In “The Tragedy of Modern Environmental Thought,” I introduced a controversial idea: resources will never run out so long as humans have the necessary institutions (mainly free markets) to coordinate information and decision making. Some critics have raised fair questions: What about the period before environmental regulation, when there were well-documented ecological catastrophes? How does one take advantage of voluntary institutions to achieve ends consistent with both human flourishing and environmental protection? And how can a society correct for market failure?
Neoclassical economics usually posits a role for government where “market failures” exist. But the term “market failure” is a misnomer: markets do not fail. Markets are merely systems of social interaction, and as such, they behave exactly as they ought to, given their nature and the nature of their participants.
This is not to say that all market outcomes are desirable. That is a normative judgment, and depends very much on the observer’s values. Rather, it is a statement that undesirable outcomes are usually the product of defective institutions. Just as not all markets are free markets, not all free markets produce outcomes that coincide with the preferences of market participants. “Market failure” may be caused more by the particular set of rules governing the market than the essential nature of markets themselves.
Property rights can be defined in many ways. While there will be differences in people’s judgments about the justice, efficacy, or propriety of one or the other method, any of them could be present in a free market. An essential public policy task is determining how to define and enforce property rights such that individuals will autonomously behave in ways that generate broadly positive outcomes. Rigid state control over resource use is often unnecessary.
The period before heavy-handed federal and state environmental regulation, with all the associated environmental damage, is a testament to the importance of institutions in influencing outcomes rather than an indictment of laissez-faire. During this period, many resources could not be held as private property. Bison were shot nearly to extinction in part because individuals could not gain legal title to them, making bison herds nothing more than liabilities for ranchers, railroads, and other property owners. The Cuyahoga River caught fire after exceptional pollution, itself the result of a dearth of individuals with title to water use and fishing rights.
It is true that in many ways state and federal environmental laws have improved these sorts of situations. It remains to be seen whether the task could have been left to markets with better-defined and enforced property rights, and whether those solutions might be superior.
There are many ways to do this. In terms of species and wildlife conservation, that could mean granting legal title to a species or its habitat. Whereas government-directed systems of common ownership have led to the malnourishment, low reproductive rates, and poaching of endangered elephants, private ownership has aligned individuals’ economic interests with the well-being of those animals, ensuring that they are well-fed, protected, and reproducing. In terms of air and water quality, this may mean allowing courts to hear “environmental torts” in which a class of people with economic interests in clean air and water supplies are able to sue those industries that degrade those local resources, seeking reparations or injunctive relief. As far as resource development, it may mean wholesale privatization of (e.g.) water supplies, which could be accomplished by divesting government ownership of the resource by auction.
In some cases, it may mean merely creating a more favorable business climate by minimizing the tax burden (in terms of both liability and compliance costs), strengthening intellectual property rights, and passing a host of other reforms that would increase the ability of entrepreneurs to develop, implement, and market new environmentally-advantageous technologies. Many of these technologies were actively suppressed by the Environmental Protection Agency until the crisis in the Gulf of Mexico catalyzed emergency approval.
Of course, it also means eliminating all tax and subsidy bias toward resource use, to minimize the artificial adoption or avoidance of some technologies or resource uses over others. These direct financial incentives have led to wasteful use of American cropland for fuels, rainforest degradation as agriculture is displaced to Central America, and the stifling of innovation in both alternative and conventional energy technologies.
The particular rules markets operate under will vary widely according to the needs and interests of local communities, yet we ought not to think of this diversity of opinion as a chaotic mess in search of a national solution. The decentralization of environmental decisions is desirable: the people closest to the problems ought to have the greatest say in their resolution. Federalization of environmental issues tends to leave those with the most at stake held hostage to the deliberations of Congressmen and bureaucrats far removed from those problems, with neither the personal interest nor the local knowledge to make value-maximizing decisions.
Andrew Glidden is a writer living in Berkeley, California.