Commentary

Happy Earth Day? Thank Capitalism

By Jerry Taylor
This article was published in the New York Sun, April 22, 2003.

Earth Day (April 22) is traditionally a day for the Left — a celebration of government’s ability to deliver the environmental goods and for threats about the parade of horribles that will descend upon us lest we rededicate ourselves to federal regulators and public land managers. This is unfortunate because it’s businessmen — not bureaucrats or environmental activists — who deserve most of the credit for the environmental gains over the past century and who represent the best hope for a Greener tomorrow.

Indeed, we wouldn’t even have environmentalists in our midst were it not for capitalism. Environmental amenities, after all, are luxury goods. America — like much of the Third World today — had no environmental movement to speak of until living standards rose sufficiently so that we could turn our attention from simply providing for food, shelter, and a reasonable education to higher “quality of life” issues. The richer you are, the more likely you are to be an environmentalist. And people wouldn’t be rich without capitalism.

Wealth not only breeds environmentalists, it begets environmental quality. There are dozens of studies showing that, as per capita income initially rises from subsistence levels, air and water pollution increases correspondingly. But once per capita income hits between $3,500 and $15,000 (dependent upon the pollutant), the ambient concentration of pollutants begins to decline just as rapidly as it had previously increased. This relationship is found for virtually every significant pollutant in every single region of the planet. It is an iron law.

Given that wealthier societies use more resources than poorer societies, such findings are indeed counterintuitive. But the data don’t lie. How do we explain this?

The obvious answer — that wealthier societies are willing to trade-off the economic costs of government regulation for environmental improvements and that poorer societies are not — is only partially correct. In the United States, pollution declines generally predated the passage of laws mandating pollution controls. In fact, for most pollutants, declines were greater before the federal government passed its panoply of environmental regulations than after the EPA came upon the scene.

Much of this had to do with individual demands for environmental quality. People who could afford cleaner-burning furnaces, for instance, bought them. People who wanted recreational services spent their money accordingly, creating profit opportunities for the provision of untrammeled nature. Property values rose in cleaner areas and declined in more polluted areas, shifting capital from Brown to Green investments. Market agents will supply whatever it is that people are willing to spend money on. And when people are willing to spend money on environmental quality, the market will provide it.

Meanwhile, capitalism rewards efficiency and punishes waste. Profit-hungry companies found ingenious ways to reduce the natural resource inputs necessary to produce all kinds of goods, which in turn reduced environmental demands on the land and the amount of waste that flowed through smokestacks and water pipes. As we learned to do more and more with a given unit of resources, the waste involved (which manifests itself in the form of pollution) shrank.

This trend was magnified by the shift away from manufacturing to service industries, which characterizes wealthy, growing economies. The latter are far less pollution-intensive than the former. But the former are necessary prerequisites for the latter.

Property rights — a necessary prerequisite for free market economies — also provide strong incentives to invest in resource health. Without them, no one cares about future returns because no one can be sure they’ll be around to reap the gains. Property rights are also important means by which private desires for resource conservation and preservation can be realized. When the government, on the other hand, holds a monopoly on such decisions, minority preferences in developing societies are overruled (see the old Soviet block for details).

Furthermore, only wealthy societies can afford the investments necessary to secure basic environmental improvements, such as sewage treatment and electrification. Unsanitary water and the indoor air pollution (caused primarily by burning organic fuels in the home for heating and cooking needs) are directly responsible for about 10 million deaths a year in the Third World, making poverty the number one environmental killer on the planet today.

Capitalism can save more lives threatened by environmental pollution than all the environmental organizations combined.

Finally, the technological advances that are part and parcel of growing economies create more natural resources than they consume. That’s because what is or is not a “natural resource” is dependent upon our ability to harness the resource in question for human benefit. Resources are therefore a function of human knowledge. Because the stock of human knowledge increases faster in free economies than it does in socialist economies, it should be no surprise that most natural resources in the western world are more abundant today than ever before no matter which measure one uses.

This is not to say that government regulations haven’t had an impact or aren’t occasionally worthwhile. It is to say, however, that free markets are an ally — not an enemy — of Mother Earth. The Left, accordingly, has no special claim on Earth Day.

Jerry Taylor is director of natural resource studies at the Cato Institute.