Free-market environmentalism

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Free-market environmentalism is a position that argues that the free market, property rights, and tort law provide the best tools to preserve the health and sustainability of the environment. This is in contrast to the most common modern approach of legislation by which the state intervenes in the market to protect the environment.

Economics of environmental destruction

While environmental problems may be viewed as market failures, free market environmentalists argue^{[citation needed]} that environmental problems arise because:

1. Laws override or obscure property rights and thus fail to adequately protect or define those rights.
2. Laws governing class or individual tort claims provide polluters with immunity from tort claims, or interfere with those claims in such a way as to make it difficult to legally sustain them.

As a rule, therefore, free-market environmentalists believe that the best way to protect the environment is to allow tort and contract laws governing and protecting property rights and tort claims to emerge naturally, so that the protection of property no longer suffers from the defects that give governments, individuals, and corporations perverse incentives to spoil the environment.

The market failure view

Externalities are costs or benefits of an activity incurred by a party who does not agree to accept them. Economic activity produces positive externalities, such as the information freely available on the Internet, and negative externalities, such as pollution and depletion of non-renewable resources.

Free market environmentalists believe that if affected parties can compel producers to compensate them, producers will reduce or eliminate the externality. Absent such a mechanism, producers have no economic incentive to minimize such effects. For example, if someone sells clothing from their home, one negative externality might be the additional traffic the business attracts. If the neighbors can compel the vendor to compensate them, the vendor might move to a commercial area.

Market proponents advocate changes to the legal system that empower affected parties to obtain such compensation. The further claim that governments have limited affected parties' ability to do so by complicating the tort system to benefit producers over others. In some cases, the externalities are diffuse, making it difficult to identify the affected parties.

Ecological economist Robin Hahnel has enumerated what he terms the four basic defects of a market economy with respect to the environment as:

1. overexploitation of common property resources;
2. overpollution;
3. too little pollution cleanup; and
4. overconsumption.

The free-market environmentalist response

In response to these concerns, economists who prefer the free-market environmentalist approach argue that^{[citation needed]}:

1. Overexploitation occurs to the extent of the lack of ownership incentives to care for the property, and that this communalization effect occurs to the extent of multiplicity of ownership. Overexploitation reduces the intrinsic and retail value of the property, the effect of which is most clearly felt by individual owners or through limited co-ownership.
2. Pollution occurs where and to the extent that victims are prevented or hindered from seeking tort restitution for such aggression. Legislative and Judicial authorities have tended to favor heavy industries over individual or class action in favor of public property and the common good.
3. Pollution clean-up also occurs naturally in a free market, because reducing the negative value of a property is a net gain, again leading to a higher intrinsic or retail value, and thus marketability.
4. Overconsumption is a flawed concept, because it assumes that resources are non-renewable. The market, through supply and demand, regulates consumption by adjusting it according to supply. For example, if a resource becomes more scarce, its value increases and thus also its cost. This forces consumers to redirect their purchases to alternate resources which are in more plentiful supply. In addition, the higher market value of the resource creates an incentive to create more of the commodity, and allows for a greater expenditure in doing so.

The prevalence of externalities would have serious implications for market efficiency in its static and dynamic dimensions. If negative externalities are unnaccounted for, it would imply that market prices will not accurately reflect true social opportunity costs, leading to misallocations of goods. As the elementary economics text book by Baumol and Blinder observes When a firm pollutes a river, it uses some of society's resources just as surely as when it burns coal. However, if the firm pays for coal but not for the use of clean water, it is expected that management will be economical in its use of coal and wasteful in its use of water.

The standard approach to addressing negative externalities is governmental regulation proscribing polluting activities. This approach has been criticized by free-market economists and others as being inefficient and ineffective. Furthermore, the demands of regulation seldom appeal to the social conscience of industries or enterprise owners and violation is often seen as legitimate business practice.

