Ecology, Liberty and Property:
protection for endangered species discourages habitat conservation on
private land. Stringent
land-use restrictions make ownership of endangered-species habitat a
liability instead of an asset, and landowners respond accordingly.
In over 25 years, more species have become extinct under these
regulatory “protections” than have been recovered.
federal program for the cleanup of hazardous waste sites spends more on
lawyers and paperwork than on reducing risks to public health.
Since the creation of “Superfund,” cleanup costs have
skyrocketed to over $25 million per site.
Worse for neighboring communities, the average cleanup takes over a
the Clean Water Act, a private company can be fined $25,000 per day for a
technical paperwork violation that produces no environmental impact
whatsoever. At the same time,
the law bars well-founded common law actions over interstate water
mandates for automobile fuel efficiency force automakers to produce cars
and light trucks that are smaller and lighter—and therefore less
safe—than they would otherwise be.
According to a Harvard-Brookings study, these regulations cause an
additional 2,000 to 4,000 highway fatalities each year.
is something terribly wrong with the current regime of environmental
statutes and regulations designed to protect environmental quality are
failing. Even laws that
produced environmental gains in the 1970s are no longer up to the task.
The result is a costly regulatory regime that undermines the goal
fundamental problem with existing environmental laws is that they embody a
command-and-control, government-knows-best mentality.
Conventional policy approaches proceed from the assumption that
markets “fail” to address environmental concerns.
Government intervention is called for wherever market activities
impact environmental quality. Yet
there is no end to the range of private activities which generate
environmental effects, and centralized regulatory agencies are
ill-equipped to handle myriad ecological interactions triggered or
impacted by private activity. As
environmental analyst Richard Stewart noted, “the system has grown to
the point where it amounts to nothing less than a massive effort at
Soviet-style planning of the economy to achieve environmental goals.”1
Stewart’s description is particularly apt. The Soviet economic model, like the conventional approach to environmental protection, was able to produce gains for a time. Collectivized agriculture did produce wheat—at least in the beginning. Over time, however, centrally-planned systems collapsed under their own weight, revealing a bankrupt core. As with the economic planning of the former Soviet nations, so too with the ecological planning of the federal regulatory state. There is a growing consensus that federal regulatory policies
too costly and ineffective. Regulations
passed in the 1960s and 1970s are no longer generating satisfactory
results. In many cases,
well-intentioned regulatory systems are even making environmental problems
with the status quo approach to environmental policy, a growing
number of scholars and policy analysts are turning to the marketplace to
address environmental concerns. They
have found in what many call “free market environmentalism” a new set
of policy approaches that reconcile human needs and environmental
concerns. Grounded in
property rights, voluntary exchange, common law liability protections, and
the rule of law, free market environmentalism seeks to integrate
environmental resources into the market system.
Rather than regulate each new potential risk to environmental
quality, free market environmentalists advocate the creation of
institutional arrangements that facilitate private solutions to
environmental concerns. Markets
are not perfect, but they are superior to the regulatory alternative.
do government agencies have such a poor record managing natural resources
and public lands? This was
the question posed by the economists who initially developed the ideas of
free market environmentalism. “If
qualified managers with good intentions were sufficient to ensure sound
decisionmaking, Yellowstone would be the Eden of the national parks,”
observed Michael Copeland, former executive director of the Bozeman,
Montana-based Political Economy Research Center (PERC).2
But it was widely recognized that Yellowstone National Park was
grossly mismanaged. As
environmental writer Alston Chase poignantly documented in Playing God
in Yellowstone, “rather than preserved, [the park] is being
destroyed,” and public management is to blame.3
“The experiment of public sector ownership, management and
control has been an unambiguous failure in terms of environmental quality,
productivity and economic efficiency,” decided John Baden, PERC’s
first executive director who later established the Foundation for Research
on Economics and the Environment (FREE).4
cautioned critics of the federal bureaucracy that agency employees were
neither incompetent nor immoral. The
problem is, rather, that government officials and staff respond only too
well to the signals government sends.
“All decisions in an agency are made on the basis of information
and incentives,” Baden concluded. “Current
institutions systematically generate both bad information and perverse
executive director Terry Anderson argued that conventional natural
resource economics is analytically biased in favor of government
regulation. It assumes that
“market failure is pervasive in natural resource allocation and that
cost/benefit analysis applied by scientific, objective managers can
improve on the failures.”6
To challenge the conventional wisdom, analysts at PERC and
elsewhere developed a “New Resource Economics” (NRE) which explains
how institutional arrangements such as private ownership affect incentives
and environmental outcomes. NRE
applies the insights of Nobel economics laureates F.A. Hayek, Ronald Coase,
and James Buchanan to natural resource questions.
