Alan D Hecht, "The triad of sustainable development: Promoting sustainable development in developing countries ," Journal of Environment & Development, Jun 1999, 8.2, 111-132.

Abstract:
Sustainable development was defined in 1987 in a report of the World Commission on Environment and Development (also known as the Brundtland Report) as development that meets the needs of the present without compromising the inability of future generations to meet their own needs. The ability of developing countries to practice sustainable development is affected by many factors. When acting in harmony, these factors can make sustainable development a more achievable goal: 1. domestic policy actions, including steps taken toward creating open and free market economies, sound and enforceable environmental policies, and public participation in decision making, 2. financing policies of the bilateral and multilateral lending institutions, and 3. private sector investment and clean technology development. The interaction of these factors forms a triad for sustainable development: 1. setting economic and environmental policies in developing countries, 2. financing sustainable development, and 3. industrial ecology and private sector investment.

Sustainable development was defined in 1987 in a report of the World Commission on Environment and Development (also known as the Brundtland Report) as development that "meets the needs of the present without compromising the ability of future generations to meet their own needs." The ability of developing countries to practice sustainable development is affected by many factors, three of which are defined in this article. When acting in harmony, these three factors can make sustainable development a more achievable goal: (a) domestic policy actions, including steps taken toward creating open and free market economies, sound and enforceable environmental policies, and public participation in decision making; (b) financing policies of the bilateral and multilateral lending institutions; and (c) private sector investment and clean technology development. The interaction of these factors forms a triad for sustainable development. This article discusses these factors and offers recommendations for furthering a positive relationship among them in promoting sustainable development in developing countries.

The ability of governments to practice sustainable development as a general paradigm for decision making does not come easily. Many conflicting economic, social, and environmental trade-offs tend to favor short-term results over decisions for future generations. Nevertheless, since the concept was first introduced,' a few developing countries and countries whose economies are in transition and most industrialized countries, especially at state and local levels, have taken some steps to make sustainable development an operating principle of decision making.
However, there is no clear consensus on what makes up core criteria for sustainable development and no easy way to measure the degree by which it is practiced (World Bank, 1995,1997c).

The central theme of this article is that sustainable development is a process achievable in stages and requiring a number of essential building blocks. The building blocks used in this article ensure that decision making takes into account economic, social, and environmental factors and
trade-offs, in an open and transparent manner. These building blocks constitute an ad hoc analytical framework for measuring progress on sustainable development. In many developing countries, the fundamental building blocks, such as a free-market economy, transparency of
government operations, public access to information, public involvement in decision making, and enforcement of environmental laws, are weak or absent. Although some developing countries are strengthening domestic policies and regulations and creating economic and policy incentives
for attracting environmentally sound investment, progress is slow and uneven. The result, as seen in Asia, is rapid and unsustained economic development accompanied by life-threatening environmental conditions (Dua & Esty, 1997).

Even though creating a set of domestic policies that promote sustainable development is essential, developing countries are also influenced by many external factors, especially policies of national export credit agencies such as the U.S. Export Import Bank and the Overseas Private
Investment Corporation (OPIC), and the multilateral development banks (MDBs) such as the World Bank. MDB guidelines have a significant impact on macroeconomic and social policies as well as on energy, transportation, agriculture, and construction projects. Incentives to
encourage public participation in decision making and to promote sustainable development have been incorporated in the funding criteria of the MDBs and in the policies of U.S. export credit agencies. However, environmental impact guidelines are weak or absent in export credit
agencies of other industrialized countries. Recognizing that the lack of consistency sends a mixed signal to developing countries, the United States has tried to strengthen environmental guidelines among Organization for Economic Cooperation and Development (OECD) countries.

A new and growing influence on achieving sustainable development in developing countries is the role of the private sector, which is becoming the dominate source of industrial technology development, technology transfer, and capital for investment. In 1996, private sector investment in
developing countries was more than $240 billion, nearly five times more than funds from the World Bank and other official sources (World Bank 1997d). The rising influence of the private sector suggests that the way capital is invested in developing countries will have a significant impact on
the timing and direction of their economic growth (Esty, 1995).

The discussion that follows describes how these three factorsdomestic policy actions, international financing, and private sector investment-interact in promoting sustainable development.

Setting Economic and Environmental Policies in Developing Countries: First Leg of the Triad

The ability of developing countries to address both economic growth and environmental protection begins with priorities and policies set by governments themselves. Bilateral and multilateral assistance should enhance domestic policies, not substitute for them. Herein lies a significant
social conflict. Although all policy makers can see the impact of environmental degradation, especially among poorer urban communities, policy makers in many developing countries are often unconvinced that environmental protection does not hinder their economic growth (Schmidheiny
& Zorraquine, 1996). In nearly all capitals of developing countries, there is widespread debate and concern about diverting resources to enforcement and pollution abatement when poverty, illiteracy, and infant mortality are still major problems. Yet, experience has shown, especially in Russia and Eastern Europe, that "those who attempt to put aside environment concerns in favor of economic development typically fail on both counts. They sully their environment and wreck their economies. The legacy is degraded resources, poorer health, lost productivity and obsolete industries."2 Current conditions in Asia dramatically illustrate the impact of pursuing a nonsustainable development strategy (Dua & Esty, 1997).

