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
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
* 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
- 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. ... read
the whole chapter