Free Market Environmentalism
David Levy - Vice President
Published February 1, 1991 | February 1991 issue
By Terry L. Anderson and Donald R. Leal
Pacific Research Institute for Public Policy
Traveling through the Ninth Federal Reserve District as we do, it's nearly impossible to begin and end a conversation without some note of the local environmental dilemma. The problems range from prairie pups to air pollution; each community having it's own unique battle raging with seemingly little middle ground. In some cases the dispute has turned violent while in others it's more academic.
Those who want more resource development have drawn the line against their perceived enemy, the "tree huggers," while the environmentally oriented community stands firm against the "resource exploiters." Most often, the result is a stalemate, which sends both sides to marshall forces to lobby the government. Each hopes to convince the policy makers to see it their way.
It's precisely this problem that Terry Anderson and Donald Leal have tackled in their book Free Market Environmentalism. They don't think we must continually pit one against another in a zero sum game, nor must we so violently tear at the social fabric to grow economically while preserving our environment.
Their solution is, as the title of the book suggests, privatizing where possible the earth's surface, subsurface, oceans and even the air. That would mean that governments would no longer control these areas, as they became the property of private individuals organizations, corporations, or whoever had an interest to acquire them. Environmental groups could own and sell them just as well as petroleum companies.
At first blush that seems worrisome. Isn't the business community notorious for environmental degradation? Doesn't the profit motive weigh in so heavily that little concern would be given to the condition of the environment? Aren't most private sector people more or less ignorant of what needs to be done to maintain the environment?
The authors say no, but that these assumptions along with others have led us to "hire" the government to manage the environment in a monopolistic way. The rationale for tipping the scales toward governmental control has been that the market appears to fail when it comes to matters of the environment. What has been needed are impartial, expert, government-based resource managers who act for the common good.
Anderson and Leal consider this fallacious reasoning. They would say by extension that it has brought about poor use of our environmental resources and the kinds of deadlocks that we notice in our district from Montana to the Upper Peninsula of Michigan.
The market is not perfect, say the authors of Free Market Environmentalism, but it can efficiently decide what must be done. In national forests, what is the common good? Some would say public recreation or wilderness protection, while others favor timber production, livestock grazing, or mineral and energy production. If the land were privately owned, then consumers would in effect define the common good after the sellers, considering their costs, offer the alternatives at respective prices. If the culture truly wanted more public recreation and less habitat protection, then that's what the market would provide.
As a school of thought, free market environmentalism, which has its roots at the Political Economy Research Center in Bozeman, Mont., makes some basic assumptions about human nature. It assumes that we are all self-interested decision makers without regard to public or private sector. Sometimes that interest is enlightened or altruistically directed, but for the long pull we revert to our true nature - which is self interest.
Free market environmentalism also begins its reasoning with the idea that individually we can gather enough information to make good decisions; that we're not environmentally so ignorant that we must turn over control to a centralized political resource manager.
Harnessing that natural inclination to self interest is the key, say the authors. If we can create the proper incentives (for example, through the tax code), inform ourselves, and trust in the efficiency of markets, then many of the proper solutions will evolve to the thorny problems we face today and will in the future.
Free market environmentalism can work, say Anderson and Leal, if a well-defined system of property rights is developed - rights that can be bought and sold. That's difficult but important because if these rights are abused, then the owners become strictly liable for the damages. Properly managing one's property pays off, and abusiveness will cost. Understanding this idea is the heart of free market environmentalism. Where we can reasonably define property rights become the places where the authors are confident the market will work.
Conversely, the market may fail if it becomes too costly to properly define property rights, they say. Then it would be appropriate for the government to define and manage the common good. Contemporary examples would include ozone depletion or the protection of endangered species.
Much of the book explores the apparent inability of bureaucracies to properly manage the environment, and attempts to demonstrate how private-sector markets, often applying entrepreneurial imagination, would have worked better in each instance. The problem with the bureaucracies is that "self interest" to the leadership means bigger budgets, more power, larger staffs and pricing decisions that bear little relationship to operating costs, the authors say. For instance, the authors believe that access to our national parks is usually underpriced for political reasons. The result is destructive overuse of these recreational resources. The private sector, they argue, would have the incentive to properly price the resource, thereby maintaining the environmental quality to ensure an ongoing source of income.
Free Market Environmentalism points to some rather interesting examples where private groups have worked together to solve environmental problems. The National Audubon Society's Rainey Wildlife Sanctuary in Louisiana agreed to allow Consolidated Oil and Gas to drill on their privately owned property in exchange for royalties. Normally, the Audubon Society opposes oil and gas development in wilderness settings. In this case they owned the land and saw a way to bring in dollars for other worthy projects. They imposed tough restrictions on how the gas could be extracted, terms to which the gas company agreed with their condition that the royalties be decreased accordingly. Extraction has produced no measurable damage to the marsh and both parties are pleased with the outcome.
The Nature Conservancy is another example of a non-governmental program that seems to be solving environmental problems as free marketeers, say Anderson and Leal. Rather than extensively lobby Washington or state governments with membership dollars, this organization obtains title to a parcel of land with the intention of preserving habitat for rare or endangered species. The Nature Conservancy wants to be a good steward and efficient at the same time. In one instance, they traded a piece of property for another allowing for the private protection of an entire watershed.
In the United States and Canada, the Nature Conservancy manages over 2.5 million acres of private nature preserves. To do this, they are always mindful of ways to generate revenues to offset operating costs without compromising their organizational mission. Nature tours are permitted on some preserves and in especially selected areas, cattle grazing is allowed. It's the free market at work, say the authors.
Neither Anderson nor Leal would want us to think of their book as a grab-bag of free-market solutions to today's environmental problems. Rather they offer a process or a way of thinking that says, "When it comes to the environment, get the government out of places where the market can work." To the critic who wants a guarantee that the national forest won't be turned into garish condominiums if privatized, the authors offer none. They say it could happen, but still when they look at what motivates political decision makers versus their private counterparts, they choose the latter in most every instance. Free market environmentalism won't end pollution in its various forms, but it will make a difference for the better.
The ideas in Free Market Environmentalism will surely challenge traditional thinking on the environment and seem like a quite logical application to the students of free market economics. It is what most of Eastern Europe is trying to do with their entire economies: let the market decide rather than central planners.