The eco-affluence myth

Lawrence Solomon
National Post
July 31, 2003

THE REAL ENVIRONMENTAL CRISIS: WHY POVERTY, NOT AFFLUENCE, IS THE ENVIRONMENT’S NUMBER ONE ENEMY

by Jack M. Hollander

University of California Press

235 pages, $40.95

– – –

“Affluence fosters environmentalism,” argues The Real Environmental Crisis, a book by professor emeritus Jack M. Hollander of the University of California at Berkeley. “As people become more affluent, most become increasingly sensitive to the health and beauty of their environment. And gaining affluence helps provide the economic means to protect and enhance the environment.”

Hollander’s argument is not new. The claim that poor countries cannot afford to protect the environment first gained prominence in 1972 at the United Nations Conference on Human Environment, when Indian prime minister Indira Gandhi, to keep environmentalists at bay in her Soviet-style quest to industrialize, famously said, “Are not poverty and need the greatest polluters?”

But what is new is this argument’s embrace by many right-wing groups — the Fraser Institute in Canada, the Cato Institute in the United States among them — who have adopted it as an orthodoxy that can explain the rise of environmentalism in the West. When a nation reaches a certain level of affluence — US$8,000 per capita some groups say straight-faced — its citizens begin to demand measures to protect the environment. Governments can then roll out environmental programs, taxpayers can then fund them, and the environmental quality of life can rise.

In effect, these arguments treat the environment as a product, provided by government, that can be acquired at a certain point in a nation’s development. As affluence grows, they believe, so too does the demand for more environmental amenities. It’s a strange argument for right-wing organizations to make, for it implies collective decision-making, government intervention in the economy and limitless taxation, tempered only by a citizenry’s desire for a clean environment.

In this way, these conservatives have come to accept the environmental logic of socialists. In so doing, they inadvertently endorse planning and regulation, not the free market and the common law, as a desirable medium for environmental decision-making. Do you want less smog in your air or more oxygen in your water? Lobby your parliamentarian and fight it out in the political trenches. Never mind that the common laws — on the books for hundreds of years, until politicians overrode them specifically to permit such pollution — provided a superior, property-right remedy for environmental harm. Never mind that the world’s most environmentally harmful projects — large-scale mining, nuclear plants, massive hydro-electric dams, monoculture agriculture and forestry — have generally required state subsidies or state expropriation of property or both.

Although right-wingers and socialists agree that the environment is a product, they disagree on how much product the government should buy. The two sides then enlist economics and science in cost-benefit battles, with the government as arbiter. Little wonder that politicians decide how much greenhouse gas can be emitted, and by whom. Little wonder that a clean environment is viewed as a luxury product rather than a basic right that societies have traditionally enjoyed and only recently lost.

Hollander himself is no right-winger — he’s a big-government, more-foreign-aid advocate who hopes the West’s concern for the global environment will persuade Westerners to develop the Third World. To his credit, he ignores the half-baked correlations that right-wingers rely on, such as a World Bank analysis that claims fecal coliform bacteria declines at per capita incomes of US$1,375 and sulphur dioxide emissions at US$3,670. Hollander, who considers the eco-affluence science unprovable, ultimately comes to his conclusions on the basis of his educated guess.

Also to his credit, Hollander distances himself from his own thesis, as if, in researching his book, he came to realize that affluence, on its own, doesn’t explain much about the environment at all. In contrast to his book’s marketing spin, in Hollander’s text affluence shares top billing with, and depends upon, good governance. In the end, he needs to resort to gymnastics to retain affluence in his equation: “an environmentally sustainable future is within reach for the entire world provided that affluence and democracy replace poverty and tyranny as the dominant human condition.”

Hollander has become a darling of the right because he criticizes the green movement’s extremism. But if you view the environment as a product, the greens have been right more often than not: As Hollander reluctantly admits, the products from the worldwide nuclear power industry have been economic failures and those from dam-building dubious at best.

Meanwhile, the right overlooks Hollander’s advocacy of, for example, massive foreign aid guided by the likes of the World Bank and the IMF, and massive Western government intervention to spend “whatever it costs to attain and maintain a healthy environment.” Hollander’s own extremism doesn’t seem to bother the right, even though he is at odds with principles they hold dear as well as being wrong about the forces destroying the environment.

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NAIC releases report on state average auto premiums

National Association of Insurance Commissioners

July 28/2003

The National Association of Insurance Commissioners today released the State Average Expenditures & Premiums for Personal Automobile Insurance in 2001. The report provides estimated averages for state annual premiums per insured vehicle for passenger automobile insurance for the years 1997-2001.

Data for the report was compiled from the National Association of Independent Insurers, the Insurance Services Office, the National Independent Statistical Service and the American Association of Insurance Services, as well as state insurance offices.

According to the report:

• In 2001, the nationwide average expenditure was $718, an increase of 4.57 percent from the previous year.

• High-premium states tend to be highly urban, with high wage and price levels and high traffic density, all of which contribute to higher costs. Thus, results from states that are more urban and populous cannot be directly compared to results from more rural states.

