Crazy eco-curve

Lawrence Solomon
National Post
December 18, 2002

Poor societies can’t afford to protect the environment. This emerging conventional wisdom, long embraced by United Nations agencies and conservative think-tanks alike, now has adherents among Western government agencies, among traditional economists, and among popular writers.



As put by Bjorn Lomborg, best-selling author of The Skeptical Environmentalist and a weather vane for coming environmental beliefs: "Environmental development often stems from economic development. Only when we get sufficiently rich can we afford the relative luxury of caring about the environment."

In his wide-eyed embrace of this view, however, Mr. Lomborg left his skepticism behind. He and the others have it backwards. Environmental harm usually occurs at an economic cost, whether in rich or poor societies. When we harm the environment, we generally harm the economy as well.

NAFTA’s Commission for Economic Co-operation, an often sensible official environmental watchdog, is the latest body to endorse this environmental canard. In Free Trade and the Environment: The Picture Becomes Clearer, a study released earlier this week, the watchdog tries to understand why the pre-NAFTA predictions of doom so spectacularly failed to materialize. Part of the answer, it has decided, is the Environmental Kuznets Curve (see graph), which peaks at US$5,000 per year.

The more societies earn, the more they pollute, until they reach the magic figure of US$5,000 per capita. After that, the more they earn, the less they pollute, the commission’s report states confidently, publishing the graph – shaped in the form of a perfect molehill – to give the report an air of scientific certainty.

Just as confidently, the commission explains that new research shows that the relationship between income and pollutants only applies to certain pollutants – NOx, SOx, and BOD – and only part of the time. The Environmental Kuznets Curve, it turns out, is reliable, except when it is not. At higher incomes, SOx emissions start to take off again – the molehill becomes a mountain. For other environmental worries – greenhouse gases, forests, habitat degradation – the Environmental Kuznets Curve doesn’t apply at all: Instead, the graph goes ever upward. Here poverty is a protector of the environment.

"What is clear is that some evidence supports the economic growth/environmental improvement view of the world, and other evidence clearly refutes it," the report says hazily, before turning to what is unclear. "What remains unclear is the question of linear causality: Has free trade been the cause either of environmental improvements or degradation? And does it much matter?"

The commission’s report – a parody of science – helps no one understand the cause of environmental degradation. For the benefit of the NAFTA commission, for the benefit of Mr. Lomborg, for the benefit of the conservative think-tanks, and for the benefit of all who want to understand the underlying cause of all environmental destruction, let me provide the long and short of it: An absence of strong property rights leads to a resource’s environmental destruction; the presence of strong property rights leads to its sustainable use. People tend to protect their own property, both by managing it sustainably and, when they have rights, by stopping polluters who would devalue it. The most polluted, most environmentally degraded countries in the world are those without property rights; the cleanest are those where property rights are most respected.

The United Kingdom, which transformed its economy in the 1980s and 1990s by privatizing much of its water, power, coal, gas, transportation, steel and other industries, illustrates the environmental benefit that results: Following the privatizations, the U.K. had the Western world’s most improved environment, with vastly improved water quality and vastly reduced air emissions. The economic competition that accompanied the U.K.’s free market reforms – because they rewarded industries that used resources most efficiently – added to the environment’s sustainability. The only countries besting the U.K.’s environmental advance, in fact, came from the communist East Bloc, which had even less respect for property rights and free markets prior to the collapse of the Berlin Wall.

In the absence of property rights, resources become subject to plunder, particularly where economic competition is fiercest. This ruinous union – typically private operators let loose on public resources – explains the devastation of Canada’s provincially owned forests, which are managed to yield short-term logging jobs rather than perpetual profits. This ruinous union also explains the plunder of our fish stocks. Last summer, knowing that Atlantic Canada’s once-great cod fishery might never recover from past overfishing, the government nevertheless decided to open the Gulf of St. Lawrence fishery from 6 a.m., July 30, to noon, Aug. 1, a period of 54 hours. The government’s logic? If the cod might never come back, why not get what was available while the getting is good. "We may as well fish them out if we are gonna have to close it up anyway," one fisherman told the Charlottetown Guardian. The fisherman was being perfectly logical, for someone who was deciding the fate of a resource he didn’t own. Had he, himself, owned the cod, rather than just having the right to fish it, his logic would have taken him elsewhere. New Zealand’s fisheries were also once threatened with overfishing. Rather than fishing them out, the country privatized them. Under private ownership, New Zealand’s fishermen police their stocks against those that would plunder them, and manage them for sustainable yields.

New Zealand’s fish stocks have soared while ours have sunk. To ascertain NAFTA’s effect on our fisheries, its experts searched for answers in "long-run estimates of the price elasticity of import demand," "maximum sustainable yields," and reams of data. They could have saved themselves the trouble by consulting the cod fisherman. "We may as well fish them out if we are gonna have to close it up anyway" provides a whole lot more precision than the Environmental Kuznets Curve.

Readers’ response

by Scott Vaughan, National Post, Dec. 31, 2002

Mr. Solomon complains that empirical evidence showing the relationship between economic growth and environmental quality is inconclusive, and therefore ought to be dismissed as "a parody of science." He goes on to suggest that efforts to study how economic growth affects environmental quality and policies is itself a waste of time. Neither poverty nor wealth have – according to Mr. Solomon – any bearing on the environment. That ought to put to rest the observation made decades ago by Indian prime minister Indira Gandhi that poverty was the single greatest obstacle to environmental protection. For the 1.2 billion people living in abject poverty, who are less inclined to take a long-term view about conservation as they struggle to feed and shelter themselves and their families, Mr. Solomon has a simple solution: Buy your land and take good care of it. Property rights is the answer to environmental degradation, since property owners always exert self-interest in favour of sound management.

If all this sounds too good to be true, it is, for three reasons. First, global public goods – clean air, migratory species, the global climate regime – don’t lend themselves easily to property rights in all cases. Biodiversity in particular eludes property rights, because the value of biological diversity – while substantial – is especially difficult to quantify.

Second, we have far too many examples in which clear property rights have coincided perfectly with environmental degradation. Both companies and individuals pollute their own lands, and those of their neighbours. Approximately $1-billion is spent each day in OECD countries on agricultural subsidies, most of which are destined for privately held farms. Similar subsidies are spent in the energy, transport and other sectors. The environmental impacts of subsidies include production overcapacity, and excessive water degradation and air pollution. The problem isn’t about the absence of property rights. It’s about economic policies of rich countries that consistently shield market prices from telling the ecological truth.

Third, property rights fashioned on industrialized countries risk undermining traditions of many developing countries, in which community rights have long preceded – and are far more sophisticated and effective than – our notions of property.

There’s no denying that property rights make a difference in environmental protection. Yet to dismiss empirical data showing the interplay between growth and environment, and instead embrace property rights as a panacea is a worse kind of parody, that of forwarding cookie-cutter solutions to increasingly complex environmental management problems in a quickly changing world.

Scott Vaughan, Carnegie Endowment for International Peace, Washington, D.C.

Please also see Lawrence Solomon’s response, No property leads to plunder.

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