Giveaway or Auction?
and — equally important — sell or lease?

The airwaves belong to the American people? We all say it, but show me some evidence! They are sold by one corporation to another, at profits which don't represent any value added by the seller. Rather, their appreciation is a result of the same kinds of factors that affect land value: population increases, technological improvements, and the economy as a whole. We-the-people should be leasing such assets to those who will pay us the most for them, for 3, or 5, or 10 year periods.

Similarly, rights to pollute should not be given away, and certainly not given in proportion to the amount of pollution a corporation or individual is currently producing. We're all created equal, and the owner of, say, a Hummer should not be given the right to pollute 5x, while the owner of a Prius is only given the right to contribute "x" amount of pollution because they've already reduced their pollution. A company which has an old, sooty coal-burning plant should not be given more pollution permissions than the company which has already invested in cleaning up their old plant or building one with the newest technology!

Joseph Stiglitz: October, 2002, interview

Q: In Globalization and its Discontents, you write (p. 81): "But land reform represents a fundamental change in the structure of society, one that those in the elite that populates the finance ministries, those with whom the international financial institutions interact, do not necessarily like."

JES: Yes. Let me try to approach the question a little more systematically. Once you take the perspective I just gave, that means the management should be done in such a way that it maximizes the amount of money available to the US government from natural resources because they are within its domain and control. So, looking at the United States, one of the implications of this is that a foundation such as yours [the Robert Schalkenbach Foundation, created to promote the ideas of Henry George, as expressed in Progress & Poverty] ought to be very much against the policies of the US government of giving away our natural resources. Here is a case where we not only are not taxing it much, we're actually giving it away.

Q: I assume you're speaking in particular of oil and mineral rights, but would not Broadband Spectrum rights also be included in that category?

JES: Yes, Broadband Spectrum rights as well. Now, giving away rights such as those would be anathema to the spirit of Henry George. And the second part is that when you sell them, you want to do so in such a way as to maximize the revenues. And whether you decide to sell it or whether you decide to rent it, would be the question of what is the way that maximizes the extraction of public revenues.

Q: And those revenues go to the people. Not to private concerns.

JES: Exactly. So you're trying to say, from the perspective of public management, how can we take this inelastic supply of public resources and maximize the rents that we can extract from it, consistent with other public objectives? That is a very deep philosophical approach, and requires a re-thinking of how we manage all aspects of those public resources. However, much of what we do is inconsistent with that. Now, the issue of land reform is a little bit different. There, it's a two-step analysis. My concern that I expressed about land is that in many developing countries, you have most land owned by a few rich people, and the land is relatively little taxed. But the land is worked in a system of sharecropping in which workers have to pay the landlord 50% of their output. In a way, you can look at that 50% as a tax. The sharecroppers are paying a 50% tax to the landlord. But it's worse than a tax. Because it's not a land tax, it's a tax on their labor. And it's a tax that goes to the landlord rather than to society. So the notion is that land reform could take a variety of different forms. For instance, the government could take over the land and rent it to the people. Or give it to the people and have a land tax that would not have the distortionary effect of land reform. So, in a way, these systems of share-cropping are worse even than anything that Henry George was worried about in terms of misuse of land. ... read the entire interview

Peter Barnes: Capitalism 3.0 — Chapter 4: The Limits of Privatization (pages 49-63)

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.

Consider the matter of who represents pollutees. Coase presented his model in its simplest form: a single polluter and a single pollutee. In the real world, there are usually a few large polluters and millions of people who are polluted upon. It’s prohibitively expensive for individual pollutees to sue large polluters, just as it is for large polluters to negotiate individually with pollutees.

For the Coasian model to work, the class of pollutees as a whole needs to be represented by an agent. What’s more, it matters to whom that agent is accountable, and what principles drive its actions. If either the accountability or the principles are wrong, the agent will sooner or later do the wrong things. But if the agent’s accountability and principles are right, we may actually have a fix for capitalism’s predisposition to pollute. The key is to make each agent a trustee for future generations and all living citizens equally.