The discussion that follows is relevant to all developing countries but is largely focused on current policies in Asia, Latin America, Africa, and in countries of the Newly Independent States. Whereas the same domestic policy issues face countries in Central and Eastern Europe, policies in
these countries are now strongly influenced by directives of the European Union (EU). Countries in Central and Eastern Europe seeking access to the EU must meet EU environmental standards, many of which have important elements of sustainable development. In addition, a
pan-European process is in place to promote sustainable development practices. EU countries and countries in Central and Eastern Europe have benefited from four Environment for Europe Ministerial Conferences, organized by the U.N. Economic Commission of Europe, starting with a
meeting in Dobris, Czechoslovakia, in 1991. The impetus for the meetings was to address the post-cold war environmental legacy in Europe. The second meeting in Lucerne in 1993 resulted in the endorsement of an Environmental Action Plan for Central and Eastern Europe. A key
goal of this action plan was to take steps toward strengthening fundamental environmental capacity building in Central and Eastern Europe. The third event in Sofia in 1995 resulted in several initiatives, including one on phasing lead out of gasoline and reducing urban air pollution. The fourth conference in Arhus, Denmark, in 1998 resulted in a Convention on Public Participation, a crucial step in ensuring public access to information and public involvement in decision making. Social and environmental problems in the developing world are staggering. In countries of Southeast Asia, India, China, Latin America, and Africa, more than 1 billion people are without clean water and more than 2 billion are without sanitation (World Bank, 1997a). The World Health Organization estimates that more than 4 million children in developing countries younger than
the age of 5 have died from respiratory diseases related to poor air quality (World Resources Institute, 1995). Another 4 million children have died from intestinal diseases caused by impure drinking water. In megacities such as Bangkok, Calcutta, Karachi, and almost any major city in
China,3 many factories operate with minimum pollution controls or none at all. And in most major cities of the developing world, automobiles relentlessly spew lead-laden fumes into the atmosphere.

Despite these obvious problems and despite political commitments made toward sustainable development by governments at the U.N. Conference on Environment and Development in Rio de Janeiro in 1992 and at other forums,4 there appears to be some retreat from this basic
objective. This backtracking is apparent from debates in a number of post-Rio U.N. conferences and in developing country responses to the proposed U.N. reforms introduced by Secretary General Kofi Annan. This issue has been debated and negotiated in many different meetings,
including the International Conference on Population and Development, in Cairo in 1994; the World Summit on Social Development, in Copenhagen in 1995; the Fourth United Nations Conference on Women, in Beijing in 1994; and the Second United Nations Conference on
Human Settlement, in Istanbul in 1996. U.N. Secretary General Kofi Annan's proposals for U.N. reform put a heavy emphasis on the need for "sustainable development." Many developing countries, however, are suggesting that the emphasis be put on "economic development." The
differences between these concepts reflect the belief among many developing country policy makers that investments in environmental protection, enforcement, or pollution abatement are a drain on gross domestic product (GDP).

The failure of developing countries to pursue development and environmental protection in a sustainable way can be explained by the necessity of first addressing basic human needs, the belief that environmental protection is too expensive, the nonenforcement of existing environmental
laws, inadequate market incentives, a lack of capital, nondemocratic governance, suspect motives of investors and industrialized governments, and a lack of know-how and technologies (Asia Development Bank, 1997; Dua & Esty, 1997; World Bank, 1997b). All of these factors play a
role in preventing the practice of sustainable development. A broader view of the problem suggests a more pervasive explanation.

What is being asked of developing countries in practicing sustainable development is a difficult task even for industrialized countries. Energy, transport, and agricultural policies in the United States, Japan, and Western Europe are subject to extensive internal and external criticism and
debate. This public debate is, however, an essential part of the process of practicing and achieving sustainable development. Most policy makers recognize that considerable time is needed to make a major shift in public policy when operating in an open and democratic political system. This
is why sustainable development should be viewed as a process, in both industrialized and developing countries, achievable only in stages and requiring a number of essential building blocks, including:

an educated and informed public, with free access to environmental information;

public participation in government decision making;

free-market economic policies;

risk-based and scientifically sound environmental policies;

a strong, fair, and enforceable regulatory framework;

a sound scientific framework for decision making; and

political leadership and vision.

These building blocks are essential for both industrial and developing countries. Since the Rio Conference in 1992, about 100 countries have prepared national sustainable development strategies or national action plans. A review of these plans by the World Bank underscores the
importance of creating the building blocks defined above. "The major lesson learned from the sustainable development strategy and National Environmental Action Plan process is the fundamental importance of setting priorities, developing national ownership and involving the public" (World Bank, 1997c, p. 7). The World Bank report notes that it often takes longer to develop ownership and involve the public in decision making than in preparing overall strategies. However, the World Bank concludes, "national ownership is central to creating the political climate
for effective action and policy change," and "that without ownership and the associated participation, an action plan or strategy usually becomes a paper document that goes on the shelf and is ignored" (p. 7).

A similar set of criteria have been developed for the Agency for International Development to measure environmental progress in Central and Eastern Europe and in countries of the Newly Independent States. This report "develops a framework for analyzing the range of government
actions that may be implemented to promote sustainable development generally, and environmental quality more specifically" (Harvard Institute for International Development, 1998). The Harvard design is similar to the building blocks defined above. The report measured the progress of Central and Eastern European countries in policy, legal and regulatory development, strength and commitment of environmental institutions, and public- and private-sector environmental investment.