Critics have noted that studies sponsored by firms assessing their own activities are invariably biased and typically exemplify an illegitimately narrow focus that ignores a competitive market context and the prevalence of external effects throughout the supply chain. Amoco's attempts at voluntary measures have met with resistance from the four or five oil refining corporations with greater market share, who expressed a preference to be forced by state regulations before lowering their sulphur content. Following Amoco's gestures, prominent environmental groups were unimpressed. For example, the Earth Day 2000 report, "Don't Be Fooled" named Amoco as one the top 10 "greenwashers" of the year.

While some environmentalists advocate compromises such as carbon trading schemes, most free-market environmentalists would prefer full accountibility as dictated by courts that respect the rights of property owners in absolute terms.

Some free-market proponents, particularly those influenced by the Austrian economic school, such as B.J. Lawson claim that sustainability is fundamentally impossible when the money supply exhibits secular inflation.

Property rights

Some economists argue from the Coase Theorem that, if industries internalized the costs of negative externalities they would face an incentive to reduce them, perhaps even becoming enthusiastic about taking advantage of opportunities to improve profitability through lower costs. Moreover, economists claim this would lead to the optimal balance between the marginal benefits of pursuing an activity and the marginal cost of its environmental consequences. One well-known means of internalizing a negative consequence is to establish a property right over some phenomenon formerly in the public domain. This requires a little abstract thinking in the case of environmental problems as these Coasians are talking about a grant to pollute or to exploit some limited natural phenomenon. This is a sophisticated variant of the polluter pays principle. However, critics have charged that the "theorem" attributed to Coase is of extremely limited practicability because of assumptions, including that it was theorized to account for adjacent effects where transaction costs for bargaining agents are typically small, but is ill-suited to real world externalities which have high bargaining costs due to many factors.

A number of libertarians, such as Rothbardians, reject the proposed Coasian solution as making invalid assumptions about the purely subjective notion of costs being measurable in monetary terms, and also of making unexamined and invalid value judgments (i.e., ethical judgments). ([1] PDF) The Rothbardians' solution is to recognize individuals' Lockean property rights, of which the Rothbardians maintain that Wertfreiheit (i.e., value-free) economic analysis demonstrates that this arrangement necessarily maximizes social utility. ([2] PDF)

Proponents of free-market environmentalism use the example of the recent destruction of the once prosperous Grand Banks fishery off Newfoundland. Once one of the world's most abundant fisheries, it has been almost completely depleted of fish. Those primarily responsible were large "factory-fishing" enterprises driven by the imperative to realize profits in a competitive global market. It is contended that if the fishery had been owned by a single entity, the owner would have had an interest in keeping a renewable supply of fish to maintain profits over the long term. The owner would thus have charged high fees to fish in the area, sharply reducing how many fish were caught. The owner also would have closely enforced rules on not catching young fish. Instead commercial ships from around the world raced to get the fish out of the water before competitors could, including catching fish that had not yet reproduced.

Another example is in the 19th century early gold miners in California developed a trade in rights to draw from water courses based on the doctrine of prior appropriation. This was curtailed in 1902 by the Newlands Reclamation Act which introduced subsidies for irrigation projects. This had the effect of sending a signal to farmers that water was inexpensive and abundant, leading to uneconomic use of a scarce resource. Increasing difficulties in meeting demand for water in the western United States have been blamed on the continuing establishment of governmental control and a return to tradable property rights has been proposed.

According to Richard L. Stroup, markets in the environmental field, in order to function well, require "3-D" property rights to each important resource — i.e., rights that are clearly defined, easily defended against invasion, and divestible (transferable) by owners on terms agreeable to buyer and seller. The first two rights prevent property owners from being forced to accept pollution, and the third right provides an incentive for owners to be good stewards.

Regulatory capture

Many free-market environmentalists argue that the problem of regulatory capture whereby large companies play a large role in setting regulations surrounding public or common property has created a system where things are far too biased in favor of large companies. For instance, in the United States lands that could be more valuably used for tourism are often used for resource extraction because the many disorganized tourists cannot have the same impact on government as the few organized corporations. If the land was privately held the land owner would realize that tourism would make more of a profit than logging and nature would be preserved.

