Business executives see federal agencies as the primary sources of regulations and restrictions that can dramatically alter work processes and impose external costs. Sometimes, as in the case of environmental rules, the impact can be dramatic.
Over time, business has learned to live with regulations, becoming engaged early in the process when new rules are being developed, using the courts to challenge ill-conceived measures and sometimes prevailing upon Congress or the White House to intervene.
But non-governmental organizations (NGOs) operate outside the governmental framework. Many of us think of NGOs as human rights organizations, and many of them are, but a major segment of the NGO community is focused on environmental and consumer issues. The NGO movement, deriving much of its funding from private foundations, does not depend on government support. In 2014, the U.S. was home to 86,192 foundations with $715 billion in assets and $52 billion in giving -- much of it going to NGOs.
NGOs are increasingly influencing business decisions, not by regulatory fiat, but by inducing changes in consumer behavior. In some circles it is known as "the Walmart effect" when major retailers, responding to public opinion, demand that products meet specifications set by NGOs, not government agencies, such as percentage of recycled content.
The soda industry for example has successfully fought off efforts to tack on punitive taxes to the prices of their products, but soft drink makers cannot stop consumers from switching to water. Rightly or wrongly, the NGOs have convinced consumers that "sugar water" is not healthy. Over the past 20 years, sales of full calorie soda in the U.S. have fallen 25 percent, and sales continue to decline.
Similarly, consumers are turning away from packaged foods, not because of government regulation, but because they are becoming convinced through NGOs public education campaigns that fresh foods are healthier. Credit Suisse analysist Robert Moskow says the top 25 U.S. food and beverage companies have lost the equivalent of $18 billion in market share since 2009. Sales of packaged foods are declining by 1 percent a year as the population increases.
The very use of plastics to package retail goods and food is under the gun. No one questions the utility of plastics which are infinitely superior to any other packaging material, but some NGOs contend plastic is cluttering up landfills and befouling the oceans. So now the push is on to recycle more plastics and a new "bioplastics" industry is emerging that produces a new generation of packaging that is fully biodegradable. Government is a bystander.
It is imperative that business become more engaged with NGOs to learn of their concerns and, where possible, head off ill-conceived public information campaigns that can lead to costly and unwarranted changes in the marketplace. At the same time, companies should be looking for legitimate NGO criticisms and find ways to work with them for mutually beneficial solutions. NGOs are where the real power lies.
Jerry Jasinowski, an economist and author, served as President of the National Association of Manufacturers for 14 years and later The Manufacturing Institute. Jerry is available for speaking enagements. October 2015