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
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
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
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
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
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,
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
on who gets the property rights to the sky. ... read
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