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. ...
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“ Let us suppose,” economist Ronald Coase
wrote in 1960, “that a farmer and a cattle-raiser
are operating on neighboring properties.” He went
on to suppose further that the cattle-raiser’s
animals wander onto the farmer’s land and damage
his crops. From this hypothetical starting point Coase
examined the problem of externalities and proposed a
solution — the creation of rights to pollute or not
be polluted upon. Today, pollution rights are used
throughout the world. In effect, Coase conjured into
existence a class of property rights that didn’t
exist before, and his leap of imagination eventually
reduced real pollution.
“Let us suppose” is a wonderful way for
anyone, economists included, to begin thinking. It lets
us adjust old assumptions and see what might happen. And
it lets us imagine things that don’t exist but
could, and sometimes, because we imagined them, later
do.
Coase supposed that a single polluter or his
neighboring pollutee possessed a right to pollute or not
be polluted upon. He further supposed that the
transaction costs involved in negotiations between the
two neighbors were negligible. He made these suppositions
half a century ago, at a time when aggregate pollution
wasn’t planet-threatening, as it now is. Given
today’s altered reality, it might be worth updating
Coase’s suppositions to make them relevant to this
aggregate problem. Here, in my mind, are the appropriate
new suppositions:
* Instead of one polluter, there are many, and instead
of one pollutee, there are millions — including
many not yet born.
* The pollutees (including future generations) are
collectively represented by trusts.
* The initial pollution rights are assigned by government
to these trusts.
* In deciding how many pollution permits to sell, the
trustees’ duty isn’t to maximize revenue but
to preserve an ecosystem for future generations. The
trusts therefore establish safe levels of pollution and
gradually reduce the number of permits they sell until
those levels are reached.
* Revenue from the sale of pollution permits is divided
50 percent for per capita dividends (like the Alaska
Permanent Fund) and 50 percent for public goods such as
education and ecological restoration.
If we make these suppositions, what then happens? We
have, first of all, an economic model with a second set
of books. Not all, but many externalities show up on
these new ledgers. More importantly, we begin to imagine
a world in which nature and future generations are
represented in real-time transactions, corporations
internalize previously externalized costs, prices of
illth-causing goods rise, and everyone receives some
property income.
Here’s what such a world could look like:
- Degradation of key ecosystems is gradually reduced
to sustainable levels because the trustees who set
commons usage levels are accountable to future
generations, not living shareholders or voters. When
they fail to protect their beneficiaries, they are
sued.
- Thanks to per capita dividends, income is recycled
from overusers of key ecosystems to underusers,
creating both incentives to conserve and greater
equity.
- Clean energy and organic farming are competitive
because prices of fossil fuels and agricultural
chemicals are appropriately high.
- Investment in new technologies soars and new
domestic jobs are created because higher fuel and waste
disposal prices boost demand for clean energy and waste
recycling systems.
- Public goods are enhanced by permit revenue.
What has happened here? We’ve gone from a
realistic set of assumptions about how the world is
— multiple polluters and pollutees, zero cost of
pollution, dangerous cumulative levels of pollution
— to a reasonable set of expectations about how the
world could be if certain kinds of property rights are
introduced. These property rights go beyond
Coase’s, but are entirely compatible with market
principles. The results of this thought experiment show
that the introduction of common property trusts can
produce a significant and long-lasting shift in economic
outcomes without further government intervention. ...
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