A quantitative methodology to test ecological modernization theory in the Malaysian context

The rapid economic development accompanied by increasing manufacturing output in Malaysia for the past two decades is not balanced with sufficient environmental management. Although pollution control measures have been formulated and implemented by the Malaysian government, the improvements and achievements in environmental performance vary from one industrial sector to another. This raises the question on the reasons for the differences in environmental performances of industrial sectors in one country. In addition, most of the studies using Ecological Modernization Theory - a prevailing theory for analyzing and understanding environmental reform in western countries - have a national character, in the sense that the studies do not differentiate between sectors in analyzing and explaining environmental management and performance. And these Ecological Modernization Theory studies have prevailed up till now in Western OECD countries, and hardly in Asian developing economies. Moreover, most studies in the Ecological Modernization Theory tradition are more qualitative by making interesting use of case study research in analyzing environmental reform and further building theory. Limited quantitative research has been done up till now to test the central tenets laid down in Ecological Modernization Theory and no methodology has been developed yet to carry out a more substantive quantitative testing. Against this background, the current study aims to make a scientific contribution. This study aims to understand the differences in sectoral environmental performance in Malaysian industries by applying Ecological Modernization Theory. In investigating sectoral performances, the study has two objectives. The first objective is to develop a quantitative methodology for investigating the claims of successes and failures of environmental reform as hypothesized by Ecological Modernization Theory. This quantitative methodology focuses on two central tenets of Ecological Modernization Theory. The first central tenet pertains to the claim that environmental reforms are stimulated and triggered by transformations in environmental policy, also known as political modernization. The second central tenet relates to the increasing importance of market dynamics and economic agents in successful industrial environmental management in the era of globalization. The second objective of this study is to understand sectoral variations with regard to the drivers for environmental reform and to understand why a particular sector is better than another in environmental performance. The palm oil production chain (POPC) and the textile and apparel production chain (TAPC) in Malaysia are the foci of this study. The POPC in Malaysia is a high priority resource-based industry with heavy government involvement, whereas the TAPC has more laissez faire characteristics with limited government involvement in its economic activities. Based on the two objectives, three research questions emanate. The first research question relates to how the policy and economic tenets of Ecological Modernization Theory can be operationalized into testable factors that contribute to improved environmental performances in industrial sectors. The second question relates to the factors in the policy and economic domains explaining sector variations with respect to environmental performance. The third research question pertains to the recommendations for the development of sector-                                  based industrial development policy in Malaysia, most notably the POPC and the TAPC. The development of a quantitative methodology starts with the operationalization of Ecological Modernization Theory into hypotheses to enable the validity of the Ecological Modernization Theory claims to be tested in a developing country. All the hypotheses formulated are either consistent or consonant with ecological modernization characteristics. The central tenet of political modernization gives birth to the Government-Industry (G-I) linkage which in turn looks at the Ecological Modernization Theory characteristics of policy formulation, technology, regulatory efforts, advocacy of preventive approaches, and local communities' involvement. Likewise, the central tenet of the role of market dynamics and economic actors gives birth to the Industry-Industry (I-I) linkage, which focuses on the Ecological Modernization Theory characteristics of international trade, vertical integration, international relationship, and local collaboration (localization). Each characteristic in the G-I linkage and the I-I linkage is translated into an independent variable and linked to hypotheses. Each of the independent variables is then statistically tested against environmental performance, operationalized as a composition of Environmental Performance Indicators (EPIs) or alternatively known as dependent variables. Hypothesis testing provides the means to support or refute the hypothesis. As hypothesis testing via statistical data analysis is required, the independent and dependent variables are operationalized in a measurable form. To overcome the problem of data limitations for the dependent variables - quite common in developing countries, five categories of EPIs were formulated and merged into one final environmental performance variable. The basic five categories of EPIs offer the advantage of robustness in compensating for data variability and limitation. A minimum of 35 and 36 companies for the POPC and the TAPC respectively were selected via disproportionate stratified random sampling, making over 5% of the population in each sector. The primary purpose of adopting disproportionate stratified random sampling is that it is much more efficient statistically as compared to simple random sampling and in the worst scenario is equal to it. Kendall's tau-b, a non-parametric test, is used as it is the most appropriate tool in view of data characteristics and less stringent requirements. Data were collected at the company sites of each company via interviewing, at the statistical offices of Malaysia, at the offices of the environmental authorities in the districts the sampled companies were located, and with (academic) experts. This research shows that two out of five hypotheses are statistically significant in the G-I linkage for the POPC. However, none are statistically significant in the G-I Linkage for the TAPC. This is mainly due to the fact that the POPC is designated as a high priority industry by the government. Thus political modernization has taken roots in the POPC. In the I-I linkage, three out of four hypotheses are statistically significant for both the POPC and the TAPC. This also signifies the impact of the increasing importance of market dynamics and economic actors in ecological reform in Malaysia palm oil and textile production chains. Studies using Ecological Modernization Theory in China, Vietnam and Thailand showed limited applicability of Ecological Modernization Theory in these countries. The main findings