"It's my property. I can do what I want." You've probably heard it a thousand times--but not from someone who cares about reducing air pollution and saving the last of the black-footed ferrets. Private-property advocates tend to view the environment as a dubious cause for mush-minded liberals or, worse, as socialism in green clothing.
So I was surprised to hear about Peter J. Hill, an economics professor at Wheaton College who believes the best tool for cleaning up the environment is the free market. In the long run, he says, it's more efficient to provide property owners with incentives to do right than to try to enforce right action by government edict or government ownership. And in those many cases where we don't know what the best action for the environment is, a private-property system allows contrarians to bet against the conventional wisdom.
Hill is easy to talk to, his style more like that of a thoughtful farmer or rancher than a graph-wielding acolyte of the Chicago school of economics. He knows he's a long way from the environmentalist mainstream, where government regulation and public ownership are pretty much taken for granted. But he has resisted the temptation to compensate by turning his free-market environmentalism into dogma. He thinks it's a better way, but for now he'd be pleased just to have people acknowledge that there's more than one approach to saving the earth.
Harold Henderson: Why should we pay attention to "free-market environmentalism" when private-property arguments have so often been used in bad faith?
P.J. Hill: It's true private-property rights have a pejorative connotation. Sometimes they're used by people who are polluting to say, "Look, I can do whatever I want--it's my property." Well, part of it is their property. But to the extent that they're polluting air and water, it's not their property.
As I see it, free-market environmentalism is not a justification for the status quo. Free-market environmentalism is a recognition that certain resources do not have well-defined and established private-property rights. We need to try to better define property rights in air and water so that we can face the decision maker with, number one, good incentives and, number two, good information.
Another thing: free-market environmentalism is not saying we don't need government. Government needs to be involved, but in a much different way than usual. Oftentimes--not always--government is an effective agency for defining and enforcing property rights.
HH: The usual environmentalist way of thinking is quite different: a private entity exceeds its bounds, and the government reins it in. That paradigm is very powerful. How would you counter it?
PJH: Let's take the Clean Air Act. A free-market environmentalist approach would be to say, "What's the real problem?" It's that utilities can pour gunk into somebody else's air. Is there a way of approximating the property-rights system? For instance, what about going back to the common law or tort law that says people can sue when they can show damages? It seems to me that it would be far better to use that sort of system.
For many years the common law ruled water pollution, and ruled it fairly well. If there was a factory upstream--a paper mill or something like that--the factory knew that people downstream could take it to court and show that it was the polluter. This would get expensive if they had to sue every time, but knowing the precedents, the paper mill had a strong incentive, number one, to reduce its pollution and, number two, to go downstream and actually sign a contract with people saying, "Will you allow us to pollute your water a certain amount--if we pay you?"
See, we don't necessarily want to get rid of all pollution. We want to get rid of it where the air--or whatever resource--is more valuable clean. I define pollution as a cost imposed on somebody without their willing consent. I don't define it as the physical damage, because the physical-damage definition gets us nowhere. It turns out there's no workable way of saying what we want to stop. However, if we say pollution is a cost imposed on somebody without their willing consent, then what we have to do is get their consent.
You could say that Wheaton College pollutes my leisure time with work. However, we wouldn't call that pollution, because it's not a cost imposed on me without my willing consent. Now if they could coerce me to come and work, then we'd have a problem. So I would say the problem is not so much that cars cause pollution, but that they cause damage to people who didn't consent to it.
HH: And who are not paid for it.
PJH: Right. You can park in my yard anytime you want to, but you've got to pay me. There may be some problem with people parking in other people's yards at night, but not much, because there's a pretty well defined and enforced system of private-property rights. If you really want to park your car on my lawn, come talk to me, and we may be able to work out a deal. We'll find out whether the lawn is worth more to me as green grass, or to you as parking.
With our air, the difficulty is that we don't have defined and enforced property rights, so we don't have a good mechanism to decide whether my breathing or your driving is worth more. I don't think we're going to be able to get that just by saying "Let the free market work," because it's not working.
How can we make it work? There is a guy in Colorado who has come up with a very nice cheap way to do a part of it. It's a laser monitor. He can actually monitor the tail pipes of cars, tell what comes out of them as they drive by, and take the license-plate numbers. It turns out that 50 percent of the pollution from cars comes from 10 percent of them.
HH: The old clunkers.
