Chapter 23.
A Free-Market Environmental Vision

By Fred L. Smith, Jr., and Kent Jeffreys

There is one environmental vision, and only one, that is compatible with all other human values. Only a vision that recognizes and responds to universal human traits will be successful in the long run. Only a vision that accounts for the reality of individual self- interest can be applied in the real world. Only a vision that sees value in human diversity as well as ecological diversity can capture the entrepreneurial potential of the human race. That vision is free-market environmentalism.

America has long been known as a nation where private homes and backyards are beautiful but politically managed parks and streets are a mess. For some the answer is to raise taxes to better support the "cash starved" public sector. For others the answer will be found in stringent regulations covering every aspect of modern society. A better approach would be to discover what makes homes and backyards beautiful and apply the lessons to problem areas. Rather than bureaucratize the environment, we should privatize our efforts to protect the environment. In other words, environmental values must be fully integrated into the free-enterprise system. One might say that trees should not have legal standing, but behind every tree should stand a private steward, a private owner, willing and legally enabled to protect that resource.

This vision of an America engaged in creative ecological privatization may be radical, but it offers great promise of lasting success in dealing with the ever-changing circumstances of human interaction with the natural world. Not only is this vision applicable to environmental protection, it is compatible with the traditional American respect for individual liberty.

Myth vs. Reality

Current environmental policies reflect the false assumptions of the recent past: that the natural environment is benign, that the economy can grow without using resources, that once mankind has touched a wilderness it is forever ruined, and that political actors can best protect environmental amenities. Of the many erroneous assumptions, the most widespread has been that stringent government regulations could eliminate pollution without significant economic cost. One result of basing policy on that myth has been the growth of special-interest environmental politics. Special- interest bees will always find the political honey, and the average citizen will usually get stung. For example, tremendous profits are available to corporations that capture the regulatory process and turn it into a barrier to competitors.1

For similar reasons, a strong incentive exists for environmental groups to find a crisis within each issue, from the nonexistent health risk to children from pesticide residues on vegetables to the greatly exaggerated effects of so-called acid rain on forests and lakes. By constantly claiming that the sky is falling, the environmentalist Chicken Littles have become geese that lay golden eggs. Contributions from philanthropic foundations and sincerely concerned individuals are used to purchase political power and to support massive bureaucratic empires. A mutually beneficial arrangement has been created among some industries and the environmental lobbying elite. Presiding over it all is the permanent political class.

Free-market environmentalism seeks to break that triangle by returning to the principles of self-government and self-reliance upon which America was founded. The free-market vision is based on a merger of individual responsibility with individual rights. Unfortunately, free-market proponents carry the burden of a widespread misunderstanding of the history of capitalism. The image of an uncaring, unresponsive, and ecologically destructive corporation is set against an enlightened and altruistic state that is seen as the protector of the environment. Capitalism, we are told, causes pollution.2 Yet for all its problems, capitalism has created a Garden of Eden in comparison with what the socialist economies of the former Soviet bloc created.

The reasons for the socialist failure in the ecological realm are the same as for socialism's economic disasters. Key aspects included the state ownership of resources, the bureaucratic decisionmaking processes, and the denial of private property rights (among other important liberties). The original (economic) socialists argued that people would be better off under socialism than they had been under the previous regime. Although history has proved the opposite to be true, many socialist economic tools are being promoted as the answer to America's environmental problems.

Market Socialism

Because today the victory of market freedom over state tyranny is a metaphor embraced by all, almost every environmental position is defended as being "market oriented." Unfortunately, the rhetoric does not reflect the reality. For example, the multi-billion-dollar Clean Air Act amendments of 1990 contain only a few, almost insignificant provisions that even touch on market-style arrangements for dealing with pollution. Yet those tiny concessions are eviscerated by simultaneous declarations to the effect that no property rights will arise from the operation of the act and that federal confiscation of the fruits of pollution-reducing investment is specifically permitted. That version of market socialism displays the same flaws detected by Ludwig von Mises and F. A. Hayek in their debate with the socialist economist Oskar Lange in the 1930s. Neither side argued that a Soviet-style economy could succeed, but Lange asserted that tradeable production quotas and state pricing systems could replicate market efficiencies. Although it is generally conceded that Hayek and von Mises won that particular debate, Lange's arguments still strike a responsive chord with government planners.

