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- Report n°2: An integrated approach to economic and social contestability in business
Report n°2: An integrated approach to economic and social contestability in business
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Table of contents
- Exchange of batches of scrap metal under the constraint of defection, local challenging vigilance and Nimby
- Intermediate conclusion on the link between economic contestability and social contestability
- Exchange of batches of scrap metal under the constraint of defection, local challenging vigilance and Nimby
Intermediate conclusion on the link between economic contestability and social contestability
The economic contestability of a recycling firm depends on two variables: its productive assets and the informal mechanisms through which it settles exchanges on goods of uncertain quality on the input market of the branch. By taking into account the relations between these variables, the diagnosis we make reveals the possible link between ways to improve competitiveness and reduce economic contestability when both are obtained at the price of greater exposure to the social contestability of the metal recycling activity.
This first stage of the analyses therefore designates the assets used by the recycler and the informal mechanisms developed on the input market as factors that (1) determine the degree of the firm's economic contestability and (2) increase the sensitivity of the recycling activities to social protest on environmental issues. In addition to the necessary material processing equipment, which defines a minimum horizon of commitment for the activity, the existence of intangible assets such as reputation network combine in face of the threat of failures of the input market, geographically situated close to an urban context, to induce a low economic contestability: all this erects barriers to hinder the entry of new recycling operators and the recycler benefit form a monopsonic position. Both simultaneously increase the threat to the recycler's social contestability on environmental or safety grounds.
The very conditions of exercising this economic activity imply the simultaneous presence of two components of the theoretical scheme: economic contestability on the one hand and external opposition (local protests or vigilance), which can be expected to develop into social contestation, on the other hand. In other terms, an ideal site from the standpoint of an input market of uncertain quality poses the premise of a dynamic between contestatory behaviour on the part of mistrustful suppliers at the front end and a latent mistrust or vigilance with respect to that activity on the part of local residents, which is likely to result in effective opposition to the environmental impacts.
Both the first type of contestation (defection) and the second type (vigilance) are expressions of mistrust of an agent, whose behaviour can only be partially observed to see if it conforms to a mutual or collective interest(25), thereby introducing the kind of conditions that are likely to result in the contestability dynamics. Based on incidents and mere suspicions, nuisances in the neighbourhood can be interpreted as risks of much broader scope for public health and the environment. Social contestation on environmental and health grounds can expand to players who are non-stakeholders in the economic activities of the branch, such as local residents and the public authorities who take up their cause. When these external players, for various reasons, become oppositional to the recycling activity, they will actively seek out safety and environmental risks that they can use as an objective basis for their mistrust and opposition. In view of the plausibility of a dynamic of this kind, it is in the interest of a recycler who cannot easily extricate his business from potential contestation by relocating, to deploy other strategies to protect it from such threats.
At this stage of the argument, the dynamics of interaction between the two forms of contestability require further clarification: the threat of external social contestation can take a variety of forms, not all of which focus on general risks to the community such as environmental or health risks. Mostly, protest is latent and local in scope and targets either an established operator or a newcomer (Nimby syndrome). In both cases, opponents denounce the potential or real nuisances generated locally by a material processing activity. The switch from this form of local protest into more generalizing social contestation does not necessarily have to happen, in view of the general uprising of protest that it implies. Furthermore, the diagnosis of the economic contestability of the activity is still incomplete; we must now analyse the conditions of access to the output market in order to arrive at a satisfactory overview of the problem of management of the contestability of the recycler.
(25) The common good at stake is defined differently depending on whether the contester is an economic agent - "the supplier" - or someone outside the trading environment - "the resident".
Types of trades upstream and the anticipatory management of threats by the recycler
Upstream perspective, based on:
- "Production equipment = asset whose profitability depends on the supply of materials"
- The potential of the accessible resources depends on the capacity of the buyer to motivate and coordinate his independent suppliers to produce the collected and sorted material he needs to obtain the required flow of materials.
We identify the possible market failures and their effects on forms of contestability
- Reference situation (1): differential expertise that favours the recycler, source of contestation through defection and a type 1 market failure: only low-quality materials are offered to the recycler
- Materials collected: dangerous if not detected
- Source of risk of industrial and environmental damage
- Increased opposition from residents (vigilance)
- Increased exposure to internal and social contestation on health and environmental grounds - Materials not collected: a dead weight of high quality, materials of high value
- Encourages the entry of a new operator to collect or recycle
- Increased economic contestability
- Reference situation (2): expertise is perfect and equally distributed, source of a type 2 market failures - Materials not collected and not processed, where potential risks may be imputed to those materials = factor favourable to changing (i) access to resources and (ii) the organisation of collections
è loss of the recycler's legitimacy in carrying out his role: increased exposure to environmental and public health contestations;
è increased exposure to a threat of economic contestation from competitors, by the entry of a new recycling or collecting operator, initiated by the public authorities.
- A solution to market failure: informal mechanisms that regulate collecting efforts and access to scrap resources
- Informal mechanism: the formation of a reputation network
- Intangible asset shared by a sub-group of suppliers and useful to the recycler
- Barrier to entry for a new recycling operator
- Barrier to exit (on relocation) for the incumbent operator
- Reduces the degree of external and internal economic contestability
- Removes contestation through defection in executing contracts
- Helps prevent the emergence of environmentally-based social contestation in a context of challenging vigilance
- But engenders exclusion, the effects of which must be neutralised by arbitration that discriminates finely between transparency and opacity