PJH: It's not always the old clunkers. It's the ones that aren't tuned up. What you need to do is to define and enforce rights--force those people to pay more. I would like a system where we use this guy's pollution monitor: he monitors cars, and you get a bill [based on the amount of pollutants your car emitted]. Then you decide whether you want to continue to pay it, or whether you want to fix your car. In most cases it pays you to fix the car. We could reduce our automobile pollution a lot if people were simply charged for what they are doing.
The other thing you could do is to impose a time-of-day toll system on expressways, because cars idling along at 15 miles an hour generate far more pollution than moving down the road at 50.
HH: You're proposing a certain role for government here. It should step in and tell drivers that they're getting off too cheap. Ideally, from your point of view, wouldn't it be better if you could identify the affected people and go to them? But in this situation--
PJH: The costs are too great for the car owner to have to contract with everybody he drives by. That would be the ideal situation, where he says to everybody, "Look, I want to drive through here and put some stuff in your air. I'll pay what it's worth to you. I'll give everybody a nickel or a tenth of a cent." Instead, I'm suggesting a rough-and-ready solution. It's not going to be perfect, but it does move in the right direction.
HH: But even so, air pollution is a lot harder to deal with than parking on my lawn. It's invisible, it's long-term, it's hard to know exactly what damage it may do to my lungs over 30 years. I can imagine what I would charge someone to park on my lawn. But how do I put a price tag on air pollution? Isn't it simpler just to say "No more lead in gasoline," and that's the end of it?
PJH: When we start trying to buy and sell something for which we have no experience we will make some mistakes. Prices will fluctuate as we learn. But pollution is no different than many other choices we make without perfect knowledge of the consequences. How dangerous is eating a high-cholesterol diet or failing to exercise? Science can help us understand the possible consequences, but assessing the actual costs or benefits is very much a subjective matter that individuals should be allowed to decide.
Also, regulations that say "Take all the lead out" represent a judgment that the benefits of lead removal do outweigh the costs. How do we know that? Why take all the lead out? Why not 90, 70, or 50 percent? We always act upon imperfect information, but the quality of the information is likely to be better when individuals have a stake in the decision.
HH: What else would you have the government do?
PJH: Try to determine who the polluters are. I think it would be perfectly appropriate for the federal or state government to require every person buying a pesticide to register and have a tracer added to their purchase right in the store. So a farmer goes into a farm-supply store and buys a pesticide. They pour in a pint of some particular inert chemical or radioactive isotope--my biochemist friends tell me there's a way of doing that--and he's branded with number 23. Then if a year later we find a pesticide in the groundwater, we can tell whose it is.
We don't prevent the use of the pesticide or the herbicide. The problem isn't that the guy uses it, but that he uses it in a way that infringes on other people's rights. So now that we can trace this and we have an idea what the damages are, we go to this guy and say, "You're liable."
Again, it's not that private-property owners should be able to do whatever they want to do. They should be able to do what they want to do as long as they don't impose costs on people who haven't consented.
In the same way, I think we ought to move in the direction of having tracers on smokestack emissions. Then we would have a way of tracing it and using the tort system for damages: "Look, you caused the following amount of damages, and you'll have to pay."
What I think you'll find is that a lot of firms, if they have a choice of removing the pollution or paying for it, will choose in most cases to remove about 80 to 90 percent. But they're probably not going to remove it all. At some point it really does become cheaper and easier for them to buy the right to put the last little bit on. The last little bit doesn't cause that much harm, and it's very expensive to take it out.
When we talk about pollution, we think we've solved the problem if the government just steps in and says, "You can't do that." What happens though is that we get the regulations, and then all of a sudden we discover they'll put a thousand people out of work. And we say, "Oh no, too onerous--let's postpone them for three years," or something like that. So command-and-control regulation still turns out to be politically difficult, and we don't end up with anything for a time.
At least a solution that tries to hold people accountable for pollution, that defines property rights and uses the court system to assess damages, is not an all-or-nothing solution. It says, "You've done some damages, and you need to be held responsible for them." Then I think we're much more likely to have workable kinds of solutions.
HH: How is a damage-payment system going to deal with environmental racism? In my neighborhood, for instance, the land may cost enough that it's not worth Waste Management's while to buy it for a big landfill. They might find it cheaper to put one next to Altgeld Gardens. It seems to me this problem can't be dealt with strictly through people's ability to pay. The damage ought to be the same whether it's damage to me or damage to them, shouldn't it?