To be fair, ecological market socialists also have a vision. It bears various names, such as "sustainable development" or "ecological economics." Oddly enough, proponents of those approaches claim to seek the same goal as free-market environmentalism, that is, a reconciliation of man and nature. It is more likely, given their heavy reliance on state-controlled economies, that those approaches would result in greatly reduced economic performance, reduced standards of living, and, eventually, a political backlash. The UN-sponsored Earth Summit in Rio de Janeiro was a perfect example of how the advocates of the market-socialist approach are becoming more detached from the average citizen as they spend more and more of their time meeting and talking with one another at world-renowned resorts. Little was said in Rio about the problems confronting the people of the world: unsafe drinking water, lack of respect for property rights, government distortion of markets for food and other commodities, and a "tragedy of the commons" in forests and oceans. Instead, world "leaders" shared a platform with Fidel Castro, who was welcomed as an honestly concerned ecologist.

Regardless of the nomenclature employed by the market socialists, the goal remains the same: to direct human behavior through state action. The justification of a centralized decisionmaking process is the assumption that individual humans will often make "wrong" choices, which will eventually create widespread ecological catastrophe. That argument more accurately applies to the governments of the world. Only governments possess the coercive force necessary to collect revenues for money-losing "development" schemes. Thus, capitalism has scarcely touched the great river systems of the world. Most major hydropower projects have been state sponsored. Even the pollution that flows into rivers has been the result of the state's neglect of its duty to defend private rights. Similarly, capitalists mostly ignored the tropical rain forests until state subsidies for clearing them were introduced. In fact, in those nations with secure property rights, capitalism plants far more trees than it cuts. The oceans' living marine resources are at risk precisely because governments deny private property rights to wildlife and fish. Those are not examples of the failure of existing markets; they are examples of the failure to allow markets to exist.

Despite its inherent limitations, market socialism remains (at least rhetorically) attractive to many because of its emotional appeal. The forces of "good" government will repel or punish the forces of "evil" polluters. Unfortunately, real life is rarely so conveniently black and white. Whenever reality is so clear-cut, free-market environmentalism detects, deters, and deals with polluters or other environmental transgressors at least as well as market socialism does. Free-market environmentalism, like capitalism itself, has not received full and open consideration in the policy arena, in large part because, in the political world, utopian lies are often more useful than realistic assessments of the truth. Absurd accusations leveled against free-market environmental approaches take on mythic proportions. One common claim, for example, is that without universal government controls, the poor would be buried under the toxic wastes generated by the wealthy. The irony of state monopolies' dumping municipal waste in the poorest areas is apparently lost on the adherents to that myth. The fact is that enforcing the property rights of the poor would do far more to protect them from pollution (or crime or any number of other problems) than has, for example, the federal government's $15 billion hazardous waste cleanup program known as Superfund. Superfund benefits lawyers, bureaucrats, Environmental Protection Agency contractors, and environmental lobbyists. Free-market environmentalism would empower the poor, not profit from-and then leave them in-their plight.

Using Children as Shields

Perhaps the most pernicious aspersion cast on capitalism is the claim that it will leave a desolate world as an inheritance for today's children. That assertion is breathtaking in its boldness. Any rational assessment of history would declare capitalism the savior of the world's children. Present, and future, generations have benefited, not merely in the material goods provided by capitalism, but in every category of health care and in quality of life. The only subtle aspect of the depleted-inheritance myth arises when its proponents occasionally admit that capitalism has improved the situation too much. World population is growing because far more children live to adulthood and bear offspring of their own. Eventually, it is claimed, capitalism will run out of "natural" resources to "deplete," and the whole system will come crashing down in cataclysmic fashion. That view is as inaccurate as it is apocalyptic. The most important "natural" resource is the human mind. As long as a liberal society exists, that resource is inexhaustible and can readily replace or find substitutes for all other "natural" resources.