If sustainable development is the end result of a long social and political process, based in part on the building blocks identified above, it is easy to see why it has been so difficult to achieve in the developing world. In many countries the essential building blocks are absent or not well
developed. For example, most industrialized countries have a well-informed citizenry with a long tradition of participation in decision making and in making environmental information available. These steps are needed to build public support for policy changes. In the United States, for
example, public access to information on toxic releases from factories and facilities is a major element of environmental policy.5 The international equivalent of this system is the "Pollution Release and Transfer Register" (PRTR). Information on toxic releases is used by the public and
nongovernment organizations as a means to challenge facilities to meet higher standards and reduce emissions of harmful substances. This public release of information is a vital link between public policy and environmental results. The availability of such information in most developing
countries is absent, except Mexico, which, as a new member of OECD and a North American Free Trade Agreement (NAFTA) partner, has launched its own version of PRTR (Commission for Environmental Cooperation, 1997).

One consequence of viewing sustainable development as a process is the argument that many developing countries are at an economic level of development that precludes practicing sustainable development. Although it is axiomatic that the environmental problems that countries face vary
with their stage of development and structure of their economies, it is not axiomatic that all developing countries have to follow the same pattern of environmental development of industrialized countries and repeat their mistakes. Many developing countries, in the long run, can make more substantial economic progress and achieve pollution abatement at lower costs through pollution prevention activities than from traditional end-of-pipe emission controls. Industrialized countries learned this lesson in a period of 25 years. Even recognizing that emission reduction at the smoke stack level may be the most appropriate action for many developing countries at present, these countries, through domestic policies, can affect a faster transition from end-of-pipe to pollution prevention approaches. The emphasis on pollution prevention, as a preferred
environmental policy in developing countries, is just beginning and could be more rapidly advanced if made a part of the national policies of developing countries.

The historic lessons of environmental development in industrial countries and in Russia, combined with the technical ability today to assess risks and make reasonable economic projections, create new policy options for decision makers of developing countries. In the United States,
recognition of the enormous destructive pattern of unrestricted dumping of toxic waste led to passage of the Superfund legislation, whose ultimate cost, although still only estimated, will certainly be in the hundreds of billions of dollars. The legacy of Soviet economic policy has been
costly in terms of economic growth and human health (Feshback & Friendly, 1992). The World Bank (1997d) has undertaken some important risk and economic studies in Southeast Asia, arguing that an investment of less than 1% of GDP and with an annualized cost of 1.0% to 1.5% of
GDP by 2020 would be sufficient to reverse the current adverse environmental trends. Most of the money would be used to achieve universal access to water within 10 years and to urban sanitation within 20 to 25 years. The benefits of this investment would greatly exceed current losses
in labor and health care.

A similar report of the Asia Development Bank (1997) notes that "Asia's environmental record is dismal. Asia's environment has become so polluted and degraded that it poses a threat not just to the quality of life of its people, but also to its economic prospects" (p. 7 of the executive
summary). Of the world's 15 most polluted cities, 13 are in Asia. The report notes that Asia's environmental crisis is, for a large part, the result of failed policies and neglect. Economic growth is not directly to blame. The report concludes that the bleak environmental outlook is inevitable.

Although the general proposition that economic growth is good for the environment-in the sense that countries with higher GDPs tend to spend more on environment than countries with lower GDPs-is true, economic growth in itself is not sufficient to ensure prosperity or the protection of
environmental quality (Arrow et al., 1995). Many countries in Asia experienced rapid economic growth in the 1980s and 1990s without paying much attention to the environmental consequence. Now, years later, these same countries face some of the worst environmental problems in the
world and are forced to pay cleanup costs many times greater than the costs of preventing pollution in the first place (Dua & Esty, 1997).

The opportunity for major environmental improvements in developing countries, commensurate with economic expansion, is enormous. Despite its rapid economic growth, China is a highly inefficient economy. On average, its major industries consume 30% to 90% more energy than
similar industries in developed countries (Hamburger, 1995). Improved efficiency of existing coal-fired power plants and technology advances in new plants could achieve substantial reductions in greenhouse gas emissions and other forms of pollution. Today, there are approximately
400,000 small industrial boilers in China consuming about 300 million tons of coal per year. Efficiency improvements in these boilers alone could save about 90 million tons of coal per year. Capital resources not wasted in unproductive consumption are capital resources that could be
invested. The financial internal rate of return for energy efficiency investments in Chinese manufacturing enterprises is high enough to justify widespread application (Hamburger, 1995).

A change in industrial policy and institutional approaches can go a long way toward securing both steady growth and a healthier environment. Innovations in environmental management are being tested in both industrial and developing countries. Emphasis in the United States on flexible
economic policies, such as emission trading, and voluntary public and private sector agreements on emission reductions are two forms of policy implementation aimed at achieving sustainable development. Although some of these approaches may be inappropriate for developing countries,
other ideas, suited to each country's cultural and social conditions, are available. For example, the Indonesian Environmental Ministerial (BAPEDAL), recognizing that existing regulations were failing to force polluters to clean up their factories, began a program in 1993 to use
public exposure as an enforcement tool. BAPEDAL invited World Bank researchers to help them organize and implement a new Program for Pollution Control, Evaluation, and Rating (PROPER).