• Eighteen states and the District of Columbia had an average expenditure greater than the national average, while 32 states fell below the national average.

The report was compiled by the NAIC’s Statistical Information Task Force and can be purchased by calling the NAIC’s Publications Department at (816) 783-8300.

The NAIC is headquartered in Kansas City, Missouri, the National Association of Insurance Commissioners (NAIC) is a voluntary organization of the chief insurance regulatory officials of the 50 states, the District of Columbia and four U.S. territories. The association’s overriding objective is to assist state insurance regulators in protecting consumers and helping maintain the financial stability of the insurance industry by offering financial, actuarial, legal, computer, research, market conduct and economic expertise. Formed in 1871, it is the oldest association of state officials.

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Paul Martin’s letter to Bob Friesen, President of the canadian federation of agriculture

Paul Martin

July 23, 2003

I expect to be in a position to share some of my ideas about the future of Canada’s agriculture and agri-food industry and the issues affecting people in rural communities.

July 23, 2003

Mr. Bob Friesen

President

Canadian Federation of Agriculture

75 Albert Street, Suite 1101

Ottawa, Ontario K1P 5E7

Dear Bob,

Thank you very much for the input you have provided to me on the state of agriculture in Canada. I am listening carefully to what you and other farmers are telling me. Later I expect to be in a position to share some of my ideas about the future of Canada’s agriculture and agri-food industry and the issues affecting people in rural communities.

I regret that my travel schedule is heavily booked around the July 24/25 period. I am scheduled to be at the United Nations. I would have welcomed an opportunity to meet with your delegates at your semi-annual meeting in Charlottelown. In light of that and pending a more complete policy discussion, I wanted to provide you with some preliminary thoughts by means of this letter.

As a matter of basic positioning, two initial points need to be clear. First, I entirely reject the false notion harboured by some that farming is somehow an old fashioned carryover from the so called “old” economy. In my view, agriculture must be understood as a vital part of the “new” knowledge-based economy and a key sector on the nation’s agenda for innovation, investment and growth.

Secondly, a modern agriculture policy for the 21st century must have the success and well being of farmers at the centre of it. Such policy development is not something to be done “to” or “for” farmers, but “with” and “by” them. Governments must stand prepared to listen and to act in constructive partnerships with primary producers and others to build a stronger, less vulnerable and more profitable rural economy.

In this vein, groups such as the CFA certainly provided valuable insights that contributed greatly to the recent work of the Prime Minister’s Caucus Task Force on Future Opportunities in Farming chaired by Bob Speller. Like various governments and farm groups, I endorse this work and I am anxious to build upon the foundation that has been laid.

While a number of interim recommendations received quick implementation, more remains to be done to ensure that the Task Force’s vision for the Future of the agriculture and agri food industry – and the health and prosperity it implies – becomes a reality. I am making a commitment to you, and through you to Canada’s farmers, to work with our Government Caucus and with farm organizations to take all action reasonably possible to secure the industry’s future.

It is a sad reality that given unjustified tariffs on our grain shipments to the United States, the outrageous border closure against Canadian beef, adverse weather conditions in some areas and perhaps other risks, our agricultural policies and programs are likely to get a severe workout this year. At the bottom line, farmers need tools that truly work for them.

In my discussions with farmers, I am always reminded of the vast scope encompassed within Canada’s agriculture sector – different regions focus upon different commodities; risk factors are not all the same; the degree of diversification, value added and intensification varies dramatically from province to province; producer ages, attitudes and farm sizes cover, a broad range. All of this needs to be recognized, understood and embraced in policy development and program delivery.

Like you, I am concerned about the chronically low (and still declining) prices that too many farmers are facing in the global marketplace, and what this means for farmers’ standard of living and their need for off farm employment. The effects of low world prices are compounded by rising input costs and increased foreign competition from new low cost producers (some of whom used to be among our customers not long ago). I want to repeat my support for the efforts of Minister Vanclief and Canada’s trade negotiators to secure the elimination of direct export subsidies, major reductions in trade-distorting domestic support systems, and meaningful improvements in market access. While I would not pretend that these goals will be easy to achieve, their attainment would result in a more level and disciplined playing field to the benefit of the agricultural industry, and that would contribute to the health of the entire nation.

In addition, as our international negotiators go about their assignment, they need to work particularly hard at effectively defending the Canadian Wheat Board and Canada’s supply management systems. And given our recent terrible experience with BSE, they will also need to focus on more reliable open border disciplines to safeguard established trade flows.

In other policy areas, you will already know of my interest in more truly competitive conditions between and among railways in the movement of agricultural commodities; a growing ethanol industry; a robust agenda for agricultural research; and better tools to meet the development challenges of rural communities.

My objective is the transformation of Canada’s rural economy onto a stronger foundation. I have nothing but the greatest of respect for the food producers of this nation. They rank with the very best on earth. I would consider it an honour to have the opportunity to work with the CFA and with farmers, on a complete agenda for the Canadian agriculture and agri-food sector in the 21st century.

