Aristotle asked how we as political animals could create and design institutions which assure survival with ‘some measure of the good life in it’. Although the scope of Aristotle’s question was that of the city, the question of institutional design is acutely relevant to efforts to arrest global resource degradation.
Neoclassical economics is rare among influential views on this question. Behind numerous types of environmental degradation, it locates the single cause of ‘market failure’. Degradation occurs, so goes the argument, when natural resources are allocated in a way that does not reflect people’s valuations of them and in particular, when there are no markets for resources at all. As natural resources can often be appropriated free of charge, they tend to be overused, wasted and spoiled.
If environmental problems arise from absent markets then the solution is to create markets for natural resources so that peoples’ preferences can be registered in market transactions. Where markets do exist, they may be corrected, for example, by taxes or charges. The level of tax or charge is based upon the ‘shadow price’ of using a resource – a price established by a regulator that is taken to represent what individuals would be willing to pay for a resource were there a market for it.
The diagnosis and prescriptions provided by representatives of this view have assumed unrivalled dominance in international efforts to arrest resource degradation, from climate change and biodiversity loss, to pollution and conservation, and provide theoretical support to the plausibility of ‘green capitalism’, which will be central to discussions at the 2012 Rio+20 Conference on Sustainable Development and beyond.
However, the dominance of this perspective appears at clear odds with any meaningful environmental benefit that it can provide for two reasons. The first is that its prescriptions are largely ineffective. The second is that its account of the causes of environmental degradation, from which its prescriptions arise, does not grasp the real nature of the problem at hand.
Creating and ‘correcting’ markets
There is mounting realisation that it is incorrect to think that genuine environmental protection can be achieved within the context of the global market economy – or to put it another way, that contracting resource use can be reconciled with expanding resource use. Although a full explanation lies beyond the scope of this commentary, suffice to mention three brief points.
First, economic instruments depend on the existence of competitive markets. This makes them inapplicable to oligopolistic markets. The problem is significant. Many resources subject to ‘global change’ – from freshwater and food sources to minerals and fossil energy – are subject to oligopolistic markets.
Second, where competitive markets do exist, economic agents tend to be incentivised to overuse resources rather than to conserve them. Such markets encourage agents
- to use resources at a rate proportionate to the rate of economic return rather the rate of resource replenishment
- to correspondingly de-value resources that are unproductive from the standpoint of that return; and
- to shift costs onto others, in particular, those who cannot affect the price system – including future generations.
Agents are incentivised to act in this way because failing to do so would place them at a comparative disadvantage to those who use resources to maximise returns. One example of this can be found in emissions trading schemes. The problem is an incentive to exploit the entire available ‘emissions space’ rather than to leave some spare for precautionary reasons. As Gerd Winter explains, by redefining emissions space as exploitable rights, emissions trading turns
emissions allowances into an economic value, which is not meant to lie fallow: it is legitimately used to the very last piece, at the level of states and individual actors alike. An entrepreneur who does not use his allowances or does not sell them to others if he has no use for them would appear as economically irrational. A state which accumulates a reserve and preserves it for later extinction would appear as politically incompetent
Third, this incentive to overuse resources is reinforced when competition is supplemented with privately-created credit. In most cases, the use of productive resources is determined by access to credit. Because access to credit is a function of expectations of future revenue, individuals are incentivised to use resources at a rate in excess of interest rates, and in excess of rivals doing the same. As John Dryzek notes,
market participants must discount future costs and benefits at prevailing interest rates. The higher that rate, the more short-sighted the system becomes.
The thrust of the criticism is thus that creating and ‘correcting’ markets may lead, not to the resolution, but to the intensification of environmental degradation – and may do so the more environmental goods are priced and thus privatised.
The failure of market failure?
The second criticism mentioned was that it is in principle wrong-headed to regard neoclassical economics as an appropriate context for thinking about sustainability in the first place. This criticism follows from the suspicion that neoclassical economics understands neither environmental degradation nor environmental sustainability. There is an element of truth in the idea that environmental degradation follows from under-valuing the environmental goods and, hence, that if we valued it more, then we would harm it less. However, the problem is that the explanation economics offers for environmental degradation – i.e., the lack of a price mechanism for environmental goods – is reached on the basis of distorted representations of each of the three terms in the relationship between humans and environments, namely, environments, persons, and what persons value. It is these distortions which together undermine efforts to effectively address environmental degradation and to achieve sustainability.
1. Environment. From the neoclassical economics perspective, the environment is only recognised as being of value to the extent that people are willing to pay for its goods and services. Environments are understood as sets of opportunity costs and benefits evaluated in terms of different investment strategies. Environmental loss, for example, is assumed to be compensatable for an amount that those affected by the loss are willing to accept. In essence, the environment becomes, as the Brundtland Report puts it, merely another factor of production (alongside labour, technology and capital).
The problem is (at least) twofold. First, it is assumed that biophysical features of environments (which include those that sustain human and non-human life) can be substituted for economic factors. This means that it is not, in the first instance, the environment but the market itself that is to be sustained through acts of substitution. Second, the assumption that the environment can be substituted for other factors of production in effect removes the rationale for natural resource conservation; all natural ‘services’ required by humans could be theoretically provided by human-made capital.
