Citation: Sharon Beder, Market-based Environmental Preservation: Costing the Earth, Search, 25, 8, September 1994, pp 226-8

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Many economists argue that environmental assets, because they are free or underpriced, tend to be overused or abused, thereby resulting in environmental damage. They go on to claim that because these environmental assets are not owned, and do not have price tags, there is no incentive to protect them. Moran (Search, August 1994) believes that "markets based on property rights allow us to place genuine worth on otherwise nebulously valued things".

Moran argues that individual ownership is a "potent force for perserving valued assets" but it is fairly obvious that private ownership alone does not guarantee environmental protection. One of Australia's worst environmental problems, land degradation, has taken place on privately owned farming lands throughout the country. Nor would attaching a dollar value to a species guarantee its survival. Biology Professor David Ehrenfeld points to a study done by a mathematician some years ago which showed that `it was economically preferable to kill every blue whale left in the oceans as fast as possible and reinvest the profits in growth industries rather than to wait for the species to recover to the point where it could sustain an annual catch' (1988, p. 213).

The failure of the market to protect the environment has long been recognised by environmental economists who have sought to correct this failure by incorporating the environment into the market through the use of economic instruments and the monetary valuation of costs and benefits. Economic instruments such as charges and taxes seek to internalise environmental costs so that individual firms (or their customers) are forced to pay for the damage they cause.

Where there is no existing market, such as for air quality or the ozone layer, environmental economists want to set up artificial markets so as to establish a monetary value for environmental costs and benefits. Such artificial markets can be established through the creation of property rights (for example tradeable pollution rights) or they can be imaginary as in surveys of people's willingness to pay for environmental benefits (contingency valuation surveys).

The renewed push for the use of market-based solutions in Australia has been due in part to the influence of the ideology of economic rationalism in all areas of government. Advocates argue that if the environment is accorded a monetary-value, individuals in pursuit of self-interest (eg profits) will have an incentive to protect the environment. As a result market-forces will be harnessed to achieve environmental protection. However this market-based approach falls down on several counts.

Practical Difficulties

Despite Moran's confidence that the "flora and fauna that might be lost are almost invariably rare and unimportant in ecological processes", scientific knowledge of the species that exist today and their role in planetary ecosystems is "woefully inadequate" (McNeely, 1990, p.18). Without this knowledge, an individual's willingness to pay, as measured by economists' surveys or by the price a piece of land gets on the market, has much more to do with his or her own income and personal desires than the needs of the planet,

A major problem with valuing the environment according to individual willingness to pay is that the preferences of future generations (and indeed other species) are not taken into account. For this reason, the market value might not be consistent with long-term welfare or survival. Individuals might prefer, in times of recession, to continue adding to the greenhouse emissions rather than cutback on energy use even though this might threaten future generations in a severe way. Even economist David Pearce and his colleagues point out that some care needs to be exercised that social objectives (such as economic efficiency) do not lead to activities that "are inconsistent with the ecological preconditions for existence or, at least, some minimal quality of life." (Pearce, Markandya & Barbier, p.52)

Bryan Norton, Professor of Philosophy, uses the argument that biodiversity is necessary for survival to argue against the placing of dollar values on species so that they might be weighed against such things as `the value of real estate around reservoirs and kilowatt-hours of hydroelectric power' (1988, p. 204). He compares such reasoning to hospital administrators trying to work out which parts of a life-support system can be disconnected and sold to raise money for the hospital. They do not really know which part is necessary for the continued operation of the support system, and have to guess which parts will not be missed.

For many people, not just environmentalists, putting a price on nature is as abhorrent as putting a price on family and friendship. It represents the further creep of the market and economics into areas of life that have traditionally been considered above material concerns. Like the packaging and marketing of religion and body organs, it is somehow unsavoury and definitely unwelcome. The usefulness of economic theory can be pushed too far.

Herman Daly and John Cobb (1989) note that resource economists have found people are often reluctant to co-operate with contingent valuation surveys. They quote a researcher who argues that "respondents believe that environmental policy - for example, the degree of pollution permitted in national parks - involves ethical, cultural, and aesthetic questions over which society must deliberate on the merits, and that this has nothing to do with pricing the satisfaction of preferences at the margin" (p. 91).