Taxation

The implementation of property rights provides governments with an opportunity to raise revenues. This has been illustrated by recent auctions of bands of the electromagnetic spectrum for telephony, another example of an attempt to manage a scarce resource through property rights rather than regulation. Such auctions offer an alternative to conventional taxation for funding public spending, by capitalizing the expected rent earned by the privatized good. Some economists, most notably Henry George in the 1870s, have argued that taxes on income and profits represent taxes on productivity, innovation and creativity and that we should rather tax land rents and externalities such as pollution, consumption of fossil fuels and road congestion. Environmental property rights offer a means to shift taxation from "goods" to "bads" and rents.

Nature preserves

One example of free market attempt to protect the environment is The Nature Conservancy organization. It has been successful in protecting many sensitive, ecologically important places by simply purchasing them, although this practice has met with controversy in some areas. In some cases the lands are donated or sold to government agencies for management, while in others the Nature Conservancy itself manages these preserves.

Billionaire Ted Turner has a similar private program that has seen him buy up tens of thousands of acres of wilderness around the United States.

Criticisms

There are a number of arguments against free-market environmentalism:

• Historically, Tort Law has been of limited efficacy for confronting environmental problems. According to the World Bank, "tort law, based as it is on the protection of individual rights and the need to prove specific injury, has not been a significant means of preventing environmental degradation." Similarly, in "Law in Environmental Decision-Making" legal scholar Jenny Steele notes that in respect to protection of the environment, "a number of historical studies have assessed the extent of tort's impact in this respect, to generally critical effect." In the environmental law textbook, "Environmental Protection", Sue Elworth and Jane Holder argue that the most significant limitation of common law, including tort law "was, and continues to be that the protection of private property is the rationale of private law and its motivation...Environmental protection may be effected through the protection of property rights. But private law is said to act only to protect the individualized self-interested claim, which considerably constrains legal action. The main doubt about the ability of private law to provide an appropriate means of protecting the environment is that environmental problems demand collective action, there is therefore some resistance to the idea that individual rights might contribute to collective progress towards environmental protection." Class action, however, is every bit as capable of direct tort-based restitution as individual legal action.

• Not all aspects of the public domain are easily "privatisable" in practice. It may be impossible to establish property rights on things like air and water that circulate the globe, so stopping air pollution or global warming on an individual basis would be very difficult. Coasian environmentalists often support carbon trading schemes advocated by other environmentalist movements. The US Clean Air Act of 1990, for instance, set up a system of emissions trading for sulfur dioxide. The Kyoto protocol also seeks to establish a system of emissions trading for carbon dioxide and other greenhouse gases. Rothbardians reject government-imposed emissions trading schemata, and instead maintain that pollution is by definition a matter of Lockean property rights being violated, and hence should be handled as a subject of individual or class action tort, as any other invasion of property.([3] PDF) As long as there is an aggressor and a victim, there is a tort.

• Some believe that the conservation of endangered species is not necessarily achievable using the free market, especially where there is little economic value in the species in question. For example: there might be only limited profit to be made from a piece of land by maintaining it as the habitat of a rare beetle, whereas alternative economic uses for that land (which might be deleterious to the welfare of the beetle) - such as building a parking lot on it - might yield a greater profit. Regardless of the broader ecological importance of the beetle, it is much more likely that the landowner will prioritize short-term profits to be gained from development, rather than a long-term benefit which may be of comparably little (perhaps even imperceptible on the surface) benefit to himself. Thus, threatened or endangered species could be lost by relying on the willingness of individual landowners to take a loss in order to protect them.

• A related philosophical objection is that free-market environmentalism is entirely anthropocentric and ignores the "innate" value of nature outside of human perception. (see ecocentrism). But, in the world of politics, someone must see and place a value on the environment or species in question in order for it to be protected.

• The principle of limited liability protects investors from the costs of the activities from which they benefit. In the U.S., there have been recent suggestions that, while limited liability towards creditors is socially beneficial in facilitating investment, the privilege ought not to extend to liability in tort for environmental disasters or personal injury. In fact, most free-market environmentalists oppose limited liability in torts as a form of corporate welfare and a limitation of full property rights.^{[citation needed]}

• Countering the tragedy of the commons claim, Elinor Ostrom has studied a large number of empirical cases where common property resources have been managed successfully. Her work emphasizes neither private property/market arrangements nor government regulation but the successes of communities consciously designing institutional arrangements in response to particular common property dilemmas. The stress is on democratic institutions that allow the users of the common to govern the commons.

