabecoff lists four facets: the romantic love of nature best personified by John Muir; Gifford Pinchot’s tenets of efficient and wise resource use; Roosevelt and Pinchot’s emphasis on the democratic underpinnings of the commonwealth; and the growing awareness of threats to human health by industrial processes. Not until Rachel Carson did a popular and integrative environmental ethic coalesce.

Shabecoff depicts the development of environmentalism as moving in fits and starts until the publication of Carson’s Silent Spring in 1962. Twentieth century environmental history, as Shabecoff presents it, has been punctuated by periods of environmental action that left indelible legislative, intellectual and spiritual legacies; yet nineteenth century tendencies to ignore the abuse of nature have persisted. Mixed with the conservation efforts of FDR, the teachings of Aldo Leopold and the explosion of environmental concern in the 1960s and 1970s, have been the Hardings, "giveaway McKays" (Eisenhower’s Interior Secretary), and the Reagan-Bush environmental meat grinder.

Ronald Reagan attempted nothing less than the decapitation of environmental protection in the United States. Shabecoff concisely discusses the actor’s eight-year environmental pillage, calling the Reagan approach "an odd amalgam of libertarianism and corporate socialism." James Watt and Anne Gorsuch were the most notorious Reagan appointees, but they were just the most visible. Reagan appointed a rancher to head the Bureau of Land Management, a building contractor to head the Occupational Health and Safety Administration and allowed industry lawyers to be environmental prosecutors. Perhaps the most depraved was Assistant Secretary of Agriculture John Crowell, formerly of Louisiana Pacific, who sold millions of board feet of ancient timber in the Tongass National Forest for a few dollars per tree.

Shabecoff’s review of Reagan is all the more devastating coming after four chapters describing first the post-Carson revolution and its landmark legislation on land, wildlife and global issues. While he quickly debunks George Bush’s self-projected environmental image, Shabecoff does not discuss Bush’s presidency as piercingly as he does Reagan’s. The autocratic butchershop of the Office of Management and Budget was certainly as devastating to environmental regulations under Bush as under Reagan, and Dan Quayle’s rabidly anti-environment Council on Competitiveness deserves more than one line. Bush did sign the Clean Air Act of 1990, but only after carving it up into a shell of its predecessor; this legislation also deserves more discussion than Shabecoff gives it.

Journeying through time, Shabecoff finally focuses his attention on present-day environmentalism. Here, the author’s work departs from mere history and turns a critical eye on the cutting edge. Shabecoff criticizes those environmentalists who have discovered that they could drive BMWs and still claim the environmental mantle, adopting a virtual platform of negotiating with industry. He looks more favorably on those who have harkened back to John Muir’s moral stamina or a more open, democratic approach. Shabecoff emphasizes the relevance of social justice to environmental issues and the local battles, such as those over incinerators, that inspire whole communities to action in struggles that draw no lines between environmentalism and concern for justice.

In light of Shabecoff’s generally hard-hitting account, several omissions are noteworthy. The author does not mention the most obvious failure of U.S. environmental regulation: massive polluting by the federal government. There is no discussion of the General Agreement on Tariffs and Trade, which threatens to sharply diminish citizen control over the commonwealth. Most surprising is the dearth of insight Shabecoff offers into the role of the press. More than one environmental project has lost steam simply because Shabecoff or reporters from the Washington Post or Associated Press did not attend a news conference intended to convey important information to the public. The pivotal role played by key members of the press simply highlights the lack of citizen-to-citizen communication on national issues.

Locally-generated environmentalism has always been strong in the United States. Thoreau knew Walden. Shabecoff tells of California farmers who rose up against the hydraulic mining that flooded their communities in the nineteenth century. People fight local environmental battles for decades.

Shabecoff ends his book wondering if environmentalism will permeate our institutions, economic systems and social relationships. Can national environmentalism attain the integrity of local activism? Those who share his optimistic projection would do well to heed Shabecoff’s call to integrate social justice and environmental issues.

Names in the News

Sandoz Retreats

SHORTLY AFTER PUBLIC CITIZEN filed an August 1994 lawsuit against the Food and Drug Administration (FDA) to force the federal agency to ban Sandoz Pharmaceuticals Corporation’s widely-used drug Parlodel (bromocriptine mesylate), the company advised the FDA that it was withdrawing the indication of the drug for post-partum lactation suppression from the U.S. market.

Timothy Rothwell, president and chief executive officer of Sandoz, says the decision was intended to end unwarranted criticism over the indication. "Parlodel is widely used to treat Parkinson’s Disease and endocrine disorders," Rothwell says. "It would be unfortunate if the medical benefits that this product provides in those areas are overshadowed by attacks on Parlodel’s use in the post-partum indication that have no scientific foundation."

Public Citizen argued that a ban was needed because of "an ever-increasing number of serious injuries such as strokes and heart attacks including many deaths in otherwise healthy young women associated with the use of Parlodel." Public Citizen said that from Parlodel’s approval as a lactation suppressing drug in 1980 to June 1994, there have been 531 adverse reaction reports in women aged 15 through 45 who have used the drug, including 32 deaths.

