Capitalism Loves The Earth, but the Greens hate Capitalism


Some parts of the world really are environmental Hells. They are dirty and depleted, making them unhealthy and economically unsustainable. We can argue about the severity of the problems in various places, but I want to focus on another aspect of the debate: determining accurately the causes of the degradation so we can focus productively on finding solutions.

Unfortunately, much public discussion is characterized by over-the-top rhetoric in combination with ignorance of the alternatives and a latching onto the first plausible hypothesis.

If we ask Whom to blame? the most commonly-cited culprit is The Greedy Nature of Man. Those who subscribe to this answer see self-interest, the profit motive, and capitalism as the roots of the problem. Self-interest, they argue, means that people want more at the least cost to themselves. Profit now means using up resources sooner rather than later and getting rid of the waste the easiest way possible. And capitalism‘s rule-minimalism only serves to encourage such wanton behavior.

Let’s give The Greedy Nature of Man theory a name. I propose to add a word—The Greedy Nature of Man’s Evil—to produce the acronym GNOME. We can get some t-shirts made saying “GNOME Is the Problem.”

Garrett Hardin’s classic “Tragedy of the Commons” essay for Science is sometimes enlisted in support of GNOME. Hardin used the example of herdsmen using a common pasture. Each herdsman is a self-interested farmer, so he wants to put as many cows as he can into the pasture because each additional cow increases his profits. But each additional cow also means that less pasture is available for the other herdsmen’s cows. And of course the other profit-seeking herdsmen are doing the same thing.

But as more cows are added, the pasture’s grasses are depleted more quickly. So the herdsmen become locked into a zero-sum competition that leads to the destruction of the pasture—and to dying cows and skinny herdsmen.

The solution then seems obvious: If short-sighted self-interest is the problem—if antisocial profit seeking is the problem—and if capitalism’s anything-goes laissez-faire is the problem—then the fix will require a powerful institution able to override people’s selfish profit-seeking and to impose rules about resource use that take into account society as a whole’s long-term needs. That is to say, the government should manage society’s resources.

In the case of the herdsmen, for example, the government should tell each herdsman how many cows he may put out and for how long. It should mandate that each herdsman does his fair share of maintenance and improvements in the pasture—weeding, fence-building, well-digging, waste collection. It will hire police to ensure that none of the herdsmen are cheating or shirking. And it will impose taxes in order to fund the rule-making and monitoring. That is to say, wise environmental policy will require lots of rationing, conscription, policing, and taxation.

Hence the authoritarianism of much current environmentalism, with calls for greater powers for this or that government agency and even a world government. “Basic resources and companies should be in the hands of the public sector and society,” argues this document prepared for the United Nations Conference on Sustainable Development. Further: “sustainable development can only be achieved from a global perspective and cannot be achieved only in the national level.”

The Greedy Nature of Man analysis has seduced many an angry young environmentalist and many a politician. But GNOME does run up against some contrary data and a powerful competing hypothesis about the cause of environmental degradation.

Consider, for example, this list of the 25 Most Polluted Places on Earth.

Actually—before you look at the list, make a pair of guesses:

  • (1) Of the 25 most polluted, how many do you think will be in the relatively free-market parts of the world?
  • (2) How many of them do you think will be in the socialist, formerly socialist, authoritarian, and other big-government-friendly parts of the world?

Or you can trust my counting: Russia and India top the list, each with three of the Earth’s most polluted places. China and Azerbaijan each have two. The following countries appear in the list once: Ukraine, Kyrgyzstan, Iran, Bangladesh, Indonesia, Congo, Tanzania, Zambia, Haiti, Mexico, Argentina, Brazil, and Peru.

Now for the interesting bit: Every one of those countries is also very economically unfree. The Economic Freedom of the World Index ranks 178 nations from most-free economically to least-free-economically. Russia ranks 143nd. India ranks 128th. Here are some more ranks: China (139), Iran (171), Haiti (151), Argentina (169), Congo (170)…and you can check the rest yourself.

The point is: the dirtiest places in the world are also the least free market and the most anticapitalist.

By contrast, sample the nations that are relatively high in economic freedom: Hong Kong (1), New Zealand (3), Switzerland (5), Canada (6), Bahrain (18), Sweden (23), South Korea (29), and others that are representative examples here. In those nations there is plenty of profit-seeking self-interest and capitalism is encouraged—and those nations are relatively clean environmentally.

So the popular GNOME hypothesis faces a paradox: It tells us that profit-seeking capitalism causes environmental death, but the data indicates that more capitalism correlates with more environmental health. GNOME also tells us that government management should save the environment, but the data suggests strongly that environmental Hells occur most often in big-government societies.

Which means that we should also consider a competing hypothesis.

That hypothesis also has two components. One is that government-managed societies are plagued with problems—incompetence, bureaucracy, corruption, and perverse incentives. So we should expect inefficiency and unintended consequences in such societies.

The other part is that we should give self-interest and free markets more positive credit when it comes to environmental values. Self-interest includes wanting to live in clean, healthy, and beautiful environments. Humans are intelligent enough to understand big-picture consequences and long-term profitability. Private property and free markets can and do incentivize wise resource use and proper waste disposal.

Further: capitalist nations become rich—and rich nations especially have the resources to solve environmental problems as they arise.

Let’s call that the Capitalism Loves the Earth as Necessary hypothesis.

My first personal experience with CLEAN and the Tragedy of the Commons occurred when I ran out of money in my final semester of graduate school. My first teaching job awaited me in the fall semester, but I had no income for the three summer months before then.

So I gave up my apartment and moved into a shared house with seven other guys. It was a huge old house with eight bedrooms, so each of us had a private room, and we all shared a common kitchen and two bathrooms.

