"I’ve always disliked the term 'free-market environmentalist.' I’m sure part of that reaction is because the term is often used as a fig-leaf for organizations with agendas that are actually inconsistent with environmental protection." This piece goes on to explain what Wetzler believes is inconsistent between the FME ideology and regular environmentalism.
Free Market Environmentalism
When it comes to protecting the environment, the view held by most people is that while the free market is certainly a formidable force for economic progress and prosperity, it often stands at odds with the environment. The environment, so it is argued, requires a stronger protector and defender than can be guaranteed by markets, and hence government-enforced regulation of business and consumer action is crucial to protect and enhance it.
In that vein, the term "market failure" has been used to explain such problems as pollution of air and water, overconsumption and depletion of natural resources, species extinction, and global warming. Thus, the bulk of the environmental advocacy movement tends to encourage and support government intervention, based on the argument that those focused on making a quick profit would otherwise ignore or actively harm the natural environment and the communities dependent upon it.
However, there are other individuals who claim that it is generally preferable to preserve and protect the environment through the free market rather than government regulation. These individuals adhere to a philosophy known as Free Market Environmentalism (FME), the core tenet of which is that "free markets can be more successful than government—and have been more successful historically—in solving many environmental problems."
Advocates of FME argue that when it comes to environmental problems and possible solutions to them, several market mechanisms need to be taken into account.
First, there is the broad issue of incentives, among them most crucially, property rights. Free-market environmentalists claim that environmental problems arise because of limited or inadequately specified property rights and liability laws. Free market environmentalists regard property rights protection as the key to ameliorating environmental degradation because property rights give owners incentives to care for what they own.
Indeed, Aristotle was the first to recognize the value of individual property rights, pointing out that property held in common tends to be less cared for than property held in private. In association with FME, this view is best known through the concept of "The Tragedy of the Commons," described by Garrett Hardin in 1968, which holds that when a resource is commonly owned, every individual using it has an incentive to get as much out of it as possible before the next guy without regard for preservation or conservation. Private owners of natural resources tend to be better stewards because they are focused on protecting the value and profitability of their investment. Private owners also have a stronger incentive to facilitate less waste and greater longevity of the resources they own. As Robert Smith put it:
"Why was the American buffalo nearly exterminated but not the Hereford, the Angus, or the Jersey cow? Why are salmon and trout habitually overfished in the nation's lakes, rivers, and streams, often to the point of endangering the species, while the same species thrive in fish farms and privately owned lakes and ponds? Why do cattle and sheep ranchers overgraze the public lands but maintain lush pastures on their own property? Why are rare birds and mammals taken from the wild in a manner that often harms them and depletes the population, but carefully raised and nurtured in aviaries, game ranches, and hunting preserves? Which would be picked at the optimum ripeness, blackberries along a roadside or blackberries in a farmer's garden? In all of these cases, it is clear that the problem of overexploitation or overharvesting is a result of the resource's being under public rather than private ownership. The difference in their management is a direct result of two totally different forms of property rights and ownership: public, communal, or common property vs. private property. Wherever we have public ownership we find overuse, waste, and extinction; but private ownership results in sustained-yield use and preservation."
Given the importance of property rights, FME claims it should also be no surprise that, for instance, pollution tends to be worse in socialist countries. By contrast, in capitalist ones, pollution indicators tend to improve over time.
Second, FME points to the problem of opportunity cost. Opportunity cost, in essence, is the cost of all the alternatives forgone in favor of a given use of resources. In the case of environmental protection then, FME proponents urge, for instance, to consider that time and money spent on compliance with certain regulations (e.g. pollution controls or energy efficiency requirements) cannot be devoted to job creation, or research and development of cleaner production methods.
Third, FME questions a common rationale for government regulation, the combatting of negative externalities created by free market actions. FME advocates point out that seeking to combat one such externality can often create unintended, but possibly worse consequences. For instance, requirements for companies to implement the best-available technology to prevent or mitigate environmental damage may be too costly for some producers. Or, government regulations to protect endangered species lead owners to prevent those species from inhabiting the property in order to avoid having the government take away their right to develop that property. Also, government subsidies which spur the development of alternative energies and create more "green jobs" may end up causing job losses, higher energy prices, and more political corruption.
Fourth, some FME proponents find it more valuable to focus on transaction costs (i.e. the cost incurred in any trade) rather than externalities. Here, Nobel Laureate Ronald Coase's seminal article "The Problem of Social Cost" is often cited in attempt to justify the idea that when transaction costs are low, polluters and victims can work things out among themselves, and that such private negotiations could be hindered by government intervention that increase the transaction costs involved. However, it should be noted that whether Coase's ideas support FME is a matter of contention within the FME movement.
Lastly, FME argues that the market's main signal, prices, if allowed to work, will provide us with information about the availability and value of natural resources, and consequently will lead both industry and consumers to adapt their behavior accordingly.
As is the case with almost every theory, Free Market Environmentalism experiences a number of objections. One of the common arguments offered in opposition to FME is that it ignores the rights of the poor who often have no means to obtain property or to redress the suffering caused to them by environmental exploitation. A similar criticism is that property rights and the legal remedies associated with them are only available to members of the current, but not of future generations, since the latter have no standing in a present-day court. Another argument against FME suggests that in order for the theory to be viable, one would have to assign specific costs and values to every environmental benefit, a task which FME opponents declare is impossible to accomplish. Finally, some opponents believe that, while the market may be able to address some environmental concerns, it cannot do so for the most difficult and pressing problems such as global warming.
This library section provides expositions and examinations of the arguments for and against Free Market Environmentalism. It also contains a variety of case studies assessing the viability of free market vs. governmental approaches to the environmental issues faced by current and future generations.
More About This Topic...
Click thumbnails below to view links
- Secondary Sources Quotes on Free Market Environmentalism
- Tragedy of the Commons: Why Do Shared Resources Get Misused?
- Taking Property Rights Seriously: The Case of Climate Change
- Misinterpreting the Coase Theorem
- Primary Sources Quotes on Free Market Environmentalism
- Video: Externalities
- Coase and Demsetz on Private Property Rights
- Pollution and Property: Comparing Ownership Institutions for Environmental Protection
- Video: Free Market Environmentalism with Terry Anderson
- Property and Environment Research Center