Free-market environmentalism
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Free market environmentalism is a theory that argues the free market is the best tool to preserve the health and sustainability of the environment. This is in sharp contrast to the most common modern approach of looking to government intervention to prevent destruction of the environment.
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[edit] Economics of environmental destruction
Economists tend to view many environmental problems as arising from the negative externalities of industrial production and excessive depletion of non-renewable resources. With respect to externalities, a firm may receive the full benefit of producing a pollutant but, in general, they do not pay the full social costs of polluting the environment. This leads to a situation analogous to the free rider problem where the firm keeps all the benefits of an activity itself but shifts responsibility for the costs to all citizens and future generations. In such a situation it is rational, because it is profitable, for a firm to overpollute, while letting others absorb the costs of its effects and cleanup. In other words, a market mechanism, left to its own devices, contains in-built incentives for over-destruction of the environment. Ecological economist Robin Hahnel has enumerated the four basic defects of a market economy with respect to the environment as:[1]
- overexploitation of common property resources
- overpollution
- too little pollution cleanup, and
- overconsumption.
Moreover the prevalence of externalities has serious implications for market efficiency in its static and dynamic dimensions. If negative externalities are unnaccounted for it implies that market prices will not accurately reflect true social opportunity costs, leading to misallocations of goods. As the elementary economics text book by Baumol and Blinder observes When a firm pollutes a river, it uses some of society's resources just as surely as when it burns coal. However, if the firm pays for coal but not for the use of clean water, it is expected that management will be economical in its use of coal and wasteful in its use of water.
One strategy to address negative externalities is governmental regulation proscribing polluting activities. This approach has been criticized by free market economists and others as being inefficient and ineffective. Research at Amoco concluded that were the money that is currently spent on meeting regulations instead spent on reducing pollution, in ways that the company itself was already able to identify, the net benefits to the environment would be greater. Furthermore, the demands of regulation seldom appeal to the social conscience of industries or enterprise owners and violation is often seen as legitimate business practice. Critics have noted that studies sponsored by firms assessing their own activities are invariably biased and typically exemplify an illegitimately narrow focus that ignores a competitive market context and the prevalence of external effects throughout the supply chain. Amoco's attempts at voluntary measures have met with resistance from the four or five oil refining corporations with greater market share, who expressed a preference to be forced by state regulations before lowering their sulphur content. Following Amoco's gestures, prominent environmental groups were unimpressed. For example, the Earth Day 2000 report, "Don't Be Fooled" named Amoco as one the top 10 "greenwashers" of the year.[1]
[edit] Property rights
Some economists argue from the Coase Theorem that, if industries internalized the costs of negative externalities they would face an incentive to reduce them, perhaps even becoming enthusiastic about taking advantage of opportunities to improve profitability through lower costs. Moreover, economists claim this would lead to the optimal balance between the marginal benefits of pursuing an activity and the marginal cost of its environmental consequences. One well-known means of internalizing a negative consequence is to establish a property right over some phenomenon formerly in the public domain. This requires a little abstract thinking in the case of environmental problems as these Coasians are talking about a grant to pollute or to exploit some limited natural phenomenon. This is a sophisticated variant of the polluter pays principle. However, critics have charged that the "theorem" attributed to Coase is of extremely limited practicability because of assumptions, including that it was theorized to account for adjacent effects where transaction costs for bargaining agents are typically small, but is ill-suited to real world externalities which have high bargaining costs due to many factors.
A number of libertarians, such as Rothbardians, reject the proposed Coasian solution as making invalid assumptions about the purely subjective notion of costs being measurable in monetary terms, and also of making unexamined and invalid value judgements (i.e., ethical judgements). ([2] PDF) The Rothbardians' solution is to recognize individuals' Lockean property rights, of which the Rothbardians maintain that Wertfreiheit (i.e., value-free) economic analysis demonstrates that this arrangement necessarily maximizes social utility. ([3] PDF)
Proponents of free market environmentalism use the example of the recent destruction of the once prosperous Grand Banks fishery off Newfoundland. Once one of the world's most abundant fisheries, it has been almost completely depleted of fish. Those primarily responsible were large "factory-fishing" enterprises driven by the imperative to realize profits in a competitive global market.[4] It is contended that if the fishery had been owned by a single entity, the owner would have had an interest in keeping a renewable supply of fish to maintain profits over the long term. The owner would thus have charged high fees to fish in the area, sharply reducing how many fish were caught. The owner also would have closely enforced rules on not catching young fish. Instead commercial ships from around the world raced to get the fish out of the water before competitors could, including catching fish that had not yet reproduced.
Another example is in the 19th century early gold miners in California developed a trade in rights to draw from water courses based on the doctrine of prior appropriation. This was curtailed in 1902 by the Newlands Reclamation Act which introduced subsidies for irrigation projects. This had the effect of sending a signal to farmers that water was inexpensive and abundant, leading to uneconomic use of a scarce resource. Increasing difficulties in meeting demand for water in the western United States have been blamed on the continuing establishment of governmental control and a return to tradable property rights has been proposed.
[edit] Regulator capture
Many free market environmentalists argue that the problem of regulator capture whereby large companies play a large role in setting regulations has created a system where things are far too biased in favor of large companies. For instance, in the United States lands that could be more valuably used for tourism are often used for resource extraction because the many disorganized tourists cannot have the same impact on government as the few organized corporations. If the land was privately held the land owner would realize that tourism would make more of a profit than logging and nature would be preserved.