Copeland explained: “NRE developed from a concern for the
environment, the integrity of which was being compromised—not only by
seemingly irresponsible individuals, but by the very government agencies
assigned to protect the environment!”7
demonstrated that public officials act in their self-interest no less than
individuals in the private sector, and that bad government policies result
because, unlike private decisionmaking in the marketplace, public
officials are not rewarded for efficiency or punished for waste.
“Wasting a resource does not result in a loss or a reduced
profit,” said Copeland of government bureaucracy.
“Bureaucrats also tend to favor programs with visible benefits
and invisible costs.”8
the price signals of profit and loss, public officials rarely have the
information they need to plan complex systems and allocate resources.
Hence, they cannot anticipate how various institutional
arrangements will affect the incentives that motivate individuals.
But this is necessary if we want to understand the likely impact of
specific environmental programs and policies.
NRE demonstrated that government failure was likely to be as
pervasive as, if not more than, market imperfections.
An intellectual discipline, the New Resource Economics set the
theoretical groundwork for free market environmentalism.
Theory of Free Market Environmentalism
environmental policymaking presupposes that only government action can
improve environmental quality. In
this view, environmental problems arise from “market failures” that
produce “externalities.” Government
regulation is needed to correct environmental concerns that the market has
“failed” to handle because they are “external” to the price
signals that regulate marketplace transactions.
The conventional paradigm of environmental policy justifies the
regulation of economic activity because it assumes all activities—from
purchasing clothing to driving a car to turning on a light bulb—have an
impact on the environment that is not factored into the cost of the
product or service. Economic
central planning may be intellectually and historically discredited, but
the “market failure” thesis justifies environmental central planning,
an endeavor just as prone to ruin. In
the words of Competitive Enterprise Institute president Fred L. Smith,
Jr., “The disastrous road to serfdom can just as easily be paved with
green bricks as with red ones.”9
Embracing the “market failure” rationale leads to policy
market environmentalism (FME) rejects the “market failure” model.
“Rather than viewing the world in terms of market failure, we
should view the problem of externalities as a failure to permit markets
and create markets where they do not yet—or no longer—exist,” argues
Resources that are privately owned or managed and, therefore, are
in the marketplace are typically well-maintained.
Resources that are unowned or politically controlled, and therefore
outside the market, are more apt to be inadequately managed.
“At the heart of free market environmentalism is a system of
well-specified property rights to natural resources,” explain Terry
Anderson and Donald Leal, authors of Free Market Environmentalism.11
Adds Smith, “Rather than the silly slogan of some
environmentalists, that ‘trees should have standing,’ our argument is
that behind every tree should stand an owner who can act as its
owes an intellectual debt to ecologist Garrett Hardin’s discussion of
the “tragedy of the commons.”13
Hardin noted when a resource is unowned or owned in common, such as
the grazing pasture in a medieval village, there is no incentive for any
individual to protect it. In
the medieval village it is in every cattleowner’s self-interest to have
his herd graze the pasture as much as possible and before any other herd.
Every cattleowner who acquires additional cattle gains the benefits
of a larger herd, while the cost of overusing the pasture is borne by all
members of the village. Inevitably,
the consequence is an overgrazed pasture, and everyone loses.
Indeed, the cattleowner with foresight will anticipate that the
pasture will become barren in the future, and this will give him
additional incentive to overgraze. Refusing
to add another cow to one’s own herd does not change the incentive of
every other cattleowner to do so.
world’s fisheries offer a contemporary example of the tragedy of the
commons. Because oceans are
unowned, each fishing fleet has no incentive to conserve or replenish the
fish it takes and it has every incentive to take as many fish as possible
lest the benefits of a larger catch go to someone else.14
overcomes the commons problem because owners can prevent overuse by
controlling access to the resource. As
Hardin noted, “The tragedy
of the commons as a food basket is averted by private property, or
something formally like it.”15
environmental activists often disparage private ownership, the record of
private owners in conserving resources is superior to that of government
agencies. For instance, Terry
Anderson observes that “well-established private rights to Great Lakes
timber resulted in efficient markets rather than the ‘rape and run’
tactics alleged by conservationists.”16
As R.J. Smith explains,
we have exclusive private ownership, whether it is organized around a
profit-seeking or nonprofit undertaking, there are incentives for the
private owners to preserve the resource.…[P]rivate ownership allows the
owner to capture the full capital value of the resource, and self-interest
and economic incentive drive the owner to maintain its long-term capital
public officials, private owners directly benefit from sound management
decisions and suffer from poor ones.
incentives to work, the property right to a resource must be definable,
defendable, and divestible. Owners
must be free to transfer their property rights to others at will.
Even someone indifferent or hostile to environmental protection has
an incentive to take environmental concerns into account, because
despoiling the resource may reduce its value in the eyes of potential
buyers. The role of
government is to protect property rights for environmental resources and
secure the voluntary agreements property owners contract to carry out.
