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#379 - PR Firms Promote Cost-Benefit Analysis, 02-Mar-1994

An insider's newsletter serving the public relations (PR) industry says
the environmental movement is "maturing" and "coming of age." As a
result, says O'DWYER'S PR SERVICES REPORT, environmentalists are
forming "partnerships" with major polluters, and are increasingly
funded by polluters. In February, O'DWYER'S devoted an entire issue to
what they call "environmental PR firms," including discussion of the
main "winning strategy" PR firms use for their clients. The newsletter
offers a candid, if unflattering, assessment of the environmental
movement, and of polluters. (Polluters is our term; O'DWYER'S calls
them "companies.")

In an editorial, O'DWYER'S points out the basic relationship between
polluters and the environment: "The lessons of the recent recession
have taught PR people that no matter how idealistic a company sounds,
it puts the bottom line ahead of cleaning up its mess," the editorial
says. And such companies are finding that cold cash will buy them good
will from the environmental movement, O'DWYER'S says in a page 1 story.

"Cash-rich companies, PR people say, are funding hard-up environmental
groups in the belief [that] the imprimatur of activists will go a long
way in improving their reputation among environmentally aware
consumers," O'DWYER'S says.

"Though activists may at first balk at working with corporate America,
nonprofit groups are beginning to realize that private sector cash can
increase an organization's clout and bankroll membership building
programs," O'DWYER'S says.

O'DWYER'S quotes Dale Didion of Hill & Knowlton (Washington, D.C.), the
nation's 3rd largest "environmental PR firm." Didion says companies are
learning that they can "hire members of the environmental group's staff
to help on certain projects." "This is a tremendous benefit for a
company that wants to have access to top green experts," Didion said.
"Companies can avail themselves of talented researchers, scientists,
and analysts at very reasonable prices," Didion said. Didion did not
name any environmental groups that had hired out their staff to
polluters, and he did not return our phone calls.

O'DWYER'S says there are two other benefits of such "cooperation"
between environmentalists and polluters. "The exchanges offer a good
strategic fit for companies targeting certain demographics, especially
young people..." And: "Because most large environmental groups are
international, relationships can pave the way for companies to make
connections with green organizations overseas."

Getting a relationship started between a polluter and an environmental
group "takes a lot of planning and hard work," O'DWYER'S says. "It
might be in both parties' interests at first to keep their relationship
out of the news," Didion says. "Work out early how and when the
relationship will be announced to the media--and what measures should
be taken if word leaks out prematurely," Didion recommends.

It's important for a polluter to pick the right group to work with,
says Didion. "Some national groups aren't adequately represented on
local levels," says O'DWYER'S. "Groups like the Sierra Club and the
Izaak Walton league, however, have chapters everywhere that might be
useful in a grassroots PR campaign," O'DWYER'S points out. O'DWYER'S
offers no evidence that these groups have formed partnerships with
polluters.

O'DWYER'S suggests some "cost-free and virtually risk-free" ways for
polluters to "test the waters" when entering into a relationship with
an environmental group. "Help them raise money," says Didion. "Offer to
sit on their board of directors. That can open up a good symbiotic
relationship."

Didion also suggests "dialoguing" as an effective technique. He says
Hill & Knowlton is "active in setting up dialogue groups between key
representatives of environmental groups, Chambers of Commerce and the
Federal Government." Another effective tool is for the polluter to fund
an "issue-specific publication for the nonprofit group." "The company
gets substantial input into the content because the publication has its
name on it," Didion says. "A similar tact [sic] is to bankroll a
conference on a topic of mutual interest," O'DWYER'S says.

Throughout, O'DWYER'S mentions only two environmental groups that have
formed partnerships with major polluters: World Wildlife Fund is teamed
with Chevron, and Environmental Defense Fund is teamed with McDonald's
and General Motors, according to O'DWYER'S.

O'DWYER'S says the polluters' key strategy for the 1990s will be the
claim that America can't afford a clean environment. A page 1 story
says, "...winning PR campaigns are those that educate people about the
economic costs involved in improving the environment."

O'DWYER'S recommends a simple money analysis of environmental costs and
benefits: "Does a community benefit from a plant that pollutes but
employs? Does the cost of sick days and hospitalizations due to
exposure from the dirt outweigh a payroll? Successful PR people will be
those that can blend the cold-hearted reality of 1990s economics with
the 1970s touching, though somewhat naive, concern for Mother Earth,"
an editorial says.

O'DWYER'S says candidly that companies are "challenging federal
mandates to install pricey pollution control gear that has no
productivity benefits when it may be cheaper to close up shop and move
to pollution-havens like Mexico."