[edit] Taxation
The implementation of property rights provides governments with an opportunity to raise revenues. This has been illustrated by recent auctions of bands of the electromagnetic spectrum for telephony, another example of an attempt to manage a scarce resource through property rights rather than regulation. Such auctions offer an alternative to conventional taxation for funding public spending, by capitalizing the expected rent earned by the privatized good. Some economists, most notably Henry George in the 1870s, have argued that taxes on income and profits represent taxes on productivity, innovation and creativity and that we should rather tax land rents and externalities such as pollution, consumption of fossil fuels and road congestion. Environmental property rights offer a means to shift taxation from "goods" to "bads" and rents.
[edit] Nature preserves
One example of free market attempt to protect the environment is The Nature Conservancy organization. It has been successful in protecting many sensitive, ecologically important places by simply purchasing them, although this practice has met with controversy in some areas. In some cases the lands are donated or sold to government agencies for management, while in others the Nature Conservancy itself manages these preserves.
Billionaire Ted Turner has a similar private program that has seen him buy up ten of thousands of acres of wilderness around the United States.
[edit] Objections
There are a number of arguments against free market environmentalism:
- Some claim that not all aspects of the public domain are easily "privatisable" in practice. For example, these people say it would be difficult to establish property rights to air, so stopping air pollution or global warming would be very difficult. For issues like this Coasian environmentalists often support carbon trading schemes advocated by other environmentalist movements. The US Clean Air Act of 1990, for instance, set up a system of emissions trading for sulfur dioxide. The Kyoto protocol also seeks to establish a system of emissions trading for carbon dioxide and other greenhouse gases. Although, Rothbardians reject government-imposed emission trading schemata, and instead maintain that pollution is a matter of people's Lockean property rights being violated, and hence should be handled as a subject of tort, as any other invasion of property.([5] PDF)
- The conservation of endangered species is not necessarily achievable using the free market, especially where there is little economic value in the species in question. For example: there might be only limited profit to be made from a piece of land by maintaining it as the habitat of a rare beetle, whereas alternative economic uses for that land (which might be deleterious to the welfare of the beetle) - such as building a parking lot on it - might yield a greater profit. Regardless of the broader ecological importance of the beetle, it is much more likely that the landowner will prioritize short-term profits to be gained from development, rather than a long-term benefit which may be of comparably little (perhaps even imperceptible on the surface) benefit to himself. Thus, threatened or endangered species could be lost by relying on the willingness of individual landowners to take a loss in order to protect them.
- A related philosophical objection is that free market environmentalism is entirely anthropocentric and ignores the innate value of nature outside of human use of it. (see ecocentrism).
- The principle of limited liability protects investors from the costs of the activities from which they benefit. In the U.S., there have been recent suggestions that, while limited liability towards creditors is socially beneficial in facilitating investment, the privilege ought not to extend to liability in tort for environmental disasters or personal injury[2], [3]. In fact, most free-market environmentalists oppose limited liability in torts as a form of corporate welfare and a limitation of full property rights.
- Countering the tragedy of the commons claim, Elinor Ostrom has studied a large number of empirical cases where common property resources have been managed successfully. Her work emphasizes neither private property/market arrangements nor government regulation but the successes of communities consciously designing institutional arrangements in response to particular common property dilemmas. The stress is on democratic institutions that allow the users of the common to govern the commons.[6]
[edit] Free-market environmentalists
Economists who have written on free-market environmentalism include:
- Terry L. Anderson
- Paul Krugman
- Donald R. Leal
- Julian Lincoln Simon
- Richard L. Stroup
- Peter J. Hill
- Roger E. Meiners
- Bruce Yandle
[edit] See also
- environmentalism
- eco-capitalism
- free market
- wise use
- Green syndicalism
- Foundation for Research on Economics and the Environment
- Property and Environment Research Center
- Waterkeeper Alliance
[edit] Notes
[edit] External links
- "Law, Property Rights, and Air Pollution," [1.8 MB PDF] Murray N. Rothbard, Cato Journal, Vol. 2, No. 1 (Spring 1982), pp. 55-100.
- "Resolving the Tragedy of the Commons by Creating Private Property Rights in Wildlife," Robert J. Smith, Cato Journal, Vol. 1, No. 2 (Fall 1981), pp. 439-468.
- "Free-Market Environmentalism Reading List," The Commons Blog: Markets Protecting the Environment.
- "Environmentalism, Free-Market," Richard L. Stroup, The Concise Encyclopedia of Economics: Library of Economics and Liberty
- Trading Away the Earth: Pollution Credits and the Perils of "Free Market Environmentalism"
- The Thoreau Institute - a pro-free market environmentalism group
- The Nature Conservancy has posted much information on conservation easements and other tools pertaining to free-market environmentalism
[edit] Bibliography
- Anderson, T L & Leal, D R (1991) Free-market environmentalism ISBN 0-8133-1101-2
- Grundfest, J.A.. "The limited future of unlimited liability: a capital markets perspective". Yale Law Review 102: 387.
- Hahnel, R. (2005). Economic Justice And Democracy: From Competition To Cooperation. Routledge. ISBN 0-415-93345-5.
- Hansmann, H. & Kraakman, R. (1991). "Toward unlimited shareholder liability for corporate torts". Yale Law Review 100: 1879.
- Stroup, Richard L. (2003) Eco-nomics: What Everyone Should Know About Economics and the Environment ISBN 1-930865-44-9
- Krugman, Paul (1999) Earth in the balance sheet: economists go for the green and Taxes and traffic jams reprinted in The Accidental Theorist ISBN 0-14-028686-1
- Ridley, M & Low, B S (1993) Can selfishness save the environment?, The Atlantic Monthly vol. 272, pp. 76-86
- Simon, Julian (1998) The Ultimate Resource 2 ISBN 0-691-00381-5
- Free Market Environmentalism Bibliography on The Commons Blog