"Although Sandoz, the manufacturer of Parlodel, must bear primary responsibility for this tragedy," wrote Public Citizen Heath Research Group Director Dr. Sidney Wolfe, "the FDA has clearly been complicit in allowing these deaths and injuries to continue."

But Rothwell said that the safety of Parlodel as a lactation suppression product has been demonstrated by independent studies and a review of data from millions of patients. "The post-partum lactation indication has never generated significant revenues for Sandoz, but we felt that women who needed this product should, in consultation with their doctors, have the choice available," Rothwell said.

Each year at least 300,000 women take Parlodel for treatment of post-partum breast engorgement, at a return to Sandoz of approximately $12.5 million a year.

FEC Fines

THE FEDERAL ELECTIONS COMMISSION (FEC) fined 26 Japanese companies a total of $162,225 in August 1994 for alleged illegal campaign contributions in Hawaiian state and local elections from 1986 to 1992.

Under the Federal Election Campaign Act, foreign nationals, including foreign companies, are prohibited from making contributions or expenditures in connection with any U.S. federal, state or local election. U.S. candidates are also prohibited from accepting contributions from foreign nationals.

The FEC investigated campaign contributions to Hawaiian gubernatorial candidates, Honolulu mayoral candidates and various Hawaiian State House and Senate campaign committees. The prohibited contributions came primarily from domestic subsidiaries and partnerships of Japanese businesses.

"The Commission’s interest in this issue is not limited to Hawaii, and is not focused on any one nationality or ethnic group," FEC Chairman Trevor Potter says. "This case is important for any state with large levels of foreign residents or business activity."

The FEC probed more than $300,000 illegally flowing into more than 140 campaigns over four election cycles. The FEC reached a total of 18 conciliation agreements with 26 respondents, with penalties ranging from $125 to $38,000. Candidates who received the contributions were admonished by the FEC for accepting them, and were instructed to refund all such contributions, but the FEC fell short of fining the candidates.

The top foreign companies that contributed were: West Beach Estates, a domestic subsidiary of a Japanese corporation, which contributed $80,295; Haseko (Hawaii), Inc., a domestic subsidiary of a Japanese corporation, which contributed $60,830; and Y.Y. Valley Corp, a Hawaiian corporation owned by several Japanese companies, which contributed $60,390.

Dry Cleaning Nightmare

NEARLY 100,000 PEOPLE IN NEW YORK CITY may be exposed to the toxic chemical perchloroethylene (perc) that is emitted from dry cleaners, according to a new report released in September 1994 by New York City’s Public Advocate.

Perc affects the central nervous system and is linked to liver and kidney damage, bladder and liver cancer and leukemia. State health officials estimate that about 99,000 people may be exposed to indoor perc pollution from dry cleaners, 92 percent of whom live or work in the same building as a cleaner.

"Dry cleaners in New York City release about five million pounds of this toxic chemical into the air every year," Public Advocate Mark Green says. "They illegally dump an estimated 3,000 gallons into City sewers. We should go beyond the pending state regulations to adopt new cleaning procedures, such as ‘wet cleaning,’ which do not require perc and can mimic hand washing. We should also prohibit new perc-based dry cleaning in residential buildings."

Green recommends further restrictions on perc, and has called for state and city agencies to assist small dry cleaners who will be faced with significant expenses in complying with the new regulations, which will require modernizing equipment and air testing. "Without appropriate assistance, many dry cleaners will either be forced to close or will continue to operate in a way that compromises public health," Green says. "The State and the City should immediately develop a plan that will address the very real health and economic issues that affect the industry. The manufacturers of perc, including Dow Chemical Company, should contribute to help these firms."

New York City is unique because nearly 40 percent of dry cleaners are in residential buildings, compared to 6 percent in the rest of New York State, where fumes, due to poor ventilation, antiquated equipment or careless storage, pose a risk for apartment dwellers.

- Russell Mokhiber




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The Cola Wars

By J.C. Louis and Harvey Z. Yazijian

New York: Everest House, 1980

Merchants of Drink: Transnational Control of World Beverages

By Frederick Clairmonte

and John Cavanagh

Penang, Malaysia:

Third World Network, 1988

Clearcut: The Tragedy of

Industrial Forestry

San Francisco: Sierra Club Books

and Earth Island Press, 1993

Native Forest News

P.O. Box 8251

Missoula, MT 59807

Energy Directions:

Toward a Sustainable Future

By Jonathan Dushoff

Washington, D.C.: Center for Study of Responsive Law, 1992

Energy Ideas

P.O. Box 19367

Washington, DC 20036

Field Guide to Labor Rights

By Jim Sugarman

Washington, D.C.:

Essential Books, 1993

China Labour Bulletin

P.O Box 72465

Central Post Office




c/o Institute for Policy Studies

1601 Connecticut Avenue, NW

Washington, D.C. 20009

Rachel’s Hazardous Waste News

c/o Environmental Research


P.O. Box 5036

Annapolis, MD 21403

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