The World Bank team evaluated 187 factories according to their pollution output and grouped them into five categories, ranging from black (worst) to green (best). In December 1995, the Indonesian government publicly released names of factories in different categories. As a
consequence, factories receiving a black or red rating have made serious efforts to bring operations into compliance (Afsah & Wheeler, 1996). Although public release of environmental information is common in industrialized countries, PROPER is the first program of its kind in a
developing country. For Indonesia, the program signals a move toward transparency of operations and public participation in a rapidly industrialized society, all of which are important basic building blocks of sustainable development. PROPER can serve as a useful model for
other countries to consider.' It is an innovative approach to regulations that may work particularly well in developing countries where legal enforcement is lax.

In other areas, several developing countries are creating economic incentives to encourage private-sector investment in clean technologies. Thailand has created financial incentives for companies seeking to operate in that country. Then Prime Minister Chuan Leekpai, in a speech to
the Thai Trade and Investment Fair (February 17, 1995), said that Thailand's environment has suffered as a consequence of "breakneck economic development" and stressed the need to improve his country's environmental record. The Thai Board of Investment agreed to offer
investment incentives to firms promoting environmental restoration and conservation. In January 1996, it created an incentive program for manufacturers of four-stroke motorcycle engines to entice firms to produce cleaner vehicles in Thailand and reduce air pollution in the
country-noting that 54% of vehicle hydrocarbon emissions come from motorcycles. Potential manufacturers can receive a 90% reduction in import duties for raw materials if the production plant is located outside Bangkok. In April 1995, Brazilian President Cardosa issued a "Green
Decree," requiring banks and government credit institutions to grant financing only to projects that have conducted an environmental impact assessment. Although these are modest steps, they can go a long way toward advancing sustainable development by creating incentives for
cleaner development and by promoting social responsibility. The single most important benefit of these approaches is to signal a common theme among stakeholders that development and clean production go hand in hand. These approaches also recognize that the private sector is a major
source of technology development and technology transfer. These approaches are indicative of the new reality of international development assistance, namely, that the public and private sector must work together to promote technology development. The old rhetoric, still commonly
espoused, is that only through government-togovernment assistance will technology be transferred. The reality is that achieving sustainabledevelopment begins with the right kinds of domestic economic, investment, and social policies. Progress on promoting sustainable development policies can be greatly enhanced by supportive policies of bilateral donors, MDBs, and the private sector. The importance of this synergy is illustrated in the next sections.

Financing Sustainable Development: Second Leg of the Triad

Since the U.N. Conference on Environment and Development, the MDBs have made policy changes to encourage environmentally sound investment. The United States, as a major contributor to the MDBs, has been a leading advocate for environmental reform, thereby mobilizing and redirecting large flows of funds in a more environmentally sustainable manner. During the past few years, the Environmental Protection Agency (EPA) has encouraged the World Bank to strengthen its emission and concentration guidelines for large thermal-fueled power plants in ways that could lead to an increased demand for conventional and innovative process technology and pollution control technology.

Programs and policies of the World Bank and other multilateral lending institutions are important driving forces toward sustainable development. Policy shifts in the MDBs toward a greater emphasis on sustainable development and human resource development can have a profound impact on developing countries. After considerable external pressure and internal restructuring, the World Bank has begun to bridge the gap between traditional economic theories of wealth and sustainable development.

Countries that are concerned with environmentally sustainable development, however defined, must pay attention to the creation and maintenance of wealth. The first step in any effort to create new wealth is to generate genuine savings-that is, the residual of production less
consumption, depreciation of produced assets and drawing down of natural resources. Studies of sustainable development should also consider the human resource savings realized through investment in education and health. As should be evident from this definition where genuine saving is negative, it is a clear indicator of unsustainability. (World Bank, 1995, p. 53)

The challenge for the MDBs is to take these concepts of wealth and human resource development an d make them part of all operationalprograms.

Despite the rapid growth of private capital in developing countries, most developing countries depend on loans and grants from the MDBs to assist in restructuring their economic policy, advancing their social agendas, and financing large infrastructure projects. During the period
1990-1995, about a dozen countries accounted for about 80% of the net private flow to developing countries (World Bank, 1997d). About 140 of the 166 developing nations are receiving less than 5% of private capital flow, which makes developing countries largely dependent on the
MDBs for assistance in shaping their economic and environmental polices.

Lending policies and cooperative studies of the MDBs can influence decisions related to the costs associated with progressively higher levels of pollution reduction under the conditions that prevail in development countries, the regulatory policies most effective in reducing industrial
pollution, the motivations in different sectors to reduce pollution, and government policies and actions to promote pollution reductions and attract private-sector investment.

The United States, Japan, and other supporters of the Inter-American Development Bank's Multilateral Investment Fund used this grant's program to assist Chile in improving their environmental management capabilities as a step toward enhanced private-sector investment and
increased trade flow anticipated under the NAFTA (Inter-American Development Bank, 1995). For the first time, the Multilateral Investment Fund was used to support environmental objectives, assisting Chile's public and private sectors in the strengthening and enforcing the country's
environmental regulations. The program provided training for environmental officials, supported the design of environmental education programs, strengthened internal management capability of the Chilean National Commission for the Environment, and promoted development of a strategic
environmental plan for five regions, including Santiago. Activities supported by the Inter-American Development Bank were designed to support implementation of the 1994 Chilean Environmental Framework Law. In turn, these activities were designed to create some of the basic building
blocks as defined in this article necessary to achieve sustainable development.7

MDBs working with officials from environmental and finance ministries can help promote common understanding of economic policies, development, and environmental protection. Recognizing the barriers that often exist between ministry officials, Schmidheiny and Zorraquine
(1996) note that "very few emerging-market financial institutions yet see much upside investment potential in the environment and fewer still are familiar with the concept and benefits of eco-efficiency." This lack of experience by financial managers is magnified many times by the lack of experts in developing countries on pollution prevention practices, market incentives, sustainable development, and other concepts of sound environmental management. Better information and adequate environmental training are important factors to mobilizing incentives for sustainable
economic development. This kind of technical assistance should be a key objective of bilateral and multilateral assistance programs as well.