PJH: Not necessarily. I would say the damage is subjective and it depends on each person's preferences. And poor people might prefer to have more pollution or more damage. We do find that in poor countries around the world. You might say that a particular environmental damage is the same to you as to a person living in Haiti. However, if you ask the person in Haiti, "Would you take a job working in a factory that has a lot of damages?" they might say, "I'll take the job," whereas you wouldn't even think of it. So I don't think damages are the same.
However, there is something to the environmental-racism argument. When we use the political system to site waste sites, poor people probably aren't going to come out very well. They ought to be allowed a specific mechanism so that they can express themselves and be compensated.
I haven't worked out all the details, but it seems to me that the siting of landfills ought to use the following sort of rule: you have to get unanimous consent from everybody living within one-quarter of a mile, consent of 90 percent of the people within half a mile, 50 percent of those within a mile, and then that's it.
In that case people within an area that aren't very wealthy can go talk to Waste Management and see what sort of deal they can make. They might say, "We'd accept a certain type of landfill if every one of us gets $1,000." Somebody else a few miles over might make another offer. Waste Management goes around and tries to make these kinds of deals. Then people find out, is it worth it to them or not?
Some landfills probably would end up in relatively poor neighborhoods. But instead of it happening politically like it does now, they would get paid. Or the landfills might still be a ways out in the country, where you don't have to buy as many people off.
I would want to talk a little bit more to the scientists about exactly what the distances should be. But under this kind of system, people have to find a way to get along. They have to look for the areas of agreement, and you find out what's really obnoxious to them. Is it the smell? Is it the trucks driving by and dropping garbage on the lawn? Is it the danger to groundwater? Is it toxic chemicals? Then Waste Management, or whatever the company is, might say, "This is an area where we can make a change." And it's not such an all-or-nothing situation.
I find the Rainey Preserve that the Audubon Society owns in Louisiana a fascinating case of people looking for ways of getting along. It fascinates me because I'm from Montana, and a big issue in Montana is wilderness areas. If the government declares an area a wilderness, then there can be hiking or backpacking, but no oil exploration or commercial use or cattle grazing. It's all federal land. The question is, should it be closed to those sorts of activities?
This has been an absolutely acrimonious debate between the oil companies and the environmental groups. Whenever another area is proposed for wilderness, the oil companies say, "The world will end if we can't explore in here. There will be no more oil. You won't be able to heat your homes." The environmental groups say, "The world will end if you do go in here. This will be the worst sort of thing. It's the most valuable area--it's pristine."
Because the decision is made in the political system, both sides have an incentive to phrase their argument in as strong terms as possible, with no possibility of compromise.
HH: If they even hint that this is only the second best area in Montana, then they're going to get clobbered by their opponents.
PJH: Contrast that with this Rainey Preserve. After the Audubon Society bought this preserve, mostly for the snow goose, they allowed oil and gas exploration and now functioning gas wells. How could that happen? As far as I know, nobody shouted at each other, nobody called each other names. But a major oil company, one of the same players in Montana, and a major environmental group, one of the same players in Montana, sat down and agreed.
As I understand it, the oil company first went to Audubon and said, "Look, we hear there are potential gas reserves here. What about us exploring?" They said, "No way. We don't do things like that." But then they said, "Ahhh--money."
Notice that the Audubon Society is not giving up on preserves. They're giving up a little bit of environmental pristineness here and getting enough money to go buy lots more land. So they said, "You have to put extra mufflers on any machines that are in there. At the prime nesting time we have the right to close you down completely. You have to hire a wildlife biologist of our choice and pay their salary." At first the oil company didn't like it very well, but eventually they found a way to get along.
When people have clear-cut private-property rights and can say yes or no, then they look for the margins of agreement, some creative way they can benefit.
In the waste-management situation people might really like to have no odor. And the company might counteroffer: "If there's no odor, you can only get $200. If we can have a small amount of odor, you'll get $1,000. If we can have any amount of odor we want, you get $1,500." I don't know what position they would take, but it's their position. Then if the site finally is located in a black neighborhood or a poor neighborhood, I say, "Did you get paid?"
I would want to make sure that the waste-disposal company was representing itself honestly to the neighborhood. The government really should be regulating fraud. Tort law is pretty clear about that. If you misrepresent something like that, you are really liable.
Some other people would say, "Even if the neighbors know the risks, they shouldn't do it. They are making a wrong decision."
HH: They're valuing their right to a clean environment too cheaply.
PJH: And my response is, that's elitism. You're saying these people are not capable of making good decisions. You can argue that, but at least let's be up-front about it.
