How, Despite Overwhelming Public Support, the Waste Industry Has Undermined Recycling
By Mike Garfield - from Ecocenter.org - June/July 2006
Ten years ago, the future was smiling on America's recyclers. Across the country, local governments were reeling from sky-high trash prices, beefed-up landfill regulations, and virulent community opposition to new incinerators and waste dumps. Giving up years of resistance, they turned to recycling in droves.
In the early 1990s, city after city embraced the reduce-reuse-recycle ethic, and families got used to sorting their jars, cans and papers from the rest of their trash. Recycling even entered the vernacular. Between 1990 and 1998, the national recycling rate skyrocketed from 16% to 28% of all garbage. Michigan's rates lagged behind the national levels, but still rose to their current 20% level.
At the very time that recycling moved into America's mainstream, however, two fundamental changes in the waste industry began to undermine its potential.
Better, More Efficient, and Cheaper Service?
Until the 1980s, most large- and medium-sized cities ran their solid waste programs with their own municipal crews and managers. But faced with budget shortfalls and impressed by Reagan-era economic philosophy, hundreds of cities contracted with private waste haulers who promised them windfall savings. In Michigan, only a handful of cities - mostly those with powerful municipal unions - have held onto their publicly-run trash services, according to James Frey, principal and owner of Resource Recycling Systems, a solid waste consulting firm. And the many fast-growing suburbs in southeast and west Michigan had never established a municipal collection service in the first place.
Did they save money? Some certainly did. Some public sector programs were poorly managed and posed easy targets for privatizers who argued that market competition would always provide better, more efficient and cheaper services. But whenever a municipality contracted out its trash and recycling service, sold its trucks, and reassigned its staff, the market had one less competitor - the public sector provider. In the worst case, private bidders would secure municipal contracts with low-ball bids, see the public unit mothball its own department, acquire its private sector competitors, and then charge monopoly prices in subsequent contracts.
Indeed, for some small communities, the glow wore off quickly. The Village of Chelsea, a tiny Washtenaw County town of less than 10,000 persons, contracted out its trash collection service earlier than most. But they grew disenchanted with their service providers, according to John Elliott, the Village's current Solid Waste Department Supervisor. Their last hauler, based in Jackson, "would pick up in Jackson, then handle our routes, and dump for free at our landfill." The Village decided that it could provide the service at lower cost than a contractor, and has done so for the last decade.
Most communities, however, are unwilling to "get back into the business." No matter how dissatisfied they might be with their contractors, most local governments are reluctant to get back in the business after selling their trucks and equipment, and eliminating their staff positions. By 1997, more than half of U.S. municipal solid waste services were provided by private contractors. With this shift to the private sector, cities relinquished some control over their programs, and lobbying for better recycling programs grew more complex.
The Acquisition Craze
At the same time that the waste industry was making inroads in the public sector, the industry itself was undergoing a dramatic transformation. An industry dominated by small family-owned businesses was taken to Wall Street, and it has never looked back.
When cities contracted for trash collection 20 years ago, odds were high they'd hire a small local hauler. Southeast Michigan municipalities hired companies like Clarkston Disposal, Mr. Rubbish, Diamond D and City Management. In the 1970s and 1980s, two trash companies - Chicago-based Waste Management, Inc. (WMI) and Houston-based Browning-Ferris Industries (BFI) - adopted a radical business strategy which transformed the industry, and the pace of change has accelerated even more in recent years. Both companies went public in the 1970s, and used their stock to finance the acquisition of hundreds of local haulers. In short time, WMI and BFI had become global corporations with diversified businesses. By 1988, WMI and BFI were ranked among the Fortune 500 list of the world's largest companies, with Waste Management among the top hundred.
But the acquisition craze ran its course as the trash giants failed to continue providing outstanding returns to investors. They should have foreseen the problem, according to Peter Anderson, president of Recycle Worlds, a Wisconsin-based consulting firm, in an article in the industry trade journal MSW Management, because "trash collection simply has no economies of scale above that found on the regional level that could affect the premiums that had to be paid to close on all their acquisitions."
The giants kept profits high through price-fixing and predatory pricing tactics. After years of escaping prosecution with slaps on the wrist, they were forced in 1988 to settle a class-action antitrust lawsuit for $50 million. Nor were they America's greenest companies. Both industry leaders ran up hundreds of environmental violations at their landfills and other facilities. But antitrust and environmental violations couldn't guarantee profitability. When the giants overbuilt landfills in the early 1990s and suffered losses in their hazardous waste operations, their profits tumbled. They gave up the field to a new generation of consolidators who would eventually overtake them.