The countries of Asia represent one of the greatest environmental challenges for the future. Growth in Asia was 8.2% in 1995 but fell to 7.5% in 1996 and 6.1% in 1997 as a result of the Asian economic crisis. The rate for 1998 is projected to be about 4% (Asia Development
Bank,1998). In Asia, 700 million to 1 billion people remain below poverty levels; by 2000,10 out of 20 megacities will be located in this part of the world, with an estimated 1 trillion dollars needed in energy, transportation, and agriculture sectors. Reflecting this challenge, the Asia
Development Bank has put considerable emphasis on sustainable development in its operations. In 1992, the Asia Development Bank made a commitment that 50% of all projects during the medium term must have environmental or social objectives. Similar to other MDBs, lending
policies now require that environmental impact assessment reports of sensitive projects be circulated for the Asia Development Bank's board members and made available to interested parties 120 days before the project is considered for final approval.

Since 1995, the Export-Import Bank of the United States has adopted environmental assessment policies and environmental standards for its lending operations. It has also established a policy to oppose an export transaction if the Board of Directors determines that the project has
serious adverse environmental impacts. This policy is an important economic incentive to use environmentally sound technology, another important goal in practicing sustainable development. OPIC also requires environmental impact assessments from U.S. companies seeking
financial support and mandates specific technical requirements for pollution controls.

Whereas the United States has taken positive steps in promoting sustainable development policies in its export credit agencies, there are no consistent environmental guidelines among OECD members. Heads of state at the G-8 Economic Summit discussed this issue at their meeting in
Denver in 1997 and approved some general language urging OECD to consider a common set of environmental guidelines that would go a long way toward encouraging environmentally sound investment in developing countries.

The U.S. government is a major source of technical and financial assistance for developing countries seeking to improve their environmental regime and employ more sustainable production and consumption patterns. The EPA, the Agency for International Development (AID), and
other federal agencies are engaged in a variety of bilateral and multilateral activities aimed at promoting public participation in government decision making, public access to information, the creation of higher environmental standards and stronger environmental regulations, enhanced
enforcement, and the adoption of environmentally sound technologies and management practices. All of these activities enhance the basic building blocks for sustainable development. A measure of the success of these activities in Central and Eastern Europe has been evaluated by
AID as discussed earlier in the text (Harvard Institute, 1998). Similar measures of success are needed for other assistance programs in Asia and Latin America.

Industrial Ecology and Private Sector Investment: Third Leg of the Triad

INDUSTRIAL ECOLOGY

One of the important outcomes of the Earth Summit in Rio de Janeiro in 1992 was the creation of the Business Council for Sustainable Development (BCSD) and the publication of the book Changing Course (Schmidheiny, 1992). Author and BCSD founder Stephan Schmidheiny argues that for companies to successfully compete domestically and internationally, they must adapt to new market conditions, which include concerns about the environmental impacts of their products, as well as their process and production methods. In organizing the BCSD, Schmidheiny (1992) recognized the commercial and environmental benefits of "greening of industry" and became a strong advocate for sustainable development and industrial ecology.

The term industrial ecology has become very popular as an approach toward achieving zero industrial waste. Industrial ecology is the study of industrial systems from the perspective of natural ecosystems. The term evolved from the work of Frosch and Gallopoulus (1989) and Frosch
(1997), who asked, "Can industrial systems be more selfsufficient and closed with regard to the flow of materials so that interactions with the environment are more compatible?" (p. 38). Both Frosch and Schmidheiny were seeking ways to adopt life cycle management approaches to
industrial management and thereby enhance competitiveness and reduce costs. They make the connection between industrial ecology and sustainable development, which is further developed in a recent report of the U.S. National Academy of Engineering. The report notes that
"phrases such as `sustainable development' will remain little more than slogans unless disciplines such as industrial ecology can provide operational concepts that improve the economy and the environment" (Warnick & Ausubel, 1997). The flow of materials, the use of energy, and
the development and application of technology to produce and use goods and services are all elements of industrial ecology. Many industries are now focused on overall system design and quality management, largely because it is estimated that 70% or more of the costs of product
development, manufacturing, and use are determined at the initial design stage prior to production. It is also at this stage where decisions are made regarding the type of resources and manufacturing processes to be used, with these decisions ultimately determining the nature of waste streams (Graedel & Allenby, 1995).

Perhaps the strongest impetus for life cycle management is the recognition among many industrial sectors that reducing pollution can be cost-effective. In the past, there was a common view in industry that improved environmental quality would lead toward increased overall costs.
This is not the case today. A decoupling of increased costs and reduced emissions has occurred (Hart & Ahuja,1996). As a consequence, many companies have embraced elements of pollution prevention to limit waste production and liabilities and to increase profits.