The incredible ingenuity of the human mind is the solution, not the problem. Rather than shackle it, we must free it to create new miracles. A revealing moment occurred during the brief publicity of so-called cold fusion, which potentially offered limitless, inexpensive, clean energy to mankind. When asked about the prospects for future generations if cold fusion turned into a reality, ecological guru Paul Ehrlich said it would be "like giving a machine gun to an idiot child," and environmental radical Jeremy Rifkin claimed, "It's the worst thing that could happen to our planet."3

It is not much of an exaggeration to say that if human ingenuity were supplied with unlimited energy, anything would be possible. Little wonder, then, that the strongest push of the market socialists is against the increased production or use of energy. "We are running out of fossil fuels" has been a government refrain for over a century, yet supplies are more plentiful today than ever before, as Jerry Taylor points out in chapter 21. That inconvenient fact is rarely admitted in public. No matter, higher taxes will fulfill the prophecy by creating an artificial scarcity. Thus are our hopes and aspirations held hostage to environmental extremism.

Capitalism: Beyond Economics

Fortunately, free-market environmentalism is not limited to a sterile discussion of economic efficiency, contracts, or private property rights. In essence, free-market environmentalism is a reconciliation of man and nature. Rather than practice ecological apartheid-the separation of man from nature-political policy should rely on the natural incentives of private individuals cooperating through voluntary associations. Policy should empower millions of individuals to protect their environment, rather than thousands of bureaucrats to protect their political turf. It is beyond question that if the billions of individuals on the earth do not desire to protect it, the planet is beyond hope. No amount of coercion will save the planet if the average person truly wants to destroy it. The simple fact is that people everywhere desire a better life, and a better life includes a sound and safe environment.

The universal desire for a livable environment is often translated into an excuse for political action. Because everyone agrees that something should be done, for example, to reduce pollution, politicians feel justified in taking exclusive control of the issue. Yet granting a monopoly on pollution control to the state is like granting government a monopoly on the delivery of mail. Like those of the government-controlled postal service, the environment-protecting services provided will generally be slow and unable to respond to changing circumstances. The costs will generally be high and extremely resistant to economizing reforms. Important niches will be either ignored or heavily subsidized. While a basic level of protection may be available under a state ecological monopoly, the rich diversity of the biosphere cannot be reflected in the dull mirror of a centralized political system.

In an important regard, today's moral opposition to pollution can be compared with the anti-slavery movement of the 19th century. The abolitionists were not opposed to work itself; they were fighting against involuntary servitude. Forced labor was considered a violation of an individual's rights, but freely contracted labor (even if it consisted of the identical tasks) was clearly legitimate. In similar fashion, pollution should be seen as the violation of an individual's right to be free from trespass rather than an evil in and of itself. The situation could be contemplated in advance and adequate contractual arrangements developed to avoid the involuntary introduction of a foreign substance to the property of another. As long as the parties to the agreement properly manage the byproducts of their activities, there is no reason for the state to become a senior partner in every business. The goal of state intervention should be to prevent or correct coercion of innocent parties. Under appropriate circumstances, pollution may become a valid concern of the state, but it is illegitimate for the state to initially sanction pollution (or slavery) and then condemn capitalism as the source of the problem.

One of the major criticisms of free-market policies is that the private sector will never protect the diversity found in nature. In fact, there are numerous examples of successful private efforts to preserve environmental amenities, and they deserve far greater attention than they have received to date.4 The argument against private-sector protection of natural diversity is also weakened by the fact that few governments have displayed an ability to balance their fiscal budgets. It would seem that balancing the ecology is an even more complex undertaking. However, if the state performs its proper role and protects the private liberties we all hold individually, the environment will greatly benefit. Whenever one individual succeeds in protecting his property (with its associated environmental aspects), a precedent is established. Those precedents strongly influence the subsequent actions of others, even of parties unrelated to the original dispute. Relying on centralized government to address environmental problems may also establish precedents, but they are likely to be bad ones. Election year politics, budgetary constraints, conflicting agency agendas, special-interest influences, and political selection of priorities all work to make centralized environmental policy ineffective.