Political Choices

While many economists argue that the market is democratic because individual consumers can vote by choosing how they spend their money, the move towards a market allocation of environmental resources is in reality a move away from democracy. Currently, communities can influence governments to protect the environment through legislation and intervention by campaigning and demonstrating as well as by voting. But in a system where the optimum level of environmental protection is decided by a market, influence is wielded by the wealthy--those with most market power. Where economic instruments are used, private firms have the choice of paying the charge and continuing to damage the environment.

Environmental questions have traditionally been determined by the political process. Moran and other economic rationalists want to avoid this political process because they argue it is economically inefficient. They claim that markets are more efficient at giving people what they want than governments but this assumes that there is no such thing as the common good outside of individual wants and preferences. Peter Self, a professor of public administration, argues that:

Economic markets follow an instrumental logic whereby, under the right conditions, rational egoistic behaviour is socially legitimated and acceptable ... In politics, by contrast, it is or was a general social belief that individuals should have some regard to the `good of society' and not just their own private wants. (Self,1990, p. 9)

Humans are first and foremost social animals and although their personal spending may reflect their individual self-interests, their participation in the political process through voting, demonstrating and lobbying often reflects broader and more long-term communal values.

Moreover economic efficiency does not necessarily equate with social or environmental welfare. Just because the benefits of an action outweigh the costs, it does not mean that the decision is morally correct or politically acceptable. For example, child labour or slavery would be considered immoral even if the economic advantages to the whole society outweighed the costs to some individuals. Pricing mechanisms and markets tend to ignore distributional issues such as who gets the benefits and who bears the costs. As long as the sum of the benefits outweigh the sum of the costs, even if a small group of people get the benefits and a whole community suffers the costs, economists assume the society as a whole is better off.

There is an exacerbating tendency in our society for poor people to be the ones that suffer the costs of hazardous, dirty or unwelcome developments. Siting a dirty industry in an already dirty area will be less costly than siting it in a low-pollution area because the costs of pollution, if measured in terms of decline in property values will be lower. Similarly, siting the polluting industry in an area that already has depressed property values, will also be less costly by this method than siting it in an affluent area. In this way the poor are continually disadvantaged by market-driven environmental choices.

Consolidation of Power

Another distributional issue is that market values, because they are based on individual preferences, tend to reflect and therefore maintain the prevailing distribution of income. Wealthier people are willing and able to pay more and therefore their votes count more. Property rights are bought up by those most able to afford them and it is the owners of private property who determine its fate. Economic incentives for them to conserve their property appeal to property owners far more than government controls which require them to conserve it. Economic instruments are an increasingly attractive alternative to industry as public pressure mounts to tighten up and increase environmental legislation. Industry would prefer to retain the right to discharge wastes into the environment, even if they have to pay for the privilege

When market-based approaches to the environment are allowed to by-pass the political process they perpetuate the root causes of environmental degradation because the environment is simply treated as an adjunct to production. Attempts to assign dollar values and property rights to segments of the environment are ways of reaffirming the market as the primary social decision-making mechanism--a mechanism that relies on individual self-interest to achieve maximum social welfare.

It does not occur to us that by assigning value to diversity we merely legitimize the process that is wiping it out, the process that says, `The first thing that matters in any important decision is the tangible magnitude of the dollar costs and benefits'.... if we persist in this crusade to determine value where value ought to be evident, we will be left with nothing but our greed when the dust finally settles. (Ehrenfield,1988, p. 213)

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References

Beder, Sharon (1993) The Nature of Sustainable Development, Scribe, Newham, Victoria.

Bowers, John (1990) Economics of the Environment: The Conservationists Response to the Pearce Report, British Association of Nature Conservationists.

Ehrenfeld, David (1988) `Why put a value on biodiversity?' in Biodiversity, ed. E. O. Wilson, National Academy Press, Washington DC.

McNeely, J., Miller, K., Reid, W., Mittermeier, R. & Werner, T. (1990) Conserving the World's Biological Diversity, IUCN, WRI, CI, WWF & the World Bank, Gland, Switzerland.

Norton, Bryan (1988) `Commodity, amenity and morality: The limits of quantification in valuing biodiversity', in Biodiversity, ed. E. O. Wilson, National Academy Press, Washington DC.

Pearce, David, Markandya, Anil & Barbier, Edward (1989) Blueprint for a Green Economy, Earthscan, London.

Self, Peter (1990) `Market ideology and good government', Current Affairs Bulletin, vol. 67, no. 4, Sept., pp. 4-10.