Free-market environmentalists

Economists who have written on free-market environmentalism include:

• John Baden
• Roger Bate
• Walter Block
• Laura Jones (Fraser Institute)
• Julian Morris
• Murray N. Rothbard
• Julian Lincoln Simon
• Fred L. Smith
• Bruce Yandle

Lawyers who have written on free-market environmentalism include:

• Jonathan H. Adler

Politicians who have supported free-market environmentalism:

• Daniel Cohn-Bendit
• Rodney Hide
• Ron Paul

Political parties that have supported free-market environmentalism:

• United Kingdom Libertarian Party
• Liberal Democratic Party
• United States Libertarian Party

See also

• Environmentalism
• Green libertarianism
• Eco-capitalism
• Wise use
• Green syndicalism
• Foundation for Research on Economics and the Environment
• Natural capitalism
• Property and Environment Research Center
• Waterkeeper Alliance
• Enviro-Capitalists: Doing Good While Doing Well

Bibliography

• Anderson, T L & Leal, D R (1991) Free-market environmentalism ISBN 0-8133-1101-2
• Grundfest, J.A. (1992). "The limited future of unlimited liability: a capital markets perspective". Yale Law Review (The Yale Law Journal, Vol. 102, No. 2) 102 (2): 387–425. doi:10.2307/796841. JSTOR 796841. 
• Hahnel, R. (2005). Economic Justice And Democracy: From Competition To Cooperation. Routledge. ISBN 0-415-93345-5. 
• Hansmann, H. & Kraakman, R. (1991). "Toward unlimited shareholder liability for corporate torts". Yale Law Review (The Yale Law Journal, Vol. 100, No. 7) 100 (7): 1879–1934. doi:10.2307/796812. JSTOR 796812. 
• Stroup, Richard L. (2003) Eco-nomics: What Everyone Should Know About Economics and the Environment ISBN 1-930865-44-9
• Krugman, Paul (1999) Earth in the balance sheet: economists go for the green and Taxes and traffic jams reprinted in The Accidental Theorist ISBN 0-14-028686-1
• Ridley, M & Low, B S (1993) Can selfishness save the environment?, The Atlantic Monthly vol. 272, pp. 76–86
• Simon, Julian (1998) The Ultimate Resource 2 ISBN 0-691-00381-5
• free-market Environmentalism Bibliography on The Commons Blog

External links

For more information, please see the review of this Wikipedia article at: http://www.fraserinstitute.org/Commerce.Web/product_files/CanadianStudentReview_Summer2007.pdf

• [4] Tony Smith - The Case Against Free Market Environmentalism
• "Law, Property Rights, and Air Pollution," 1.8 MB PDF Murray N. Rothbard, Cato Journal, Vol. 2, No. 1 (Spring 1982), pp. 55–100.
• "Resolving the Tragedy of the Commons by Creating Private Property Rights in Wildlife," Robert J. Smith, Cato Journal, Vol. 1, No. 2 (Fall 1981), pp. 439–468.
• "Free-Market Environmentalism Reading List," The Commons Blog: Markets Protecting the Environment.
• "Environmentalism, Free-Market," Richard L. Stroup, The Concise Encyclopedia of Economics: Library of Economics and Liberty
• A Hayekian Defense of Free-Market Environmentalism
• Trading Away the Earth: Pollution Credits and the Perils of "Free Market Environmentalism"
• The sale of trees for profit, Trees Instead
• The Thoreau Institute - a pro-free market environmentalism group
• The Nature Conservancy has posted much information on conservation easements and other tools pertaining to free-market environmentalism
• Fighting Global Warming–Free Market Style
• Supply Side Environmentalism: EcoWorld
• Association of Environmental and Resource Economists (AERE).
• - JEEM: Journal of Environmental Economics and Management (AERE's official "technical" journal).
• - REEP: Review of Environmental Economics and Policy (AERE's official "accessible" journal).