Understanding Incentives for Clustered Firms to Control Pollution: The Case of the Jeans Laundries in Toritama, Pernambuco, Brazil

Abstract

There is a strong concern about how the public sector can enforce that small and medium enterprises (SME) located in clusters comply with the environmental standards, tax and labor legislation without hurting the firms’ competitiveness. On the one hand, it is a well-known fact that small firms’ owners in developing countries face constraints (low level of education, lack of capital, focus on shortterm profits, low-priced products, etc.) that make it difficult for these firms to comply with the labor, environmental and tax legislation (Dasgupta, 2000). On the other hand, there are examples of firms located in clusters that once they upgraded and started to comply with the environmental, tax and labor legislation, became more and not less competitive (Tendler, 2002). However, it is still not clear under what circumstances the public sector can push SME to comply with labor, tax or environmental legislation without harming firms’ survival and competitiveness. In this chapter, I want to address this question by focusing on a program of pollutioncontrol in a cluster located in the poorest region in Brazil, where for years informal firms flourished, local entrepreneurs did not cooperate and pollution was common. If we understand how this program succeeded under such adverse circumstances, we might draw some lessons to replicate this program elsewhere. This is the main challenge of this chapter.