Most prominent of the new generation was a cast-off from the last. John Drury, BFI's president, was called a "dinosaur" and forced out of the company by CEO William Ruckelshaus over Drury's refusal to support recycling programs. Drury found his way over to the Dallas-based start-up USA Waste Services. According to Anderson:
"While the colossus that became Waste Management had actually been created by the aggregation of 3,000 small, family-owned haulers over 20 long years, [Drury] had the support of investors to implement the idea of merging with other regional consolidators to race to the finish line in record time. He may also have had the insight that a seemingly innocuous upstart could slip under the Justice Department's radar screen, while Waste Management or BFI might have felt that they risked being hung out to dry by the Justice Department acting under its merger review authority."
Remarkably, the strategy succeeded, and within four years, USA Waste (and another young regional consolidator, Allied Waste) had grown so strong that they merged with, and assumed management control of, respectively, Waste Management and BFI. The new #3 and #4 industry players -Republic Waste and Vivendi/Superior - were beefed up by government-forced divestitures of the new WMI and Allied/BFI. Beyond the top four, the field has grown sparse, and, by 1999, only 13% of the country's solid waste market was controlled by privately held companies.
Recycling Not their Core Business
While the waste companies assured local governments that they could provide high-quality, low-cost recycling programs, they've jumped at opportunities to cut back those very programs.In the late 1980s and early 1990s, WMI and BFI both thought that recycling programs could improve their public image, which had been battered by price-fixing scandals, major antitrust violations and overt links to organized crime. During this period, the two waste giants christened their programs "Recycle America" and "Recycle Now," built dozens of recycling facilities, plastered recycling trucks all over their annual reports, and BFI dumped John Drury.
But the recycling bubble burst a few years later, as the new regional consolidators grew fast and commodity markets took a dive. The industry leaders make ten times as much profit on their landfill operations as they do on their recycling programs, according to a 1997 report by Deutsche Morgan Bank, so the new management at WMI, Allied/BFI, and the others have cut recycling services in the name of shareholder return. According to Anderson, "Waste Management found in the early 1990s that embracing recycling was a way to reburnish its public image from a damaging class action antitrust suit it had lost. Now that recycling's no longer in vogue, and since the takeover by USA Waste, the focus is on increasing waste volumes, not diversion. . . . The dynamics on Allied are the same as for Waste."
The waste industry maneuvers against recycling were soon buttressed by a small, but prominent, group of right-wing thinktanks, industry lobbyists and conservative commentators. The Cato Institute, Reason Foundation, and other right-wing organizations issued reports that not only attacked the economic benefits of recycling, but even the environmental benefits. Little by little, the anti-recycling attacks worked their way into the mainstream media. They opened into full flower with John Tierney's 1996 New York Times Magazine cover story titled "Recycling is Garbage." Tierney's article was sharply and widely criticized (the Times acknowledged receiving a record number of letters about the story, mostly negative), but the seeds of doubt were planted.
It had taken 20 years to persuade local communities to invest in recycling programs. The public had just grown used to sorting recyclables. But now we were handed messages that the recycling movement was founded on a hoax.
With the waste industry lobbying to downsize recycling programs and the public confused about their benefits, municipalities started to axe services. According to a new report by the Institute for Local Self Reliance (see excerpts, page 11), New York City has recently cut its collection service back from weekly to bi-weekly; Washington, D.C. has temporarily dropped pick-ups during budget shortfalls. Twelve states report that local communities have quit collecting glass bottles and jars, and six states say locals have quit collecting plastic containers. In Michigan, Oakland County's recycling rates have fallen so far short of the County's 50% recovery goal that county planners are now slashing the goals-all the way down to 30%!
Industry P.R. officials and anti-environmental naysayers argue that recycling can't compete in the marketplace, but what they won't tell you is that the market is rigged. In a 1999 study, the Grassroots Recycling Network found that 13 federal taxpayer subsidies provide over $2.6 billion per year for timber harvesting, hard rock mining, and fossil fuel production. These subsidies for virgin materials extraction put scrap recycled materials at a major competitive disadvantage.
Even on an uneven playing field, recycling can sometimes save cities money. But recycling is only cost-competitive with landfill disposal when cities invest seriously in it, and develop programs with high participation and recovery rates. By Jim Frey's calculations, "on a cost-per-ton basis, when a recovery system reaches the 40-45% level, the system achieves economies of scale that make its costs comparable to landfills."
