A lot of people blame ‘market failure’ for environmental problems like pollution or over-fishing. More often, though, it’s political failure that causes the problems, by preventing markets from even existing. Like in water. As I explain in my new book, The Best Book on the Market:
In the dry western states of the US, the ‘prior appropriation’ rule meant that those who first started to extract water from a stream long ago got priority over those coming later. That prompted people to extract water they didn’t need just to keep this right active. Other rules that water should go to ‘beneficial use’ meant that water for fish, wildlife and other public purposes came particularly scarce.
The solution, which took hold in the 1990s, is less regulation and more market, with people able to buy and sell rights to extract water. Then it is treated just like any other valuable resource conserved and nurtured precisely because it’s no longer ‘free’.
Africa has had similar experience in preserving wildlife, like elephants.
The obvious policy punishing anyone caught killing them does not work. Villagers will risk it, rather than see their harvest trampled underfoot. But the market has a solution: make the very rarity of these animals the basis for a business. Now, in game lodges across southern Africa, visitors pay handsomely to hunt (or just to watch and photograph) rare animals. So now, the local villagers see elephants as a source of income, not a pest: they dig water holes for them and use electric fences, rather than bullets, to protect their crops. This market-driven policy has led to a revival in many species that were once seriously threatened.
Over-fishing is another of those ‘tragedy of the commons’ problems where markets just aren’t given a chance. Except in some places. For example:
Scotland is world famous for its salmon streams. That’s because the rights to fish every inch of every river in Scotland are privately owned. The owners make a good business of issuing fishing permits to anglers, and so have a strong incentive to keep the rivers clean and well stocked. These valuable rights are jealously guarded: poaching is not considered quite as bad as high treason, but it’s close. The result is that Scotland’s salmon rivers are well maintained and not over-fished. The market nurtures the environment.
There are plenty of other examples. Tradable fishing permits are now helping to conserve fish stocks around Iceland. Tradable pollution permits are helping to limit emissions in part of the United States and Europe. Road pricing has reduced traffic congestion in London, Oslo, and other cities. Sure, none of these arrangements is perfect there is still too much politics, and too little market principles, in their design. But before we simply dismiss ‘market failure’, we should at least give markets a chance.
I hope my book will encourage our legislators to do just that. I’ve written like Freakonomics or The Undercover Economist in simple, personal, anecdotal terms that even politicians should be able to understand. It explains the power of markets, and the enormous care you have to take to preserve them. And, as in the examples above, how they can quickly and effectively solve problems that governments have struggled and failed to solve for years.
Eamonn Butler, Director,
Adam Smith Institute
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Jennifer Marohasy BSc PhD is a critical thinker with expertise in the scientific method.
As a third generation native forest regenerator and harvester, I would just like the greens and their departmental minions to provide me with an exact, transparent and verifiable estimate of the normal density of all wildlife that originally inhabited my land.
And from that point I can undertake the mix of proven measures that will increase that animal density well beyond that original footprint.
And once those original levels are exceeded I would have all the moral authority I need to tell them all to f@$k off and fix the problems in their own forest rather than load me up with some of the stupidest regulatory measures ever devised.
And when my wood from low impact partial harvests goes to market and competes with “fully certified sustainable” wood from government subsidised, large coupe clear felled, exotic clonal monocultures, I will need only stamp the numbers, “185%” to indicate the extent to which my forest maintains the original habitat value.
But neither the Forest Stewardship Council, nor any of the other industry certification schemes designed to distort the market for ecological values, will provide this data on original species density. Because once they did so then the only number they could stamp on their timber would be “<5%” being the proportion of the original wildlife density that is retained before and after a large coupe clearfall of an exotic clonal monoculture.
Through some extraordinary perversion of the urban green and bureaucratic mind, they have somehow managed to form the opinion that wood from a regenerated native forest, with the full suite of original species, and of local provenance, that supports and maintains after harvesting, the full suite of dependent species, lacks ecological legitimacy. And at the same time they have managed to form the equally perverted notion that a clearfelled, exotic clonal monoculture that delivers minimal habitat services while growing and zero habitat when harvested, is the very essence of sustainable wood supply.
Funny, I always thought “how you get there” was what the journey was all about.
For more than 2000 years of active forest management since the Romans introduced Chestnut and Hazel coppice to Britain, planting trees was what one did if your natural regeneration failed. But none of that 2000 years of expertise was on the world wide web when the incredibly boorish metroscum did the obligatory google search before belting us with a blunt instrument wielded by village idiots.
You nearly made it to the end, Ian, then you just couldn’t help yourself, could you. 🙂
SJT : In the real world ugly truths just can’t themselves either.
http://www.smh.com.au/news/world/imf-alert-on-starvation-and-civil-unrest/2008/04/14/1208025090977.html
“By their deeds shall ye know them”, SJT.
What would you prefer, “blunt instruments wielded indiscriminantly by village idiots”? “Insideously malevolent instruments wielded with rat cunning by venal scum”?
Or, “finely calibrated instruments wielded with precision and discernment, by honest, dilligent and perceptive men and women with a high regard for their statutory obligations and respect for the rights and liberties of the people they are meant to serve”?
Yep, me too. And do let me know when you find them.
Yes, wjp, an ugly story of unintended consequences following political intervention in markets. It’s going to get a lot uglier.
Subsidised ethanol/biofuel production has diverted food producing land, and some forests, into fuel production. This has triggered reduced food production and higher food and fodder prices world wide. Subsidised fuel production is bidding up the price of limited supplies of fertiliser too, creating higher costs for all farmers. We have’nt seen the last of the knock-on consequences by a long way.
I am not against growing crops for fuel, only against subsidising them. As oil prices rise, these crops should, under free market conditions, become economically viable without political intervention.
As a wheat grower, the projected prices this year are the highest ever – and so is the price of fertiliser (gulp!).
I’d still say it’s market failure, but of a tangential variety.
When some market makers become so powerful they monopolized smaller/weaker tangential industries. This is accomplished through strategic marketing manipulation like controlling media to dumb down the population, and nakedly through lobbying.
Oil lobbyists are presently in partial control of US foreign policy. This is a market failure. Flat tax advocates don’t want to see an educated or healthy US population, so the very wealthy use their market might to fund Republican Party activities of all types. This is a again, a conflict of interest market failure. The market activities of Exxon through sheer economic might, prevent carbon trading markets (and precursor policies) from forming.
In Canada, all newspapers except one support a lower tax, lower social programmes government. And we don’t have any Global Warming policies because the market forces of our oil industries won’t pay a fraction of revenues (about the cost to make gasoline unleaded) to develop a carbon market. Here the failure isn’t policy failure, it is a population dumbed down by the market failure to reign in the power of large “market winning” actors in tangential sectors.
Specific policy errors are things like subsidizing corn ethanol in the US, the EU’s previous failure to auction carbon permits, and Kyoto’s initial rewarding of deforestation for palm oil. When market actors control public actors and prevent them from fulfilling their public good mission, the failure is a market failure, not policy.