Environmental Protection vs. Corporate Profits

Can the environment still be protected despite the ruthless, profit-driven, corporate world?

This question is often framed in such a way so as to suggest that a healthy natural environment is necessarily incompatible with economic growth, or in this case, the actions of "ruthless, profit-driven" corporations.

But that is a faulty premise, as the evidence confirms. The nations with the worst environmental records in the world are current and former socialist and communist countries that have no respect for the most fundamental aspect of human liberty that exists: private property. (Incidentally, in terms of "ruthless" behavior, people like Pol Pot, Stalin, Hitler, and Mao were not Chief Executive Officers of Fortune 500 companies; they were heads of state responsible for millions of cold-blooded killings.)

Have corporate entities, including multinationals, at some time violated human liberties and rights? Absolutely, and the Mackinac Center believes that they, and the human actors that facilitated them, should be punished accordingly. The Mackinac Center for Public Policy recognizes the judiciary as a fundamental component of the marketplace.

Strict respect for private property rights is the most important key to keeping the environment safe and sound from the hazards man imposes. Government can change the environmental conditions of a nation for better or worse. However, experience shows that mandates--orders from some level of government to engage in or avoid some practice--tend to be counterproductive when compared to another option. That option includes harnessing the powerful incentives of the marketplace and a respect for private property.

Some definitions are in order.

Public Good: A public good is any good that is nonrivalous and is nonexcludable (unless it comes at great cost to the provider). By nonrivalous I mean that it has no competitors. Bread would not be a good example because there is every type imaginable, but Grand Traverse Bay in Traverse City would be. After all, how many Grand Traverse Bays are there?

A public good must also show nonexcludability, which means that it would be impossible to exclude you from benefiting from my privately financed product. If America tried to have a national defense based on private financial support, how could I exclude you from benefiting from the defense of our shores if you chose not to pay? You would be what we economists call a "free rider." Another good and simple example would be that of a porch light. When your neighbor turns his light on, how can he exclude you from the safety and convenience that it provides? (Incidently, this would be called a "positive externality.")


The Old Environmentalism

For years, the notion that lakes, rivers, streams, and air were pure public goods that could not be protected privately was dogma. But experience has shown that no one has the same economic incentive to protect "common" goods and therefore, few if any people work to protect them. Environmentalists and concerned citizens normally turned to the state to mandate clean air and water requirements. Unfortunately, the world is too complex to fit into neatly organized government directives.

Take asbestos removal, for example. Environmentalists may be rightly concerned with its effect on the health of people who breathe harmful chemicals. However, everything has a cost. By the EPA’s own estimates, asbestos regulations have helped avoid three premature deaths at a cost of between $43 and $76 million per life saved. Had that money been invested in safer highways, infant nutrition, or left in the hands of private citizens, who knows how many lives would have been saved elsewhere?

Another example is Corporate Average Fuel Economy (CAFE) standards. Originally enacted in the 1970s, fuel economy standards were designed to protect the world's precious resources from depletion. Its effect? The need to make cars smaller to comply with fuel economy standards kills upwards of an additional 4,500 people each year.

A third (and my favorite) one-size-fits-all program is the Clean Water Act. This program forces governments at all levels to perform a number of duties, including the extraction of certain pollutants from lakes. One lake in Alaska was so pristine that it was below the polluting levels mandated by the EPA. How was this handled? Local officials dumped garbage into the lake until it was filthy enough to clean and thereby meet requirements of the federal government.


The New Environmentalism

The new environmentalism tosses aside the notion that government, regardless of its intentions, talents, or wisdom is still not smart enough to out-think the marketplace and each of its many economic actors working to maximize their own personal utility. The new environmentalism has four pillars:

Decentralization: Rather than a one-size-fits-all set of politicized federal regulations, what if the environment were protected by devolving responsibility for environmental concerns to the state and local level--nearest the problem itself--while leaving international concerns a federal responsibility?

Markets vs. Mandates: Human beings are rational economic actors. By harnessing market forces government can protect all facets of the environment with incentives that are positive (making a profit) as opposed to negative (going to jail for noncompliance).

Property Rights: A simple tenet of economics is that what you own you take care of, and what belongs to everyone falls into disrepair. If government were to strengthen laws against "takings," whereby state actions make property worthless, private-sector environmentalists could be more assured that their efforts would not be crushed by politically motivated concerns. A good example would be the story of Richard and Nancy Delene, which you can find on our web site at www.mackinac.org/mpr1996-04.

Privatization: The concept of privatization revolves around decentralizing the decisionmaking processes involved with various policy issues. Why shouldn't we privatize aspects of pollution control by selling the "right to pollute?" By issuing vouchers (also known as credits) we create a market that provides incentives for companies to a) eliminate waste in production to cut down on the expense of polluting, b) cooperate with other companies to exchange emission rights, and c) bring environmentalists into the market so they may purchase and retire pollution credits as they see fit.

A recent study by Yale University suggests that achieving reductions in greenhouse-type emissions (as called for in the new global warming treaty) using pollution trading devices (such as credits) would cost the U.S. economy $19.9 billion, but it would cost $582.2 billion if it were done by mandate. Remember, the difference in cost is what could be spent improving the lot of humanity in some other way.

Given the nature of public goods, it may [emphasis added] be beneficial to have some government involvement in their use. However, it is important to recognize that everything has a cost. It is therefore in the best interest of society to allocate expensive resources as efficiently as possible. This is done by acknowledging that the market is universally superior to bureaucratic orders when it comes to efficiency.

Please be assured that these are not the only views on improving the environment. Perhaps in the future we could discuss my friends and their more radical market-based environmentalism.