Perhaps the most significant obstacle to the adoption of alternatives to centralized control over the environment is a widely held, if greatly exaggerated, fear of impending ecological catastrophe. In a crisis, real or perceived, people have a natural tendency to demand emergency accommodations. As mentioned earlier, preying upon the natural concern that parents have for their children has become a major preoccupation of the environmental movement in recent years, from the Mar-treated apple hoax to the end-of-the-world global-warming fantasies. In each case, the concern is not so much for the present as it is for some indeterminate future. Because it is extremely difficult to refute vague assertions of far-off disaster, new panics can be manufactured much faster than old ones can be laid to rest. The result is a layer cake of half-baked state policies made according to a market-socialist recipe.

Popular myths are perpetuated by many who know better, and free-market environmentalists must continue to rebut those science fiction scenarios. Widespread concern for the environment is being used to move large segments of the population to action. If that action is limited to the voting booth, casting a ballot for the "greenest" candidate, little more than market socialism can be expected to result. But if the same people were encouraged to accept responsibility for their own backyards, a tremendous number of diverse improvements could be made. Even if it could be shown that a flood of biblical proportions was likely, we should avoid building a huge state "ark" to shelter politically preferred environmental amenities. Instead, America should become a land of millions of small arks, each tended by individuals or voluntary organizations and thus better able to preserve and protect the diversity of the natural world.

For public agencies to deal with the full range of ecological niches and changing circumstances found in nature, constant fine-tuning of the bureaucratic mechanism is needed, yet bureaucracies are notoriously difficult to fine tune. In contrast, free markets are naturally self-correcting and every transaction is an act of fine-tuning. Unfortunately, because of the prevalent myths, the actual results of capitalism are compared with the stated intentions of government policies. The risks to future generations arise not from exposure to capitalism but from exclusion from it.

Property Rights

Free-market environmentalism, like capitalism itself, is dependent on private property rights. Those rights must be well defined, well defended, and voluntarily transferable. When those prerequisites exist, competitive capitalism becomes a remarkable efficiency generator. The desire for profit leads directly to the elimination of waste. Pollution is generally some form of waste, but even if pollution were unavoidable in certain manufacturing processes, strongly enforced property rights would force polluters to either clean up or close shop. By definition, pollution is a trespass against someone's property or person. If the trespass is so minor that it creates no impact or inconvenience for the property owner, it will normally be tolerated, even under common law rules. Today's pollution dilemma is the result of what is essentially a universal "easement" granted by the state to polluters, even producers of significant and damaging pollution. The debate now revolves around how best to gradually restore their original right (to be free of the trespass of pollution) to citizens. The first question that should be asked is not, Why does capitalism destroy the environment? It is, Why isn't everything already polluted or destroyed? The answer is that the same private property rights that form the basis for capitalism also stand as a bulwark against environmental degradation.

It should be remembered that property rights are basically a voluntary ordering system for resources in a human society. Whenever private property rights have been respected within a society, the ecological outcome has been superior to that under state ownership of resources. Even vaunted state "successes," such as Yellowstone National Park, are rarely as successful as claimed. Consider that state policies led directly to the disastrous forest fires of 1988 and the quiet devastation of continuing management practices.5