I tend to regard people who are poor as pretty competent individuals, capable of making those decisions if given good information. And I would be far more comfortable allowing them control over their own lives and letting them make those decisions, rather than me or some government official stepping in and saying, "I know that you want this waste site coming in here because you're going to get $1,000, but you shouldn't be doing it."
Now again, if the company agrees to put certain things in there and not other things and they violate that agreement, then there needs to be government action against them. That sort of thing happens all the time--food manufacturers shouldn't be allowed to sell me orange juice that doesn't have oranges in it. We solve these problems with straightforward laws about misrepresenting your product.
HH: This sounds kind of reasonable, but doesn't it have maybe some inhumane consequences? If, as you say, all pollution damage is subjective and if it can all be paid for, then what's to stop desperate people from choosing to drastically harm themselves because they can't earn that kind of money in the regular economy? Maybe it might be OK to see Robbins and Altgeld Gardens underbidding each other by offering lower fees to a new landfill. But what if they instead compete by offering to allow more and more injurious forms of pollution so they can be paid more--in hopes that perhaps their kids will be able to move away? Would you be comfortable with a society that allowed this, or would you want to put some kind of limit on it?
PJH: So long as fraud isn't involved, I'm comfortable with allowing the residents to choose. I really doubt that they're likely to agree to significant long-term health damage in return for a few dollars today. In fact, given the present climate of opinion about environmental hazards, I'll bet most people will overestimate the damage from a waste site.
Also, if property owners are involved, the future costs of any increased hazards will be reflected in the present price of their property. They will have a strong incentive to search out any future damages and encourage the community not to opt for things that will substantially reduce the value of their property. It only takes a few people becoming concerned about an issue and gathering information to sway an entire community. Remember, however, that we're talking about mutually agreeable trades. Most of these are not all-or-nothing situations, but rather ones where people agree to accept a certain low level of risk in return for financial payments.
HH: There are things it's hard to imagine compensation for. Suppose I own property next to someone who wants to build a factory, and I happen to have the last extant individual plant of an endangered species there. Now according to free-market environmentalism, it belongs to me, period. Why shouldn't I say, "OK, give me $1,000, and you can go ahead and kill that plant"? Isn't that a problem in that it is not a reversible process? We can't get the plant back.
PJH: The problem of irreversibility is a real one, and the question is, what are the best mechanisms to deal with it? In the world today there are some private groups that care a lot about irreversibility. The Nature Conservancy and other land trusts would usually be willing to buy up your land and your species to prevent that from happening.
Should the government be the agency that prevents that sort of irreversibility? That assume the government can bring together people's preferences better and act upon them better than private individuals can.
Let me tell you a story. In the 1920s along the Appalachian flyway there was a place called Hawk Mountain. It was a great place to hunt, because you could go up there and kill thousands of raptors during the fall when they were flying south.
Now, looking back, we would say it was a horrible thing to shoot goshawks and hawks and eagles. Why didn't the government do something about it? Because the prevailing wisdom at that time was that these were birds of prey and that they were terrible. The Audubon Society was the society for the preservation of songbirds. And it said, "Yeah, kill 'em off." Most people in the 1920s would have agreed.
Well, it turns out there was also a person who disagreed with that. Her name was Rosalie Edge. She probably represented, at most, one percent of the population. There was no way she could have gotten a majority vote--and remember, the government makes decisions on the basis of majority opinion. If she would have had to try to convince 50 percent plus one of the population, it would have taken her at least another 15 or 20 years.
But it was a private-property system, and it took her a very short time. She was reasonably well-off. She went to the person that owned Hawk Mountain and said, "I disagree with that's happening on Hawk Mountain. I want to buy it." She did and closed it to hunters. It's now been turned into an actual preserve. You can give your money, join the Hawk Mountain Society, and go up there and look at the birds flying by.
Now there are situations where the government could do a good job of stepping in and preserving nature. And there are cases where the government made a good decision years ago [such as Cook County Forest Preserves and Indiana Dunes]. And it's not my priority to undo those decisions. The question is, what is the best overall institutional framework? And I would say that the best institutional framework is one that allows people with a whole bunch of different preferences to bet against prevailing wisdom.