of this research on Malaysia, a developing economy in Southeast                                                                                                                                                                     Asia, prove in some way better. As mentioned above, the two central tenets of Ecological Modernization Theory, namely political modernization and the increasing importance of market dynamics and economic actors, are to some extent applicable to the POPC. However, for the TAPC, the central tenet of the increasing importance of market dynamics and economic actors is applicable whereas the central tenet of political modernization could not be proven. This shows at least the partial applicability of Ecological Modernization Theory in contemporary Malaysia, a newly industrializing country in Asia. A facet that has to be considered is the refinement of the Ecological Modernization Theory in the context of localized conditions and institutional developments in Malaysia. The central tenet that environmental reforms are stimulated and triggered by transformations in environmental governance shows that the role of the state has turned towards contextual steering for the POPC. This is made possible with the existence of modernized, sector-specific, government related institutions like the Malaysian Palm Oil Board (MPOB) and Malaysian Palm Oil Council (MPOC). However, this claim is not valid for the TAPC as it has more laissez faire characteristics. The government's innovative policy of technology development and technology transfer, as hypothesized by ecological modernization scholars, shows a muted response for both the POPC and the TAPC. The highly bureaucratic and time-consuming application process, together with poor public service delivery, act as a deterrence in such technological collaborative efforts. Likewise, poor enforcement of environmental regulations by both direct and indirect environmental government agencies leads to environmental regulations not being main drivers in environmental reform for both the POPC and the TAPC. The Ecological Modernization Theory characteristics of preventive measures and self-regulation are evident in the POPC, but not the TAPC. Preventive measures in the form of the various ISO certifications, strongly advocated by the state, have become part of the standard operating procedures of government agencies like Felda and government-linked companies in the POPC. As mentioned above, the TAPC has a more laissez faire characteristic and as such there is no push or catalyst to toe the government line. The role of civil society in environmental reform, which is very much in evidence in Ecological Modernization Theory literature, is to a large extent absent for the local communities in Malaysia. The environmental dimension has yet to become sufficiently important in the worldview and in the political opportunity structures of the local communities. The central tenet of the increasing importance of market dynamics and economic agents in environmental reform demonstrates a great impact on both the POPC and the TAPC. These two sectors are highly export-oriented and the reverberations of globalization are felt. For the POPC, the market actors in the farm to fork supply chain have adopted environmental standards like ISO 14000. On the other hand, for the TAPC the mere act of exporting to the developed markets acts as a trigger to adopt environmental standards. The adoption of environmental standards has contributed to the harmonization of environmental practices. For the TAPC, transnational corporations (TNCs) in their centrally powerful position in the economic webs, act as a stimulus in triggering environmental reform in supplier companies. However, the role of the TNCs is not merely imposing their requirements but also collaborating by helping the supplier companies to meet the                            firm-based environmental standards that they have set. On the other hand, the foreign downstream customers of the POPC have not initiated any collaborative effort to meet environmental requirements. The impact of global market forces has a local effect. Local vertically integrated groups with palm oil milling activity, especially the government linked companies (GLCs) in the POPC, have made efforts in accommodating environmental pressures. The strong corporate culture imbued with the environmental dimension, is used as a cornerstone in meeting market requirements as well as toeing the government line. Through local collaboration, they are able to cascade good environmental management systems and practices within the entire group via structural embeddedness. On the other hand, the vertically integrated groups that are involved in low pollutant generating activities in the TAPC, have made efforts in complying with environmental requirements as the investment cost is relatively low as opposed to wet processing. Thus, environmental reform in the TAPC is dictated by local cost condition. The study concludes with recommendations. The first recommendation for the development of sector-based industrial policy is the formation of sector specific, government related institutions with participation of economic actors. These institutions provide the means to formulate, promulgate, implement and monitor environmental policies. The experiences in the POPC show that allowing the industry to cooperate and participate in the policy formulation process, buttressed by the sector-specific government related institutions, has provided a synergistic government-industry linkage leading to a strong relationship with clear environmental reforms. The second recommendation is that advanced preventive and curative environmental technologies should be provided on a pro bono basis to all industries as these technologies are meant for the good of the commonwealth. Currently, the indigenous technologies developed by MPOB are sold to any interested parties based on certain specific terms and conditions. The third recommendation is that the adoption and maintaining of environmental standards and certifications should be highly encouraged, as this proves to be a workable form of self-regulatory practice. Attaining the pioneer or the first environmental certification, especially ISO 14000 standards, is relatively easy but maintaining the certification on a long term basis proves much more difficult. Tax incentives on a graduated scale can be provided for the adoption and maintaining of environmental certifications as these have both economic and environmental benefits. This preventive measure complements and supplements the environmental enforcement agencies in view and in lieu of their poor regulatory enforcement. The fourth recommendation is that a fast track program should be institutionalized for the approval of technological collaboration, technological financing and the application of tax incentives for environment-related projects and technologies by relevant government agencies. This fast track program is to overcome the highly bureaucratic and time consuming application process by relevant government agencies.