Environmental Racism: The New Liability for Industrial Site Selection
Holmes, Andrew, Cowart, Lary B., Real Estate Issues
Industrial site selection is a real estate decision impacted by many variables. Whereas location for retail site selection can effect the firm's revenues, this is rarely applicable to industrial locations, since most industrial goods are exported. Consequently, industrial site selection becomes a right side of the balance sheet decision for the firm. Decision makers attempt to counterbalance production and transfer costs with occupancy costs so their consumers (other industrial or retail firms) have a lower product cost, given the risk associated with each variable's future expense.
Since most production, transfer and occupancy cost are easily quantified after the negotiation processes, the location decision is usually straightforward. Today, however, the new issue of environmental racism is complicating industrial site selection decisions and creating new liabilities.
In 1982, protesters attempted to block the siting of a hazardous waste dump in minority-dominated Warren County, North Carolina. The protest failed and the landfill was completed. Although the attempt was unsuccessful, it did serve to focus national attention on the relationship between geographical racial patterns and environmental hazards.
This phenomenon, known as environmental racism, has become a topic much discussed in the popular press. It is analogous to the widely debated mortgage redlining, which refers to an alleged effort to prevent mortgage capital from flowing into an area based on non-economic factors like race. Environmental racism, sometimes referred to as reverse redlining, is the alleged effort on the part of industrial planners to force industrial capital into minority areas without regard for economic considerations.
Looking at simple correlations between racial composition of neighborhoods and environmental hazards, many community activists claim the existence of systematic bias against minority communities in the site selection process for environmentally undesirable facilities.1,2 Indeed, much anecdotal evidence of environmental racism exists. For instance, the U.S. General Accounting Office (GAO) recently reported that three out of four commercial hazardous waste landfills in the Southeast United States were located in predominately black communities.3
Industry leaders, of course, deny allegations of racism. Instead, they point to the economic criteria used in choosing industrial locations, e.g., land prices, access to major transportation arteries, taxes, available labor force, proximity to major suppliers, zoning laws and natural geology. Racism, they claim, is not part of the equation.
However, industry advocates also have anecdotal evidence to support their position. For example, a recently protested landfill site was located near Emelle, Alabama, a town with a predominantly black population and a poor economy In response to the protest, the company argued that the site was chosen not because of the community's racial composition, but rather because a study by the environmental protection agency reported the site had ideal geology.4 Although interesting, the anecdotal evidence presented, to date, does not satisfactorily address the issue of whether race has any impact on industrial location choice after controlling for prudent economic variables.
The allegations of environmental racism are not as simple as they may initially appear. Economic research and economic policy analysis usually follows the lines of some clear economic mandate. That is, researchers attempt to identify the economic incentives available to the participants in the market and then assume that these incentives will influence behavior. Where there are clear incentives, it is often elementary to devise a methodology to expose the rational workings of market forces.
In cases where the objective is to test for potential discrimination, the standard practice has been to test for the consequences of the economic incentives. …