"It's the job of PR firms to make sure federal, state, and local
governments along with host communities understand the economic trade-
offs involved in complying with environmental requirements," O'DWYER'S
says.

Cost-benefit analysis is a mathematical technique developed in the
1930s by the U.S. Army Corps of Engineers to justify dam projects. The
goal was to sum all the costs and all the benefits of a dam project; if
the total benefit (to any and all parties) exceeded the total costs,
the project got a green light.

Human deaths were not considered to be part of the equation during dam
construction. (Workers killed during construction are simply ignored in
cost-benefit analyses of dams.) But in a regulation to control toxic
substances, human deaths are center stage. Let's look at how cost-
benefit analysis can be used to show that regulations to save human
lives are absurdly costly.

The heart of the technique is called "discounting." This is a familiar
concept to all financial managers. A dollar in hand today is worth more
than a dollar to be earned tomorrow. Future value of a dollar is
smaller than the present value of a dollar. How much smaller? A typical
"discount rate" for determining the "present value" of future dollars
is 8 percent per year.

Here's a hypothetical example. Let's say government proposes a
regulation intended to prevent groundwater pollution by the lawn
pesticide industry. Assume the lawn pesticide industry will have to
spend $100 million today to comply with the regulation. The regulation
will prevent groundwater pollution that would take 150 years to seep
through the soil into groundwater. So the benefits of this regulation
occur 150 years in the future. Assume 1000 lives would be saved. If we
calculate the costs per life saved at today's prices, it's
$100,000,000/1000, or $100,000 per life saved. Many people would
consider one hundred thousand dollars a reasonable cost per life saved.
For example, many people (or their insurance companies) spend a
comparable sum each year to save their lives in hospitals. Many people
would even consider larger sums reasonable, say a million dollars per
life saved or even more. The Air Force, for example, might spend $4
million or more on a system to eject a pilot from a fighter plane going
down in flames.

But here's the trick. During the Reagan/Bush years the Office of
Management and Budget (OMB) required agencies to discount the lives
saved. This sounds absurd but it is true. (The Clinton OMB has not
changed this policy, but has it "under review.") Therefore in the
example we gave, the 1000 lives saved 150 years in the future must be
discounted at 8% per year to get the "present value" of those lives.
You can calculate this yourself. (For a full set of formulas, see RHWN
#197 and #199.) The basic formula is:

Nt = No*(e**(k*t))

where: * means "multiplied by" ** means "raised to the power of" (e.g.,
3**2 = 9) Nt = present value of the original amount at time t in the
future No = the original amount (in this case 1000 lives) e = the base
of natural logarithms (2.71828) k = the discount rate (in this case -
0.08, or negative 8%) t = time (in this case 150)

Any scientific calculator from Radio Shack can perform the
calculations, starting inside the innermost parentheses and working
outward:

Nt = 1000 * (2.71828**(150*(-0.08)))

Conclusion: Nt, the present value of 1000 lives saved 150 years in the
future, discounted at 8% per year, is 0.006 lives saved. If we now re-
calculate the cost per life saved using the "present value" of the 1000
lives saved, we get $100,000,000/0.006 = $16.7 billion per life saved.
This makes the hypothetical lawn pesticide regulations seem absurdly
costly.

Discounting human lives is a technique that has found great favor among
the antis because it makes government regulations appear to be
phenomenally expensive.

The "environmental PR firms" rely heavily on this technique because it
serves their strategic goal of demonstrating that regulations are
ridiculously expensive. Keith Schneider of the NEW YORK TIMES used this
technique in his path-breaking series of anti-environment articles a
year ago (see RHWN #330, #331, #332 and #333). Schneider presented a
table of data showing, for example, that EPA's regulations to curb
pollution by the wood-preserving industry would cost $5.7 trillion
dollars per life saved (3/24/93, pg. A16). A trillion is a million
million. EPA had estimated that the cost per life saved would be as low
as $800,000. But Schneider did not present EPA's estimate; instead he
presented OMB's estimate, which OMB developed by "discounting" future
lives saved--as if our children's lives are worth less than our own.
Schneider presented the information without mentioning that it was
based on "discounting" lives saved. Naturally, it made the wood
preserving regulations seem absurdly costly, and it made Schneider the
darling of the anti-environmental movement and their PR allies.
O'DWYER'S says "The five-part series THE NEW YORK TIMES published last
Spring was a watershed event in green reporting."

--Peter Montague

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Descriptor terms: public relations; pr; wise use movement; anti-
environmental movement; o'dwyer's pr services report; environmental
movement; edf; chevron; mcdonalds; gm; world wildlife fund; polluters'
secret plan; regulation; cost of regulation; cost-benefit analysis;
risk assessment;