Unfortunately, not enough North American cities have reached the 40-45% level, even though some have surpassed 50%, and a handful have topped 60%. (See chart, page 9.) In low-recovery towns, however, recycling is viewed as a luxury that may be first on the chopping block when city leaders need to find budget cutbacks.
Future Up for Grabs
As a result, many cities find themselves in a quandary. They may want to ramp up their recovery programs, but they've contracted their waste services to the private sector, and none of the trash companies in their region are interested in providing high-recovery programs. Do they have to buy new trucks, hire new employees, and re-start their own in-house services? Do they have any other recourse?
Maybe, say experts. If you're in the right place, and you play it smart, cities can push their recovery levels up to the point where they start to see financial returns. "Privatization is not the heart of the issue," says Peter Anderson, "consolidation over landfills is." Some regions still have a high-recovery service provider, whether it be one of the remaining nonprofit recyclers or a for-profit recycler. "And if you contract right, you can reduce the easy ways that the waste industry can hurt you."
Even in the current industry environment, Jim Frey finds that "there are ways to do public-private partnerships that break the chain of monopoly and set up incentives for aggressive recycling. But the public agency needs to keep control of the incentives."
Some communities have introduced economic incentives into their hauling contracts. For instance, weight-based fees give a recyclables hauler the financial incentive to encourage greater participation and recovery. In contrast, most contracts reimburse haulers based on the total number of households served. That actually acts as an incentive against higher recovery, since the hauler makes more money by finishing routes quickly. Many communities also employ economic incentives for waste reduction in their programs' financing. Nearly 4,000 U.S. communities use "pay-as-you-throw" systems where household pay solid waste fees based on the amount of trash they generate-the more trash, the higher the fee. Old-fashioned property tax funding for solid waste programs provides the user with no incentive to recycle.
Local officials, though, won't wade through the complexities of solid waste contracting for the sake of recycling unless their constituents demand better programs. And, on that point, there may be grounds for optimism. After lying dormant for nearly ten years, activists are taking to the streets again to promote recycling.
Bill Sheehan, coordinator of the Grassroots Recycling Network (GRRN), a national coalition of recycling and environmental activists, points to a series of campaigns that have once again mobilized public interest in support of recycling. GRRN's started a campaign last year to pressure Coca Cola to honor its promise to use recycled content in its plastic bottles. "The campaign has engaged over 10,000 consumers, and generated over 40,000 letters and emails to Coke," says Sheehan. "Ten local governments, including the Cities of Los Angeles and San Francisco, have endorsed the campaign."
Sheehan says that GRRN is making plans to work with forestry activists, and it is planning a major new initiative to expand bottle bill programs around the country. At the local level, he says, an aggressive and media-savvy campaign for "zero waste" was organized in Boulder, Colorado by the nonprofit recycler EcoCycle with impressive results. Activists are organizing initiatives elsewhere in communities around the country. While the situation is more complex today than in recycling's early years, the message is the same: recycling and waste reduction create huge environmental benefits, produce more jobs than waste disposal, and can be cost-competitive with landfills and incinerators.
Back in Michigan, recycling activists butt up against an unfriendly governor and legislature, over-built disposal capacity, and a market dominated by the major waste companies. Activists mobilized in the mid-1990s to fight new landfill sitings, again a few years later to protest waste imports from distant states and Ontario, and - in a small handful of communities - to lobby for better recycling programs.
Ironically, the same consolidation trend which bruised recycling programs might now get bit back. As the industry drops service, their customers look elsewhere. "We now get calls every day from businesses that want to recycle, or from ones that have had a service dropped, and they're desperate for a solution," said Tim Brownell, board chair and interim director of Recycle Ann Arbor. "They call us from Livonia, Canton, 30 and 40 miles away. People are losing options, but are committed to recycling, and they don't want to give it up."
Peter Anderson goes even further, arguing that recycling might be the "soft underbelly" of the waste industry. He posits that the consolidators - soon to run out of smaller firms to acquire - will soon have to charge inflated monopoly prices to their customers. In turn, recycling will become more affordable.
Recycling catapulted into the mainstream through the vocal support and political involvement of thousands of grassroots activists across the country. With the success of the movement, the activists were gradually replaced by public sector managers, corporate officials, and industry consultants. Today, facing a more complex set of challenges, recycling will never reach its full potential without a rejuvenated grassroots movement. Working outside the limelight, the future of recycling is up for grabs.