Market Based Environmentalism vs. the Free Market


Policy analysts on both the left and right are realizing that direct regulation of production and market activities—“command and control”—is becoming too costly. Yet, free markets and the outcomes that they are likely to generate continue to be unappreciated. Most policy makers value markets not because they maximize liberty and social welfare but because they can be manipulated to produce a centrally planned outcome.

This is the premise of “market based environmentalism” (MBE). In spite of its calls for decentralized decision making, MBE’s purpose is to subvert freely made decisions by coercively altering incentives.

The standard view of environmental problems is that they are inherent in a free society. If people are left free to pursue their own self interest—to produce, and consume whatever they want, how and when they want it—the result will be polluted air and waterways, littered streets, and depleted natural resources. Pollution and environmental degradation are often cited as evidence that Adam Smith was wrong. People pursuing their own self interest may not advance the well-being of society.

This view, unfortunately found in many economics texts, misunderstands the nature of both a free society and a free market economy.

Environmental problems occur because property rights, a requirement of free markets, are not being identified or enforced. Problems of air, river, and ocean pollution are all due to a lack of private property rights and/or protection. Since clarifying and enforcing property rights is the basic function of government in a free society, environmental problems are an example of government failure, not market failure.

In a free society, environmental problems should be viewed in terms of how they impinge on human liberty. Questions should focus on how and why one person’s use of resources might interfere with the planning and the decision making abilities of others. Since, legitimately, people can only make plans and decisions with respect to resources that they have “rights” to, environmentalism that has human wellbeing as the focus of its analysis, must center on property rights.

From this perspective, all environmental problems arise when different people attempt to use the same resource for conflicting purposes. This can only occur if property rights to the resource are not clear or are not being enforced. Two simple examples can highlight the possibilities. Imagine a community that has a cement factory that emits cement dust into the air. This dust causes people in the community to have to wash their cars and house windows more frequently and creates respiratory problems for those who have to breath it. This is clearly a property rights enforcement problem. Note that the problem is not that the dust is emitted into the air but that it lands on people’s property—their cars, houses, and lungs—and interferes with their use of it. In this case ownership rights are clearly defined, but are not being enforced.

An alternative example might involve the use of a public waterway such as a river. Along the river, there is a factory that is using the river to dispose of waste that is a by-product of its production process.

Downstream are home owners who use the river for recreational purposes, possibly fishing or swimming and the factory waste renders the river unsuitable or less useful for these purposes. The central problem here is that the rights to the river are not clearly defined and the public policy issue involves who should have those rights or how the rights should be divided. It should be noted that early American Indian tribes had clearly defined and enforced property rights to sections of many rivers. Over time, state governments nullified those rights.

Since, free markets require well defined and enforced property rights, the solution to environmental problems lies in extending capitalism not restricting it.

MBE has little in common with this approach. First an outcome, i.e., level of effluent emissions, the amount of recycled paper used in grocery bags, etc., is deemed to be a desirable goal by government authorities.

Individual behavior is seen as something to be manipulated to achieve the goal. MBE policies are meant to control markets and therefore individual decision making, thwarting the outcomes of free market activity. As MBE advocates Robert Stavins and Bradley Whitehead have argued “policies are needed to . . . harness the power of market forces . . . to link the . . . forces of government and industry.” No concern for individual rights is expressed.

The two most common approaches are excise taxes and “tradeable permits.” Typically, these policies ignore science and economics to promote the political agenda or aesthetic values of policy makers and interest groups. For example, currently being considered are massive energy taxes, similar to President Clinton’s ill-fated BTU tax, to combat “global warming,” in spite of two decades of satellite data which show mostly cooling. The Progressive Policy Institute, President Clinton’s favorite “think tank,” is calling for tradeable permits to promote recycling. The government would issue permits to newsprint companies allowing them to use a maximum level of non-recycled materials in their paper. Companies could sell their permits if they increase the recycled content of their paper. These proposals exist, in spite of the fact that, as reported in lengthy articles in the Washington Post and the Wall St. Journal, too much recycling may be causing increased pollution and waste of energy resources. Such policies are best viewed as an attempt to impose personal values, i.e., a disdain for landfills, on society.

Market based environmentalism and the free market are not the same. Free market policies, even with regards to the environment, would not have “environmental protection” per se as their central focus. Instead the focus would be on resolving conflicts among human beings as they put natural resources to use. An important by-product of this would be a cleaner environment and a more conscientious stewardship of resources.

MBE sees human activity as something that must be “harnessed” by the government, all-be-it, through market incentives. The conflict from this perspective is not among humans but between humans and the environment, the former wearing the black hat.

Roy Cordato is Lundy Professor of Business Philosophy at Campbell University in Buies Creek, N.C. and a Research Fellow at The Independent Institute in Oakland, California.