In contrast, the successes of capitalism are so ubiquitous and taken for granted that they are rarely acknowledged. Efficiencies and improvements in resource use, dramatic increases in life spans and living standards, and the vast private wealth that undergirds the massive governmental structure are key examples. Unfortunately, many of the accomplishments of capitalism are touted as the results of state manipulation of the economy. Failure to recognize the primary importance of capitalism is not of interest only to historians. Unless it is understood that capitalism must come first, other nations may adopt American-style environmental policies-with disastrous consequences. Some, especially the nations of Eastern Europe, are already being encouraged to do so. Yet the U.S. approach to environmental policy cannot possibly be exported to most countries. It relies on legions of experienced management personnel and tremendous amounts of capital to meet the high costs of the mandated technologies. In addition, a highly trained and fairly honest bureaucracy must be in place. Watchdogging the entire apparatus are nongovernmental organizations, especially environmental lobbying groups and the print and broadcast media. If that is to be the initial paradigm for the developing countries, they may have to wait decades to deal successfully with ecological questions. However, they are unlikely to wait that long before they implement environmental programs. Thus, it is vitally important that accurate information and workable solutions, tailored to local conditions, be made available to policymakers. The current sense of urgency created by the constant barrage of environmental scare stories is likely to produce the same types of inappropriate policies across the globe that it has here at home.


The fact is that most of the urgency imparted to environmental policy is unnecessary. Where there is a serious problem, a chemical spill, for example, there really is no debate over whether a problem exists. However, environmental policy today has shifted its focus from risks with immediate and measurable impacts to those with small (if any) impacts that are, at the very least, far off in the future.

Bureaucrats and their political bosses have powerful incentives to regulate highly visible or publicized risks, even when few individuals are actually exposed to the risk and the costs of regulation are high. Such regulation often results in shifting greater risks to unseen, or unpublicized, segments of society. Society as a whole is no better off; generally, it is worse off.

Many people are enticed (or even required) to dedicate excessive resources to risk avoidance because of the fashion in which the options are presented. If the choice is between saving a life and spending money, almost everyone would vote to save the life. Yet the truth, in many cases, is that focusing too many resources on a small risk factor necessarily reduces other, equally important risk-avoidance efforts. Thus, the real choice is between reducing this risk or reducing that risk. Lives may be at stake on each side of the equation, as Aaron Wildavsky points out in chapter 22.

Furthermore, in some situations, the only lives at stake are those put at risk by the environmental policy itself. The anti-asbestos hysteria whipped up by assertions that a single asbestos fiber could cause lung cancer led to many unnecessary and even dangerous asbestos removal efforts. Recently, a federal court declared that the fuel efficiency requirement for automobiles was directly related to increased highway injuries and fatalities because it resulted in the production of smaller, lighter vehicles that are inherently less safe than larger, heavier models.6 In such situations, individuals have a paramount right to make critical personal choices for themselves and their families.


We have seen that pollution is not a failure of markets but a failure of government to permit private individuals to protect their property and persons against trespass. Free-market environmentalism offers a solution to the problem. Also, when government imposes a single risk standard on society in general, many individuals in particular may be harmed. Again, free-market environmentalism would enable individuals to assume (or reject) certain risks without imposing additional risks on other individuals.

Some argue that free-market environmentalism entails excessive transaction costs, that is, the costs of time and resources dedicated to negotiating specific arrangements between parties. Therefore, it is claimed, government should step in and impose uniform standards. Efficiency is an important consideration, especially when costs are being imposed against the will of the people who will bear them. However, efficiency is not the only consideration. The best example may be the court system, which is anything but efficient. Society recognizes that human liberty is an overriding concern and, therefore, accepts lowered efficiency in order to preserve a greater good. Some environmentalists have tried to raise a similar argument with the claim that the intrinsic value of an ecological asset can override the liberty of the individual. That argument is a dangerous weapon to place in the hands of any state, for it is as likely to be abused as it is to be applied carefully. Fortunately, that line of thinking is inappropriate in light of the fact that modern technologies are constantly reducing the transaction costs involved in negotiating, monitoring, and enforcing environmental arrangements.