2. People. Individuals are treated as if they are rational self-interested maximisers, that is, as if they constantly seek to maximise their utility by fulfilling their given preferences. Like its treatment of the environment, economics does not treat individuals as persons. Instead, it treats them, Mark Sagoff observes, as locations at which monetisable “affective states may be found”. In effect, economics answers Aristotle’s question by redefining what a political animal is. By so doing, it collapses the various roles that individuals play into the single role of consumer.
The roles persons assume, Sagoff continues, as citizens or commoners in which they express concerns about the public good as judgements about “what is right and good or appropriate in the circumstances” is not captured by the idea of preferences expressed as willingness to pay. In fact, collapsing the roles of persons in this way obstructs the expression of concern for the public good. This undermines efforts to achieve sustainability because it is precisely as citizens or commoners that persons typically express concerns about such public goods as a sustainable environment.
3. Values. By explaining environmental problems as the result of unrealised price relationships between persons and environments, neoclassical economics reduces people’s values to mere exchange value. Three problems are immediately apparent. First, since only the strength of peoples’ preferences (expressed by willingness to pay), and not the reasons for those preferences, are taken into account, economics provides, as John O’Neill points out, environmental policy without debate. Far from supporting politics, economics replaces it.
Second, since only monetised preferences count (in the construction of environmental policy), the preferences of the rich (persons, corporations or countries) are privileged over those of others. This bias follows from the simple fact that the rich are able to pay disproportionately more, and are therefore allowed to express a stronger preference than the poor. This means that the valuations of the poor, including valuation of their health and own lifes, are reduced to a fraction of that of the rich. It also means that the rich, large commercial operators in particular, are effectively permitted to pay for the right to pollute. As BP’s devastation of the Gulf of Mexico illustrates, this right also often allows them to buy their way out of culpability. On either account, correcting the invisible hand of the market by shadow pricing and privatisation enables the private interest of the rich to be decidedly more public than that of others.
Third, the reduction of people’s values to exchange value ensures that what people most care about is disregarded. Many of the things people most care about (e.g., significant social relations and evaluative commitments including those constitutive of identity and social loyalties) have the property of what Joseph Raz calls ‘constitutive incommensurability’. To assume that these values are in principle directly comparable under a common measure such as price – and that the operational problem is merely ‘getting the price right’ – is to misunderstand what it is that such values constitute.
The value of friendship, for instance, is constituted in part by a refusal to treat it as a commodity. To do so, O’Neill explains, would be to betray that commitment. A person who is willing to put a price on a friend simply has not understood what it is to be a friend. One of the more infamous examples of an assignment of a ‘willingness to pay’, namely, Judas’ acceptance of a price of thirty pieces of silver for taking soldiers to Jesus helps illustrate this point. As O’Neill points out,
the act of so putting a price on Christ is not merely an act of measuring badly done – what is wrong with the act is not that thirty pieces of silver was a poor evaluation, that he should have gone for more. What is wrong with it is that it is an act of betrayal – that a person’s commitment to another is treated as something that can be bought and sold. The act of betrayal would have looked no better, but possibly worse, had Judas put in a higher bid.
The same commitment can be observed in numerous things and relations that individuals value including nonhuman beings, special places and landscapes. For these things, the “worth of things we love”, Sagoff explains, “is better measured by our unwillingness to pay for them”. Constitutive values offer a critical basis for the prevention of harm to the things which people value. To exclude such values from consideration undermines the rationale for environmental protection. To include them requires market instruments and norms to be removed from areas that matter most to people.
Common to alternative views on the kind of question that Aristotle raised is the notion that environmental sustainability will not be served by introducing or extending market instruments and norms to various areas of society, but quite the reverse. It would be better served by expanding and supporting the public sphere – both procedurally and substantively. This would enable the many-sided qualities of values, persons and environments to be recognised as such. It would also enable people to arrive at public judgements about what is of value – and, unlike BP’s evasion of responsibility for harms committed in the Gulf of Mexcio, to be able to enforce them.
For this to happen, market instruments and norms need to be removed from areas for which they are simply not appropriate. In essence, the social project for sustainability is part of that, as Karl Polanyi recognised, to arrest all manner of social ills produced by unfettered markets. It is part of the social project of (re)subjecting markets, in particular, key resource use, to social and democratic control. Subjecting markets and key resource use to genuine democratic control means that markets may be made to serve people and planet rather than the other way around.
Numerous perspectives now exist on the design of institutions governing the use of key resources use to guide the transition to their sustainable use. Perspectives range from those which are local in nature, such as Elinor Ostrom’s on the economic ‘commons’ and Schumacher’s on business democratisation, to those which are global in nature such as David Schweickart’s economic democracy and the Building Global Democracy coalition. As an idea whose time has come, genuine key resource democratisation is long overdue. Such democratisation appears utopian only if we refuse to seriously consider the prevailing unsustainable alternative of putting the planet up for sale.
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