My best wishes for a successful semi-annual meeting.

Yours sincerely,

Honourable Paul Martin, P.C., M.P.

 

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Proposal for a directive of the European Parliament and of the Council

Commission of the European Communities

July 23, 2003
Amending Directive 1999/62/EC on the charging of heavy goods vehicles for the use of certain infrastructures.

Click here for .pdf file

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Supply crisis looms

Tex Enemark
National Post
June 20, 2003

The federal government’s last budget made a serious commitment to housing – a further $320-million in 2003 added to the $680-million in funding allocated in 2001 for subsidized housing. This is a billion dollars – big money in any league – to be matched by provincial contributions. But it will build only about 20,000 new rental units of the 150,000 needed to accommodate Canada’s economic growth, and even that will only happen over five years, and only for “poor” tenants.

What of the 90% of tenants who live in ordinary rental housing provided by the private sector, tenants too “rich” to qualify for subsidized housing and too poor to buy?

In large cities in particular, many tenants are trapped in rentals that are deteriorating prematurely and they frequently pay more than they should because of the discriminatory tax burden the federal government imposes on rental investors – taxes borne ultimately by tenants.

Most of the ills in the private rental housing market stem from one cause: Private investors cannot build new “market” rental housing because federal tax changes made in the early ’70s actively discriminate against rental housing investments, especially by small investors who provide most of Canada’s rental housing.

The most significant change in 1971 – other than the accelerated depreciation then allowed – was to no longer allow for the “rollover” of a rental investment upon sale.

Before 1972, there was no capital gains tax and building owners could postpone paying taxes due upon the sale of a residential property if they reinvested in a like property within a year. “Rollover” continues to apply to most other businesses, and to motels, hotels and family farms. It is the tax law for rental housing in the United States and most other countries.

“Rollover” simply reflects how rental investments grow, not by adding another floor but by selling something small and using the equity to build something larger. The liquidity provided by rollover is essential to an operating rental marketplace because every investor has to consider an exit strategy. The huge penalty of the capital gains tax – as high as 75% over the past 30 years – and the tax on capital cost allowance recapture, has made selling a rental building – as long as the investor was going to remain in the rental business – a bad investment.

Then there is the fundamental unfairness of applying the capital gains tax against properties held for many years, because much of the notional increase in value simply reflects inflation. Considering that we’ve had a 377% increase in inflation since 1972, few rental buildings have increased that much, outside of a few “hot markets.” Most building owners have lost capital after they pay the tax upon sale.

Compare the tax consequences of holding an apartment building for 20 years versus a common stock for a year. For the latter, the increase in value is likely due to something beyond inflation. The sale is made, the capital gains tax is paid, and the investor then searches for another undervalued or promising stock to invest in.

For the long-term investment in a rental, the sale triggers the tax, but where is the lower-priced rental in which to reinvest? It does not exist because all the properties tend to have about the same increase in value. Because Canada’s capital gains tax is not indexed for inflation, long-term investments are discouraged.

“Rollover” helped keep rental housing well maintained because vendor tended to do repairs before sale, and new owners would improve the property to improve rentability. With few sales now taking place, that reason for renovation and maintenance is lost, as seen in the state of many rental buildings.

Although a rental business should fit the criteria for being a “small” or “active” business, federal tax law treats residential rentals as though they were large businesses – with twice the income tax rate, and as though they were stocks or bonds, rather than operating businesses. Rental businesses are even discriminated against with respect to the GST.

Ultimately, the tenant and not the owner/investor, pays. A 1999 study of these extra federal taxes on rents compared a stream of income from a motel – which can take advantage of rollover, small business tax treatment, and so on – and apartments. It found that on an average Victoria, B.C.-area one-bedroom apartment renting for $608 per month, the extra tax – not the tax, but the extra tax – was $113 per month. Added to those tenant costs are higher rents because of tight markets and lower maintenance.

Study after study done by everybody except Ottawa demonstrates that federal tax laws specifically pick out rental housing from other similar investments for adverse tax treatment.

The tax rules discouragement of maintenance of older buildings also leads the tenant to ask, “Why should I look after my suite, if the landlord does not care about the building?”

More threatening, over the long term, both to tenant housing choice and to the shape of our cities, is the incentive caused by punishing taxation for investors to just get out of the rental business entirely when an alternative land use – commercial or condo development – presents itself. In a new condominium versus a comparable rental, an owner would pay at least $200 per month less than the tenant, or about $2,400 per year. At the end of 25 years, the tenant has paid shelter costs of $60,000 more than the owner, who by then has paid off the mortgage, lives rent free and has a very large tax-free capital gain upon sale.

That few are investing in the building of new “market” rental housing, despite historically low interest rates, is not news. But given current trends, within a very few years many tenants will be unable to find rental housing at all, and will be moving home with mom or doubling up.

One of a series; Tex Enemark is a Vancouver-based public policy consultant and a former B.C. deputy minister with an interest in housing issues.

Related articles:
Rent control’s wreckage
Homeless by decree
Homeless in paradise
Parasites in the walls
Widening the gap

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