If free-market environmentalism is to be widely accepted, it must occupy the moral high ground. To a certain degree it has already done so, although often by default on the part of its detractors. However, merely paying 1ip service to the efficiency of markets is not enough. Free-market environmentalists must strive to demonstrate the superiority of voluntary markets in a host of ecological niches. Because most of the threatened resources, from wildlife to wetlands, from airsheds to oceans, are held and managed by political bureaucracies, they remain at risk. It will be necessary to move more of those resources, along with the direct responsibilities of stewardship, into private hands before clear-cut examples become commonplace.

Some environmentalists see limits to free markets at every turn. Yet those same individuals see no limits to government. Past environmental policies have been designed as if politically directed resources automatically become unlimited. Those environmentalists' excessive faith in government is as unwarranted as their visceral opposition to private ownership of resources. The free-market environmental vision does not purport to eliminate the state (or state involvement); it merely limits it to an appropriate role.

America needs to take several steps to develop an effective and sustainable environmental policy. First and foremost, Congress and the new administration should begin to restore private property rights in and to environmental resources. Critical ecological amenities should be removed from public hands and conserved through private stewardship arrangements. The details will vary among, and even within, resources. For example, one end of a coral reef might be managed by recreational fishermen, while another portion was managed by a diving club. Particular stretches of rivers might be leased to fishing clubs while tracts of forest could be owned by hiking, hunting, or camping organizations. Any harm to the rivers or forests from external forces could be dealt with through contractual obligations and, if necessary, tort law.

Although strong incentives to conserve resources will be generated through private ownership, it is also important to eliminate perverse incentives. The federal government provides subsidies to many activities through direct transfers as well as through the provision of free or below-cost access. For example, recreational activities in the national forests and parks are heavily subsidized; most users pay low (or no) fees. Such subsidies encourage people to "consume" more of those public resources than they would be likely to in a market system. In addition, subsidies for favored providers of environmental amenities tend to squeeze out private alternatives. Other well-known subsidies that can unintentionally degrade the environment include agricultural subsidies, grazing subsidies, and water and hydropower project subsidies, among others. Unfortunately, the political process finds it almost impossible to deal honestly with the issue of subsidies. Only free markets are able to assess the full costs of resource use. Until property rights-based policies are instituted, environmental issues-from waste disposal to wetlands protection-will be poorly managed.

For most Americans, environmentalism is an important value, but it is not the only one. Jobs, housing, health care, education, national defense, and other values make demands on the resources of the individuals who constitute society. Like it or not, ecological purity must compete with other objectives. Therefore, a responsible policy must allow individuals to make choices for themselves, consistent with the rights of others. In the final analysis, to be compatible with the full array of individual values, environmental policy must adopt a free-market approach.


1.See, for example, Environmental Politics: Public Costs, Private Rewards, ed. Fred L. Smith, Jr., and Michael Greve (New York: Praeger, 1992).

2. See, for example, Barry Commoner, Making Peace with the Planet (New York: Pantheon Books, 1990). For a rebuttal, see Thomas DiLorenzo, "Does Capitalism Cause Pollution?" Center for the Study of American Business, Washington University. St. Louis, August 1990.

3. Both quotes are from Paul Ciotti, "Fear of Fusion: What if It Works?" Los Angeles Times, April 19, 1989.

4. See, for example, Robert J. Smith, 15th Annual Report of the Council on Environmental Quality (Washington: CEQ, 1984), chap. 9, "Special Report: The Public Benefits of Private Conservation."

5. For a discussion of the general failure of federal policies in Yellowstone. see The Yellowstone Primer: Land and Resource Management in the Greater Yellowstone Ecosystem, ed. John A. Baden and Donald Leal (San Francisco: Pacific Research Institute, 1990). See also Alston Chase, Playing God in Yellowstone: The Destruction of America's First National Park (Boston: Atlantic Monthly Press, 1986).

6. Competitive Enterprise institute v. National Highway Traffic Safety Administration, 956 F.2d 321 (D.C. Cir. 1992).

From Market Liberalism: A Paradigm for the 21st Century
Edited by Ed Crane and David Boaz