MANDATORY RESPONSIBILITY
I don’t think it will ever happen, but consider
this scenario. Imagine Congress passes a law requiring
every corporation — in exchange for limited
liability — to have a triple bottom line. The law
also says that at least a third of corporate directors
should represent workers, nature, and communities in
which the company operates. And it protects directors
from lawsuits if they favor nature over profit.
You’re the CEO of Acme Corporation. What changes do
you make after the law takes effect?
Well, you might start by increasing your accounting
budget. You’ll need, henceforth, to keep track not
only of money but also of your nonmonetary impacts on
society and nature. This isn’t easy, though
presumably shortcuts will be developed. Next, you assign
people to find ways to reduce Acme’s negative
impacts on nature and society, ranking the proposals by
years to payback. You budget a modest sum for the most
cost-effective projects, giving preference to those with
public relations value. You publish ads and reports,
patting yourself on the back for doing what the law
requires. And you remind your board of directors that, if
they choose, they can snub offers from the likes of
Charles Hurwitz and forgo large capital gains for
shareholders.
All this would be well and good. But given the
algorithms that still rule, how much difference would it
make? And even if it did have some effect, would it make
enough difference in the right ways? After all, you might
spend your small green budget on one thing, while nature
most needs something else.
Now, as an alternative, imagine that the price of
nature is no longer zero. All of a sudden, it costs big
bucks to pollute or degrade ecosystems. Overnight, your
managers scramble to cut pollution and waste. The higher
the price, the faster their behavior changes. And it
changes in response to specific natural scarcities, as
indicated by specific prices.
The question is, which of these approaches would work
better — mandatory social responsibility, or
increases in the price of nature? The answer, without
doubt, is the latter.
Free Market Environmentalism
One other version of privatism is worth considering. Its
premise is that nature can be preserved, and pollution
reduced, by expanding private property rights. This line
of thought is called free market environmentalism, and
it’s favored by libertarian think tanks such as the
Cato Institute.
The origins of free market environmentalism go back to
an influential paper by University of Chicago economist
Ronald Coase. Writing in 1960, Coase challenged the
then-prevailing orthodoxy that government regulation is
the only way to protect nature. In fact, he argued,
nature can be protected through property rights, provided
they’re clearly defined and the cost of enforcing
them is low.
In Coase’s model, pollution is a two-sided
problem involving a polluter and a pollutee. If one side
has clear property rights (for instance, if the polluter
has a right to emit, or the pollutee has a right not to
be emitted upon), and transaction costs are low, the two
sides will come to a deal that reduces pollution.
How will this happen? Let’s say the pollutee has
a right to clean air. He could, under common law, sue the
polluter for damages. To avoid such potential losses, the
polluter is willing to pay the pollutee a sum of money up
front. The pollutee is willing to accept compensation for
the inconvenience and discomfort caused by the pollution.
They agree on a level of pollution and a payment
that’s satisfactory to both.
It works the other way, too. If the polluter has the
right to pollute, the pollutee offers him money to
pollute less, and the same deal is reached. This
pollution level — which is greater than zero but
less than the polluter would emit if pollution were free
— is, in the language of economists,
optimal. (Whether it’s best for nature is
another matter.) It’s arrived at because the
polluter’s externalities have been
internalized.
For fans of privatism, Coase’s theorem was an
intellectual breakthrough. It gave theoretical credence
to the idea that the marketplace, not government, is the
place to tackle pollution. Instead of burdening business
with page after page of regulations, all government has
to do is assign property rights and let markets handle
the rest.
There’s much that’s attractive in free
market environmentalism. Anything that makes the lives of
business managers simpler is, to my mind, a good thing
— not just for business, but for nature and society
as a whole. It’s good because things that are
simple for managers to do will get done, and often
quickly, while things that are complicated may never get
done. Right now, we need to get our economic activity in
harmony with nature. We need to do that quickly, and at
the lowest possible cost. If it’s easiest for
managers to act when they have prices, then let’s
give them prices, not regulations and exhortations.
At the same time, there are critical pieces missing in
free market environmentalism. First and foremost, it
lacks a solid rationale for how property rights to nature
should be assigned. Coase argued that pollution levels
will be the same no matter how those rights are
apportioned. Although this may be true in the world of
theory, it makes a big difference to people’s
pocketbooks whether pollutees pay polluters, or vice
versa.
Most free marketers seem to think pollution rights
should be given free to polluters. In their view, the
citizen’s right to be free of pollution is trumped
by the polluter’s right to pollute. Taking the
opposite tack, Robert F. Kennedy Jr., an attorney for the
Natural Resources Defense Council, argues that polluters
have long been trespassing on common property and that
this trespass is a form of subsidy that ought to end.
The question for me is, what’s the best way to
assign property rights when our goal is to protect a
birthright shared by everyone? It turns out this is a
complicated matter, but one we need to explore.
There’s no textbook way to
“propertize” nature. (When I
say to propertize, I mean to treat an aspect of nature as
property, thus making it ownable. Privatization goes
further and assigns that property to corporate owners.)
In fact, there are different ways to propertize nature,
with dramatically different consequences. And since
we’ll be living with these new property rights
— and paying rent to their owners — for a
long time, it behooves us to get them right. ...
read the whole chapter