The people who really think a given resource is going to become scarce can go out and buy it and preserve it--without having to convince everyone else that it's the thing to do. Right now environmentalists think they have all the right information--they know what to preserve--and so they think the political system is working to their advantage. I would say a long-term historical perspective would tell us that oftentimes we guess wrong. Some things may become pretty valuable that the environmental groups aren't even thinking about right now. But a few people probably are thinking about them, and a private-property system allows them to buy them up. I have a lot more faith in something like the Nature Conservancy than I do the U.S. Fish and Wildlife Service. I do disagree sometimes when the Nature Conservancy turns its lands over to the government to manage. I would prefer that they didn't do that. But I still give them money and I support their actions, because to me they represent an appropriate private-property response.
Now notice that markets don't require that people only do things for profits. They can do them for whatever reason they want to. The Nature Conservancy is not a for-profit group. It is capturing the preferences of a lot of people who think these things are important. So that is at least a partial answer to the question of irreversibility.
The Endangered Species Act, on the other hand, does not seem to be a very good answer. It's based on the idea that putting certain species in a particular category will help to protect them. However, there are some interesting incentive problems with that. Because now, if an endangered species is found on your property, you lose almost all of your property rights.
HH: There are a large number of things you can't do.
PJH: Right. You can't develop, you can't market. So a lot of property owners are discovering that they don't want an endangered species on their property.
HH: And what could be easier to get rid of?
PJH: People in Montana tell me they operate with the "Three S" rule--shoot, shovel, and shut up. What you really need is a system that makes it to people's advantage to preserve rare species. The Endangered Species Act actually runs in the opposite direction.
Until a year ago I owned a cattle ranch in Montana. I've spent a lot of time with ranchers. That's my background, those are people I grew up with and worked with. As far as they're concerned, prairie dogs are a real menace. Their towns denude all the grass, and their holes are also dangerous to a horse that's running.
The black-footed ferret lives in prairie-dog colonies and preys almost exclusively on them. We had thought it was extinct. But a colony of them was found in Wyoming, and there may well be some on other prairie-dog towns. Yet the ranchers, who hate prairie dogs, also say, "If I ever find a black-footed ferret on my land, I'll shoot it."
It's not because they dislike black-footed ferrets. They are just so fearful of all of the regulations that would apply if a black-footed ferret were found on their land.
This is an absolutely terrible set of incentives. First of all, we want them to be in favor of it, because I think we want to preserve the black-footed ferret. Second, this is an animal that is probably one of the most effective control devices for prairie dogs.
HH: How would you set that up differently?
PJH: I would offer a reward to people that found black-footed ferrets, and I would reduce by far the regulations on people that found them. The reward wouldn't even have to come through the government.
One of the most innovative environmentalists I know is a person in Montana, Hank Fischer with the Defenders of Wildlife. There's been this big controversy about whether to reintroduce wolves into Yellowstone National Park. People like Defenders of Wildlife would like to have the wolves there. The ranchers say, "No, we don't want the wolves there, because they're going to get out and kill our cattle." But instead of going to the government and trying to get his way, Hank Fischer said, "I will raise, with my organization, enough money to compensate any rancher who has a certified wolf kill." And he raised $100,000 just overnight.
Basically, his group was assuming the ownership rights for the wolves--saying, "We're willing to put our money where our mouth is. If the wolves are reintroduced and there are wolf kills on your cattle, we'll pay you." I think they do involve the government, in that they use the Fish and Wildlife Service to certify that it was a wolf kill. They need some adjudication agency.
That was the first thing. The next year he did something even more innovative. He said, "Any rancher that has a den of wolf pups on his ranch and allows them to stay there and get raised to maturity, we will pay $5,000 to." I love it! All of a sudden this says to the rancher, "Let's rewire you. Let's change your thinking. Now when you see a wolf, instead of "Get out my .30-30--this is terrible' you say, "$5,000?"' That's what markets do. They tend to make friends out of enemies. They encourage people to find ways of getting along.
HH: I'm not sure you'll make friends out of folks like Barry Commoner or Greenpeace, who don't want to allow any pollution at all. They say it should be prevented at the source, and anything else is a sellout.
PJH: That is an unrealistic solution. We're not going to be able to live in this universe and not use any resources or live in a nonpolluting world. I think it's far more realistic to face people with the real costs of their actions, and then accept the fact that whatever happens, people are bearing those costs and have consented to them.
There is this feeling that selling licenses to pollute is like selling licenses to murder. I understand that, but the alternative--the command-and-control regulations--still ends up allowing some of this to go on. And those regulations turn out to be a very, very expensive way to get pollution control. There are just a lot cheaper ways to achieve this.
Art accompanying story in printed newspaper (not available in this archive): photo/Robert Drea.