The general movement toward industrial ecology in the private sector is paralleled by aggressive public policy in the United States and other industrialized countries on pollution prevention and clean production methods. The U.S. Pollution Prevention Act (1990) makes pollution
prevention the national environmental policy of the United States. In implementing its pollution prevention programs, the EPA, through an array of voluntary partnerships with industry, has stimulated many industrial sectors to consider new technologies and new approaches to production
methods. The results show impressive reductions in energy and pollution releases, and in cost savings. In the United States at the end of 1995, almost 6,000 organizations participated in one or more voluntary partnership programs with the EPA. These programs reduced 1.8 million tons
of solid waste annually, saved 110 trillion BTUs of energy, prevented 13.4 million metric tons of greenhouse gas emissions, reduced more than 750 million pounds of toxic emissions, and conserved more than 1.2 billion gallons of water. Reduced industry costs in 1996 were estimated to
be $852 million and savings are expected to be $4.6 billion annually by the year 2000 (EPA, 1997).

New areas of public- and private-sector cooperation on industrial ecology are emerging. Two examples illustrate the synergy between the public and private sectors. Both sectors and international organizations such as the United Nation Environmental Program are promoting clean
production methods through the establishment of national cleaner production centers, technical workshops, and regional pollution prevention round tables that bring together representatives of the public and private sector. Within the Asia Pacific Economic Cooperation (APEC),
member economies have established a "Cleaner Production Strategy" aimed at reducing environmental impacts in various industry sectors through promotion of appropriate cleaner productions, technologies, policies, and practices.

Since the APEC leaders launched this strategy, a number of APEC economies have taken action promoting cleaner production. Australia is developing a National Cleaner Production Strategy and has launched a domestic program called EnvironNET Australia (www.erin.gov.au);
Chinese Taipei has established the Cleaner Production Centre within their Industrial Technology Research Institute. The Philippines has a domestic cleaner production program administered by their Department of the Environment, as well as a Clean Production Centre administered
by the United Nations Industrial Development Organization. Thailand has sponsored several international round tables on cleaner production and has an industry group that actively supports domestic cleaner production activities (www.tei.or.th). In addition, Canada, like the United States,
has a number of cleaner production and pollution prevention programs that predate the APEC strategy. Efforts to establish a focus on clean production in Latin America are just beginning.8

These international efforts parallel U.S. domestic efforts between the EPA and selected industries to achieve cleaner production and regulatory compliance at reduced costs. These initiatives are part of a major regulatory reinvention effort on the part of the United States (www.
epa.gov.reinvent).

A second example illustrates cooperative public and private sector activities in developing innovative approaches to industrial ecology. At the impetus of EPA, the BCSD-Gulf of Mexico Chapter developed case studies of zero waste production methods. One study explored the
concept that waste production in one economic sector could be used as fuel for a second sector and that both sectors could work together in a "twinning" or "industrial symbiotic" relationship. The BCSD developed this model, called "byproduct synergy" and identified three industries
where it is now operating (Mangan, 1997). The BCSD is now exploring where this concept can be applied in Latin America and Asia. This twinning approach, largely led by industry, is also supported by government activities. EPA has created a number of programs and computer
tools useful on clean production, pollution prevention, and industrial ecology. One program, Facility Synergy Tool (FaST) identifies potential material exchanges among facilities where materials generated as waste from one facility could be used to meet the input requirements of another
facility.9

This general movement within the private sector (with parallel activities in the public sector) has significant implications for investment in developing countries and for promoting a culture of sustainable development. The example of Procter and Gamble provides one case study (see
appendix). The U.S. industry is already well positioned to advance sustainable development practices in developing countries. Many U.S. industries have adopted voluntary corporate codes and have embraced pollution prevention practices. These practices by U.S. firms could be
easily extended to overseas facilities. Many U.S. companies already exceed local environmental standards in their overseas operations, not merely because it is the right thing to do but because it makes economic sense.

CAPITAL INVESTMENT

The traditional sources of funding for technical assistance and capital improvements in developing countries have been bilateral aid and grants and loans from the MDBs. However, since the mid-1980s, private-sector investment in developing countries (and economies in transition) has
increased sharply and now far exceeds official development assistance (ODA) funding (World Bank, 1997d). For example, in 1992, private capital investment was $90 billion (compared to $67 billion of ODA). Today, the level of private investment in developing countries is near $240
billion. This shift in the source of capital for development has important implications for achieving sustainable development.

At present, the bulk of private-sector funding is concentrated in about 20 countries, led by China. In 1994, China was the recipient of $30 billion in foreign investment, an order of magnitude greater than ODA. Lookin to the future, according to Standards and Poor's estimates, Asia, which
has some of the fastest growing economies in the world (now 4% to 7% per annum), needs to invest about $1 trillion in infrastructure between 1994 and 2004 with about 70% of this being power and transport related. Investments in coal-powered plants to meet this region's energy
needs will not enhance sustainable development unless they are built with environmentally sound technologies. The challenge ahead is to ensure that such development is based on clean technologies, pollution prevention, and sustainable economic investment. A consequence of the growing influence of the private sector is that the way capital is invested in these countries will have a significant impact on the timing and direction of their economic growth. As Schmidheiny and Zorraquine (1996) have suggested, "If the market is taking over from governments as the coordinator of human progress, it is crucial that the market trend toward sustainability" (p. 7).

