MANDATORY RESPONSIBILITY
I don’t think it will ever happen, but consider this scenario. Imagine
Congress passes a law requiring every corporation — in exchange for
limited liability — to have a triple bottom line. The law also says
that at least a third of corporate directors should represent workers,
nature, and communities in which the company operates. And it protects
directors from lawsuits if they favor nature over profit. You’re
the CEO of Acme Corporation. What changes do you make after the law takes
effect?
Well, you might start by increasing your accounting budget. You’ll
need, henceforth, to keep track not only of money but also of your nonmonetary
impacts on society and nature. This isn’t easy, though presumably
shortcuts will be developed. Next, you assign people to find ways to reduce
Acme’s negative impacts on nature and society, ranking the proposals
by years to payback. You budget a modest sum for the most cost-effective
projects, giving preference to those with public relations value. You publish
ads and reports, patting yourself on the back for doing what the law requires.
And you remind your board of directors that, if they choose, they can snub
offers from the likes of Charles Hurwitz and forgo large capital gains
for shareholders.
All this would be well and good. But given the algorithms that still rule,
how much difference would it make? And even if it did have some effect,
would it make enough difference in the right ways? After all, you might
spend your small green budget on one thing, while nature most needs something
else.
Now, as an alternative, imagine that the price of nature is no longer
zero. All of a sudden, it costs big bucks to pollute or degrade ecosystems.
Overnight, your managers scramble to cut pollution and waste. The higher
the price, the faster their behavior changes. And it changes in response
to specific natural scarcities, as indicated by specific prices.
The question is, which of these approaches would work better — mandatory
social responsibility, or increases in the price of nature? The answer,
without doubt, is the latter.
Free Market Environmentalism
One other version of privatism is worth considering. Its premise is that
nature can be preserved, and pollution reduced, by expanding private
property rights. This line of thought is called free market environmentalism,
and it’s favored by libertarian think tanks such as the Cato Institute.
The origins of free market environmentalism go back to an influential
paper by University of Chicago economist Ronald Coase. Writing in 1960,
Coase challenged the then-prevailing orthodoxy that government regulation
is the only way to protect nature. In fact, he argued, nature can be protected
through property rights, provided they’re clearly defined and the
cost of enforcing them is low.
In Coase’s model, pollution is a two-sided problem involving a polluter
and a pollutee. If one side has clear property rights (for instance, if
the polluter has a right to emit, or the pollutee has a right not to be
emitted upon), and transaction costs are low, the two sides will come to
a deal that reduces pollution.
How will this happen? Let’s say the pollutee has a right to clean
air. He could, under common law, sue the polluter for damages. To avoid
such potential losses, the polluter is willing to pay the pollutee a sum
of money up front. The pollutee is willing to accept compensation for the
inconvenience and discomfort caused by the pollution. They agree on a level
of pollution and a payment that’s satisfactory to both.
It works the other way, too. If the polluter has the right to pollute,
the pollutee offers him money to pollute less, and the same deal is reached.
This pollution level — which is greater than zero but less than the
polluter would emit if pollution were free — is, in the language
of economists, optimal. (Whether it’s best for nature is another
matter.) It’s arrived at because the polluter’s externalities
have been internalized.
For fans of privatism, Coase’s theorem was an intellectual breakthrough.
It gave theoretical credence to the idea that the marketplace, not government,
is the place to tackle pollution. Instead of burdening business with page
after page of regulations, all government has to do is assign property
rights and let markets handle the rest.
There’s much that’s attractive in free market environmentalism.
Anything that makes the lives of business managers simpler is, to my mind,
a good thing — not just for business, but for nature and society
as a whole. It’s good because things that are simple for managers
to do will get done, and often quickly, while things that are complicated
may never get done. Right now, we need to get our economic activity in
harmony with nature. We need to do that quickly, and at the lowest possible
cost. If it’s easiest for managers to act when they have prices,
then let’s give them prices, not regulations and exhortations.
At the same time, there are critical pieces missing in free market environmentalism.
First and foremost, it lacks a solid rationale for how property rights
to nature should be assigned. Coase argued that pollution levels will be
the same no matter how those rights are apportioned. Although this may
be true in the world of theory, it makes a big difference to people’s
pocketbooks whether pollutees pay polluters, or vice versa.
Most free marketers seem to think pollution rights should be given free
to polluters. In their view, the citizen’s right to be free of pollution
is trumped by the polluter’s right to pollute. Taking the opposite
tack, Robert F. Kennedy Jr., an attorney for the Natural Resources Defense
Council, argues that polluters have long been trespassing on common property
and that this trespass is a form of subsidy that ought to end.
The question for me is, what’s the best way to assign property rights
when our goal is to protect a birthright shared by everyone? It turns out
this is a complicated matter, but one we need to explore. There’s
no textbook way to “propertize” nature. (When I say to propertize,
I mean to treat an aspect of nature as property, thus making it ownable.
Privatization goes further and assigns that property to corporate owners.)
In fact, there are different ways to propertize nature, with dramatically
different consequences. And since we’ll be living with these new
property rights — and paying rent to their owners — for a long
time, it behooves us to get them right. ... read
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