Greenwashing: A Bridge between Austrians and Environmentalists?

Greenwashing is a relatively new term to describe false and misleading claims that a product or business practice has environmental benefits. The point is that companies can advertise their efforts as “green” while continuing various profitable activities that environmentalists consider “harmful,” gaming the system and profiting off well-intentioned, sustainably minded consumers.

The term was coined forty years ago by a student in response to a hotel that wanted customers to reuse the towels in their rooms to save the environment and save the hotel money.

As an Austrian School economist, I can agree with environmentalists to a point here, but let’s see how far on their side of the bridge they are willing to go. Let’s start with the idea that human beings are motivated to achieve their goals, which is true whether you are a Mother Theresa, a corporate CEO, or a heroin addict. It even includes environmental do-gooders.

In the words of mainstream economists, everyone wants to maximize their utility (however defined) and minimize their costs. Utility, revenues, and good feelings are set against labor, expenses, and psychic toil. No matter how or what you are measuring, the difference between the costs and benefits can be called profit, whether psychic or material.

Environmentally minded people have put much pressure on companies—nudged them, boycotted them, and turned their dollars over to companies with green profiles, like Patagonia. Those people have also put pressure on politicians to “do the right thing.”

Special interest groups have likewise put pressure on politicians. Government bureaucracies, and nongovernmental organizations have also created additional ideological pressures in the form of propaganda, pseudoscience, and red tape to further the green agenda.

Of course, not all environmental science is wrong, but no one can deny that environmental scientists have fudged their data and revealed themselves as a biased and unscientific group, particularly those who are dependent on government research grants.

Industry scientists also have a “green” agenda, but it is based on what consumers want and on better meeting that demand! These scientists want to get more electricity out of every lump of coal. They look to conserve resources and minimize costs for all the products they are involved with.

That is why I have heard many Austrian School economists describe themselves as “conservationists” in contrast to “environmentalists.” The free market does the best job at conserving and allocating scarce resources.

Deviations from this demand-based conservation agenda hurt consumers, businesses, employment, pensions, and very often hurt the environment as well!

Those losses and harms are difficult to see, but imagine a hypothetical situation where Apple iPhones have been giving off a toxic pollutant that eventually causes blindness. Even in the absence of lawsuits, what might happen to Apple’s stock price when that information is revealed? Do incentives work to protect the consumer most of the time? Of course!

Businesses have had their profit agenda genetically modified by the “green agenda.” Environmentalists can see greenwashing, but they cannot see the damage that the green agenda does to the environment.

The direct cause of this mutation are regulations, punitive taxes, environmental, social, and governance policies, and other forceful measures that are designed to protect the environment but ultimately promote the diversion of resources in inefficient directions. They’re also what causes greenwashing. Hence, businesses are indeed “gaming the system.” They are trying to profit in an environment deluged with green constraints by putting on a green show, but it’s not necessarily good for the environment.