The synergy of private capital investment with national policies and MDB financing is clear. When a company seeks to invest in major projects in a developing country, unless the market can provide a reasonable return and national policies are clear, transparent, and respective of rule and
procedure, foreign investors will look elsewhere. At the same time, because project finance is essential, MDB guidelines or national export credit policies must be met. If all these factors are working toward a common goal, then investments will tend toward sustainable development. If not,
then the investment has the potential to increase the environmental burden already existing in a developing country. Although India, for example, may be a growing economic power and a growing market for investment, the country suffers from (a) extremely poor air and water quality in
major cities, (b) insufficient power generation and distribution capabilities even in highly industrial areas, and (c) a weak environmental infrastructure including almost no waste disposal system of any kind. Consequently, future investment in India, unless approached in a sustainable
way, can further stress the existing environmental infrastructure. The same is true for all other emerging market countries and all developing countries.

In the triad presented in this article, there are clear roles for industry and government. It is the principal responsibility of government to protect the global commons and deal with social issues related to economic growth. Through proper policies and incentives, government must encourage
industry to move toward sustainable practices. It is also the responsibility of government to ensure fairness for its industries competing in global markets. The term level playing field means that privatesector investors can operate in a transparent manner, where commercial contracts are
respected and enforced. The challenge is for industry and government to work together, ensuring that both opportunities for investment are created and that environmental standards are enforced. A strong partnership is needed. Private-sector participation in itself is no substitute for
public regulation of environmental standards.

Final Discussion

Many political, economic, and social considerations impede the ability of industrial and developing countries to practice sustainable development. Although some industrial countries have embraced this concept and are working hard at building the political consensus for changing
environmental and economic policies, progress is slow. Industrial countries have learned that building public support for policy changes requires a well-informed citizenry and their participation in decision making. The ability of developing countries to practice sustainable development is
affected by many factors, three of which are domestic policy priorities and actions, financing policies of the bilateral and multilateral lending institutions, and private-sector investment and clean technology development. It is the interplay of all of these elements that will determine the
pace and direction of sustainable development in developing countries. The speed of technical change is exceeding the pace of social and human resource development. The end result is an impatience between industrialized and developing countries on such issues as sustainable
development and technology transfers. Both industrial and developing countries should view sustainable development as a process achievable only in stages and requiring a number of essential building blocks. The building blocks discussed in this article ensure that all stakeholders are involved in decision making and that economic, social, and environmental factors and trade-offs are debated in an open and transparent manner. These building blocks constitute an ad hoc analytical framework for measuring progress on sustainable development. In many ways the biggest stumbling block to practicing sustainable development is human resource development, not technology transfer. The road map ahead seems clear:

Future directions of policy development in developing countries should emphasize internal policies and economic incentives that help build basic building blocks for sustainable development, including human and social development, public transparency in government, rule of law and
promotion of pollution abatement through education, technology, and social attitudes.

Developing country policies should be supported by policies from international lending organizations emphasizing public involvement and transparency in decision making, pollution prevention and sustainable industrial development, and value of human capital. Lending institutions should work toward upward harmonization of standards and guidelines. MDBs need to move the results of their own research studies on assessing human capital and pollution prevention into their operations and policy dialogues.

Bilateral and multilateral assistance should enhance domestic policies, not substitute for them.

The private sector will continue to lead in developing ecoefficiency and pollution prevention practices as integral parts of industrial management. The government and the private sector need to work together to ensure that the concepts of industrial ecology are made operational and used to improve the economy and the environment.

In the future, private-sector investment in developing countries is likely to continue to grow, whereas official development assistance funds will remain constant or decline. Private sector financing is, however, no substitute for public sector regulations and enforcement. The contributions of both sectors are essential in achieving a flourishing and internationally competitive industry that protects the environment and fuels economic growth. The contribution of the private sector developing cleaner and more efficient technologies and processes and infrastructure construction will be crucial to a healthy and safe environment. The contribution of the public sector to improving social and economic conditions and creating an honest and transparent legal framework is equally essential. A strong partnership between the public and private sector is needed.

Source: Reprinted with permission (1995).

The author gratefully acknowledges the helpful comments of many colleagues, especially Jamison Koehler, Mark Kasman, Chris Herman, Gordon Binder, Dan Esty, David van Hoogstraten, Robert Repetto, Paul De Jong, and to journal reviewers. Special thanks to the author's wife,
Dunya Hecht, and son, Gregory, for their skillful editing.

1. Although the concept of sustainable development is widely associated with the report "Our Common Future" (World Commission on Environment and Development, 1987), the idea was proposed in a 1981 report of the U.S. Council on Environmental Quality (CEQ), "Global Futures: Time to Act." This report introduced the concept of sustainable development "The key concept here is sustainable development. Economic development, if it is to be successful over the long term, must proceed in a way that protects the natural resource base of developing countries" (p. xxi). The CEQ report called for a U.S. national energy strategy and more emphasis on energy conservation and renewable energy sources.

2. "Water Needs, Water Financing," speech by William K. Reilly at the Conference on Innovative Financing for Environmental Investment. Budapest, Hungary, January 1988.

3. Since the average air pollution in most Chinese cities is above standards set by the World Health Organization (WHO), it is not surprising that respiratory health is a significant public health problem in China. In Beijing and Shenyang, average atmospheric concentrations of sulfur dioxide are 2 to 3 times higher than the WHO guidelines. In central Xi'an Province, suspended particles average 565 micrograms per cubic meter, which is significantly higher than the WHO-recommended limit of 60 to 90 micrograms per cubic meter. As a consequence of these combined pollutants, the standardized death rate from chronic obstructive pulmonary diseases in China is 5 times higher than in the United States (see World Resources Institute, 1995).