Perhaps you know that some guys are neater than others, so the eight private rooms varied from clean to messy, but each guy was content with his own space. Yet the common kitchen and bathrooms were always dirty to disgusting, and we all complained about them.

When I moved in, I spent an afternoon cleaning the bathroom nearest to my bedroom. Within two days it was gross again, and I resolved to spend no more time cleaning it. That summer I showered at the university gym.

We tried to solve the kitchen mess by setting up a rotation schedule. Seven days in a week and eight guys in the house, so each guy was assigned a day that he was responsible for cleaning the kitchen, with one guy to fill in when needed. The plan’s math was good, but the rotation schedule lasted for only three days. One of the guys missed his cleaning day, food remnants and the dishes piled up, and the next guy refused to do double duty. Everyone got mad and the system broke down. I ate out a lot that summer.

Question: Why were the house’s common areas unusable and the private areas satisfactory?

Let’s return to Garrett Hardin’s classic tragedy of the commons scenario. Each herdsman using a common pasture has an incentive to add more cows to the pasture so as to increase his profits. At the same time, he has little incentive to weed the pasture or dig a well on it, since he’d be doing the work and the other herdsmen would freeload. So the pasture is overused and under-maintained, and becomes unusable.

The Greedy Nature of Man’s Evil (GNOME) hypothesis blames the self-interest of the herdsmen: if only they weren’t so selfishly concerned with their own profits! How can we make them act for the common good? Clearly we need the government to manage resources—to ration, conscript, tax, and police as necessary to maintain the common resources! That is, socialism is the solution or we’re all going to suffer and even die!

Not so fast. The tragedy results from two factors working jointly: the common resource and private self-interest. What if the commons is the problem and not the self-interest?

Suppose that the common pasture is 10,000 acres and there are twenty herdsmen using it. We could divide the land into twenty 500-acre parcels and give one parcel to each herdsman. That is to say, we could privatize the resource by turning it into private property.

How would that change the dynamic? Suppose you’re one of the herdsmen now with your own 500-acre farm.

  1. Is it in your self-interest to keep adding cows to your pasture? Clearly not: if you want the pasture to be useful to you into the future, you will make sure that you put out only as many cows as the pasture can support.
  2. Will you dig a well so that your cows have water in the hot summer months? Costly, yes, but your cows will get the full use of the water—and if it’s an especially productive well you can sell the extra water to your neighbors.
  3. Will you talk with your neighbors about splitting the cost of a fence along your joint property line, so that his cows don’t wander onto your land and vice versa? Yes.
  4. Or will you think: Someday I want to retire, and when I do I want to sell my farm for a lot of money so that I can live comfortably until the end of my days. So I should manage my farm well so as to increase its economic value for the long term.
  5. Or: I want to leave my farm to my kids when I die, and I want them to have the best start possible in life. So I want to bequeath to them a productive, well maintained farm.

The point is that with this private-property solution, self-interest is now aligned with healthy resource use. There is a role for government—not to manage the resource, as under GNOME’s socialism—but to assign and register property titles in the first place, to protect each farmer’s property rights, and to adjudicate disputes as they arise. If my cows wander onto your land, you have the right to prevent them and sue me for any damage they do. If you steal water from my well, you can be prosecuted. We both have an incentive to respect each other’s rights.

We have just described the free-market capitalist solution to the tragedy: self-interest and the profit motive working with property rights and limited government. That is, Capitalism Loves the Environment as Necessary (CLEAN).

But what about bad farmers? My last name is Hicks, which means that I come from a long line of farmers. What if I am lazy or incompetent, or have a string of very bad luck and run my farm into the ground? It becomes dirty and weedy and impoverished to the point that I am no longer able to support myself with it.

My only option then is to sell the farm. To whom will I sell? Only to a farmer who can afford it—which is to say, to a farmer who has managed his own farm well and so made a profit from it, which put him in a position to invest in other resources.

But what about poor me? I am now without a farm. What happens to incompetent farmers like me is an issue, but our concern now is with good resource maintenance and solving the tragedy of the commons. The great virtue of the CLEAN system is that those who misuse resources are unable to do so for long. Resources end up in the hands of those who have an incentive to look after them and know what they are doing.

Return now to my partly unpleasant summer sharing a house with seven guys. The kitchen and the bathrooms truly were a tragedy. And that is because they were a commons.

When we find mismanaged resources and nasty pollution, we almost always find a commons. Either there are no property rights or there is a failed attempt by a government to manage the resource as a common.

But how far can we extend the privatization solution?

Private property rights in land make sense, but land is not the only environmentally sensitive resource and it is not always clear how property rights can solve all land-use claims. How would they work for more fluid resources such as air and water, and animal species that migrate across great stretches of land? How do we extend them to new and intangible resources such as intellectual values? Cutting-edge stuff.

And is the choice only between privatization and government management? Nobel Prize winner Elinor Ostrom argued for a middle way: no one size fits all, Ostrom argued, and she presented successful examples from around the world of locally developed user associations that had evolved semiprivate and semipublic practices for managing all kinds of resources. (Coincidentally, Ostrom was a professor at my graduate university at the time, so perhaps we should have consulted her about how to solve our kitchen-and-bathroom tragedy.)

This brings us to the current state of the art. The debate over the tragedy of the commons is part of the great Doomster versus Boomster battle. And the stakes are high, so let’s avoid the easy ideologically driven shouting matches. Let’s first make sure we learn from the history of actual examples and consider all sides of the debate.

 Dr. Stephen Hicks is on a speaking tour this March in Australia via True Arrow Events.

This essay was initially published in Every Joe as two parts, here and here.

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