Moreover, FME advocates insist on the application of common law
liability rules to environmental harms, such as polluting a neighbor’s
property, to protect property rights and to provide additional incentives
for good stewardship. To harm
someone’s property by polluting it is no more acceptable than
importance of private ownership to sound conservation is clear from
America’s environmental history. When
environmental groups like the National Audubon Society and the Nature
Conservancy act to protect habitat and ecologically sensitive areas by
purchasing land and establishing sanctuaries, they act in the marketplace
to advance environmental values. R.J.
ownership includes not only hunting preserves, commercial bird breeders,
parrot jungles, and safari parks, it also includes wildlife sanctuaries,
Audubon Society refuges, World Wildlife Fund preserves, and a multitude of
private, non-profit conservation and preservation projects.18
organizations raise money by soliciting contributions to acquire ownership
in preferred lands. Were it
not for the institution of private property, these ventures to protect the
environment would be impossible.
efforts to support the reintroduction of wolves in Montana offers another
example of how market transactions can advance environmental goals.
The hostility of ranchers has been a major obstacle to
reintroducing predators into the wild.
In the 1970s, free market economists argued that ranchers’ fear
of livestock losses would be addressed if those who wanted to reintroduce
wolves would agree to compensate ranchers who suffered economic loss due
of Wildlife adopted the idea and established a Wolf Compensation Fund.
“What we’re trying to do is devise a system whereby all those
people who care about endangered species restoration actually pay some of
the bills,” explained Defenders of Wildlife staffer Hank Fischer.
“What this solution attempts to do is utilize economic
forces—in other words, to make it desirable to have wolves.”20
After several years, the fund had paid ranchers approximately
$12,000 for livestock losses. The
program has flaws—some ranchers complain that compensation is not always
paid, and federal regulations still prevent ranchers from killing wolves
to protect livestock—but the Fund remains an example of how marketplace
transactions can further environmental goals even when no goods are
proponents would terminate government programs that cause environmental
harm or inhibit private-sector solutions to environmental problems.
Free market environmental policies would establish property rights,
where possible, so as to internalize “externalities.”
In some cases, FME proponents would counsel more modest steps.
For instance, in the difficult case of automobile air pollution, a
“polluter pays” approach would replace regulations mandating specific
emissions-control equipment and annual emissions testing.
An owner would be assessed a fee proportional to the amount of
pollution his auto generated. Since
fees would vary in relation to pollution emission levels, owners would
have incentives to have their automobiles repaired or replaced when they
began to pollute significantly. Technologies
currently exist to monitor emissions as autos move on the highway,
providing potential enforcement mechanisms that will not inconvenience
most owners of vehicles whose emission levels are negligible.
This solution is not ideal because a genuine market is not created;
but it is more market-oriented that current air pollution policies.21
Environmental Establishment’s Response
environmental activists reject free market environmentalism.
Economist Thomas Michael Power and Sierra associate editor
Paul Rauber write: “Markets are not neutral, technological devices.
They are social institutions whose use has profound consequences.
All societies purposely limit the extent of the market in order to
protect basic values.”22
Wedded to the state as the instrument of reform, environmental
activists cannot accept the idea that market forces will produce the
results they desire even when it is apparent that government regulation
FME has changed the discussion of environmental issues.
Many environmentalists now seem to understand why environmental
policies should be examined in economic terms.
Says Roberto Repetto, director of the economics program at World
Resources Institute, “If we can enact policies that adjust prices so
they more accurately reflect all the costs associated with producing a
particular pollutant or using particular resources, then society will make
Repetto advocates pollution taxes and other government
interventions as ways to “internalize” externalities.
Such policies are not FME, but they are evidence that the terms of
debate are shifting.
environmentalists also see the strategic political benefit of market
rhetoric and some free market policies.
Ned Ford, energy chair of the Sierra Club’s Ohio chapter, argues
that “by forcing the marketplace to the lowest cost solution that really
works, environmentalists gain credibility and enhance the opportunity for
Even President Bill Clinton has acknowledged the importance of
developing a “market-based
environmental-protection strategy,” noting that “Adam Smith’s
invisible hand can have a green thumb.”25
Too often, however, market rhetoric merely merchandises government
regulatory policies. Environmentalist
groups rarely adopt FME policies fully, opting instead to pick and choose
free market precepts.
to use “market mechanisms” to reach predetermined environmental
outcomes are the most common example of this tactic.
The Environmental Defense Fund (EDF), for instance, advocates
widespread use of “pollution credit trading” as a market-oriented
policy. Setting an emission
level as an environmental target, the EDF proposal allows companies the
freedom to determine how best
IS THE PRECAUTIONARY PRINCIPLE
Ecology, Liberty and Property: Articles
Publications by Jonathan H. Adler (Listing of links on CEI
A more complete list of my publications
is forthcoming on this site.
IS THE PRECAUTIONARY PRINCIPLE
Ecology, Liberty and Property:
CEI Publications by Jonathan H. Adler (Listing of links on CEI website)
A more complete list of my publications
is forthcoming on this site.