4. Countries of the Western Hemisphere (except Cuba) have had three major summits since the Rio conference in 1992. In 1994, the United States initiated the first summit conference held in Miami, Florida. A second summit was hosted by Bolivia in 1996; a third by Chile in 1998. Each conference had a declaration signed by the heads of state. In Miami, the heads of states agreed to "strengthen national environmental protection frameworks and mechanism for implementation
and enforcement, and include sustainability criteria and objectives in national and other development strategies" (Article 23). This statement puts the western hemisphere nations clearly on record as pursuing sustainable development. However, achievements in Latin America are slow in coming, especially in light of economic turmoil since 1997.

5. A good example of information available to the general public is the web site of the Environmental Defense Fund: www.edf.org. Taking information from the Environmental Protection Agency's Toxic Release Inventory, the Environmental Defense Fund has created a polluter locator system called "scorecard." Scorecard provides detailed reports on chemicals being released from any of more than 23,000 manufacturing plants in the United States, organized by 8,800 zip codes or 2,300 counties in the United States. This kind of public access to information is just beginning in most developing countries.


6. The World Bank continues to evaluate this program and reports progress through technical reports of the Policy Research Division of the World Bank. Reports can be accessed through www.worldbank.org.nipr. See "Controlling Industrial Pollution: A New Paradigm," Policy Research Paper No. 1672 and also Afsah and Wheeler (1996).

7. See Inter-American Development Bank's (1995) Annual Report. The use of the Multilateral Investment Fund for strengthening environmental performance was an innovative idea conceived by the author and Ron Scheman, former U.S. executive director to the Inter-American Development Bank. The idea grew out of a trade mission to Chile, Argentina, and Brazil led by the late Secretary of Commerce Ron Brown. All of us recognized the importance of strong environmental regimes as a necessary first step toward enhanced and sustained private-sector investment. Chile was selected as a pilot country because of its interest in acceding to the North American Free Trade Agreement. This program has been successfully completed.

8. The United States, Brazil, and several international organizations cohosted a "Cleaner Production Conference for the Americas" in Sao Paulo in August, 1998. The conference resulted in a set of priority activities for the region and the establishment of a business round table for the Americas.

9. Abroad range of pollution prevention and dean-production programs are accessible through the Environmental Protection Agency's Web Home Page: www.epa.gov.

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[Author note]
Alan D. Hecht, Ph.D., currently serves as the principal deputy assistant administrator for international activities at the U.S. Environmental Protection Agency (EPA) (1989-present). He was the acting assistant administrator for international activities from 1992 to 1994. He has a federal career spanning 22 years. Twice he was the recipient of EPA's highest award, the Gold Medal: once for leading the U.S. negotiations for the environmental side agreement to the
North American Free Trade Agreement (NAFTA) and a second time for his innovative work on promoting nuclear waste management in Russia.

[Appendix]

Letter to Anthony Marcil, World Environment Center, from Deborah D. Anderson, Proctor and Gamble, August 10,1995.

"Foreign Investment is a very effective and sustainable way to ensure transfer of environmental technology and services. Mexico and other Latin American countries started to liberalize Foreign Investment in the late -80's. This led our Company to not only invest in capacity expansion in our traditional Laundry and Cleaning Products, but also to build manufacturing facilities for Paper and Personal Care Products. In the process, we introduced state-of-the-art equipment and practices. As a result, our Latin America operations showed the highest rate of improvement in their environmental performance among all regions. Waste Disposal per production unit, for example, was reduced by more than 80% in the following 3 years.

As we invest in new plants or capacity increases, we use state-of-theart processes not just because it is the right thing to do environmentally,but also because it makes economic sense for us to do so. And, in our fast-moving businesses, we are launching new products or improvements in very
short intervals. We can expand these initiatives across the world much faster and more cost effectively-if we are operating with the same equipment in the manufacturing process.

Our experience that good environmental practice is good business practice has also been repeated in Central and Eastern Europe. When we acquired our detergent plant in the Czech Republic in 1991, we were selected as the preferred investor by the Government. This happened not primarily because of the purchase price we offered, but because of the heavy emphasis we placed on environmental improvements as well as safety and hygiene in our planned investment program.

In our first 3 years, about a third of our total capital investment was for environmental, safety and hygiene improvements. The first thing we did was to install a gas boiler to replace the old coal burner. This alone reduced annual sulphur dioxide emissions by 570 tons and carbon monoxide by 23 tons. People in our plant responded very favorably to our behavior-based system of safety, hygiene and environmental management. Each and every employee understands, and takes personal responsibility for incorporating safe working practices into daily business activities. Our environmental performance is a source of pride for our employees-and the whole program had a very positive effect on the morale and productivity of the work force.

Our experience is similar in Hungary, Poland and Russia where we received government help, including tax benefits because of the important environmental improvement we include in our investment plans. As we develop local suppliers, we aim for the same standards as in Westem Europe. The resulting improvement in quality of output makes them also more attractive for other customers and enables them to compete for business in the West.

There are barriers, however, that can make Foreign Investment timeconsuming and expensive. Key barriers can be taxes that don't provide investment incentives, regulations that are too prescriptive, and even less obvious things likes importing prohibitive taxes on bringing in foreign managers and technical to help start up new facilities and train local employers
in environment management. We need to work with CEE governments to help them understand the impact of such barriers and help remove them."