Then there’s the matter of who gets the initial property rights, and whether or not they have to pay for them. Consider pollution trading as it’s been put into practice so far. Government issues permits to dump a particular pollutant into the commons. It gives the permits — for free — to large polluters, based on how much they polluted in the past. Past polluters who reduce their future pollution can benefit by selling permits they no longer need.

This kind of pollution trading involves both propertization and privatization. First, a new kind of property is created — a right to emit a particular chemical into the commons. Then, this piece of property is given to private corporations. I have no problem with the first part of this process, propertization. What troubles me is the second part, privatization.

Giving away pollution permits, instead of auctioning them to the highest bidders, is like handing out free leases to an office building. Worse, it’s like handing out free leases and letting the freeloaders sublease to others and pinch the rent. And we’re not talking about pocket change, either. When it comes to carbon dioxide emissions, the assignment of property rights is potentially worth trillions of dollars. That’s money consumers will inescapably pay in higher prices for energy. To whom they pay it depends on who gets the property rights to the sky. ... read the whole chapter

Peter Barnes: Capitalism 3.0 — Chapter 8: Sharing Culture (pages 117-134)

The airwaves, also known as the broadcast spectrum, are a gift of nature that modern technology has turned into a valuable resource. As a medium for sharing information and ideas, airwaves have enormous advantages over paper and wires. The problem in the early days was that signals often interfered with one another. If two nearby transmitters used the same or adjacent frequencies, a radio listener would hear two sound streams simultaneously. America’s approach to this problem (though not Britain’s or Canada’s) was to give free exclusive local frequencies to private broadcasters, subject to periodic hearings and renewal.

The quid pro quo for this gift, according to the Communications Act of 1934, was that broadcasters would serve “the public interest, convenience, and necessity” — whatever that might mean. The airwaves themselves would remain, in theory, public property, with the Federal Communications Commission (again in theory) acting as trustee.

Private broadcasters grew large and profitable under this arrangement. But over time, as their advertising revenues soared, their public-interest obligations declined. In the 1980s, the FCC dropped the Fairness Doctrine, which required broadcasters to air both sides of controversial issues. Educational programming also waned. In the 1990s the spread of cell phones created huge new demand for airwaves. Instead of giving frequencies to cell phone companies for free, Congress wisely chose to auction them, raising billions of dollars for the federal treasury. Broadcasters, however, lobbied hard for more free spectrum, and in 1996 Congress gave it to them, ostensibly for digital TV. This was the $70 billion giveaway I described earlier. Today, digital technology makes it possible for “smart” receivers to pick out only the signals they need. Signal interference thus is, or soon could be, a thing of the past — which makes exclusive licenses unnecessary. The airwaves could be an open access commons with virtually no capacity limits, a possibility that makes broadcasters, phone, and cable companies extremely anxious.

Some broadcasters have another idea. They want to privatize the airwaves, with ownership assigned to them. Under this plan, the free licenses they received for digital TV would become permanent entitlements usable for any purpose. Broadcasters could then sell their entitlements to cell phone companies and pocket the windfall. The big winners would be General Electric (NBC), Disney (ABC), and Rupert Murdoch (Fox). Other beneficiaries would include Pat Robertson (Christian Broadcasting Network) and Lowell “Bud” Paxson (Pax TV). When a reporter asked Paxson why he should receive millions of dollars for selling the public’s airwaves, he replied: “I was a farmer and I got lucky. Now people want to build a mall on my farm. God bless America.”

If Congress treated the airwaves as a common asset, it would lease most of them at market rates for limited terms to the highest bidders. The billions of dollars thus raised could buy free airtime for political candidates, fund noncommercial radio and TV, and help sustain the arts.

Alternatively, Congress could turn the airwaves into an open access commons like roads and streets. Using technologies like wi-fi (wireless fidelity), everyone could enjoy high-speed Internet access for almost nothing. As of early 2006, nearly 150 U.S. cities were deploying or planning public wi-fi networks. These efforts are hampered by the fact that the frequencies allotted to wi-fi don’t travel as far, or penetrate buildings as well, as do the frequencies given to broadcasters. A bill to open unused TV channels for wi-fi has been introduced by a group of senators, but it faces stiff opposition from broadcasters, telephone, and cable companies. ... read the whole chapter