Liberty, Markets, and Environmental Values: A Hayekian Defense of Free-Market Environmentalism
Pennington, Mark, Independent Review
In recent years, the development of free-market environmentalism has marked a major advance in the relationship between the classical-liberal tradition and the challenge to individualist institutions presented by the modern environmental movement. Building on the work of Ronald Coase and the New Institutional Economics, free-market environmentalism has demonstrated that environmental problems, far from being the inevitable result of market institutions, are best explained by the absence of these very institutions. Notwithstanding these advances, however, free-market environmentalism has failed to have a significant impact on the environmental movement. Indeed, insofar as there has been any reaction to proposals for the extension of private-property rights, it has tended to be hostile.
One of the reasons for this lack of progress stems from the differing social ontologies adopted by the proponents of environmental markets, on the one hand, and by the green political theorists and activists who tend to favour command-and-control models of environmental regulation, on the other. The former have a tendency to emphasize notions of rational self-interest, utility maximization, and efficiency, whereas the latter focus on communitarian conceptions that emphasize a nonreductionist account of social interaction and a "moralistic" approach to environmental issues that seeks to institutionalize a search for the "common good."
Although I recognize the contribution of rational-choice analysis, I argue in this article that free-market environmentalism is unlikely to make political progress unless its arguments are recast in a mode that speaks to the communitarian greens on their own terms. One way of achieving this goal is to restate the case for free-market environmentalism from a Hayekian perspective. I attempt to move the debate in this direction by showing that the conclusions of Hayekian liberalism are more consistent with the nonreductionist foundations of green communitarianism than are the conclusions of the communitarians themselves. The argument is structured in three parts. In the first section, I set out the communitarian critique of free-market environmentalism. In the second section, I outline the essentials of Hayekian liberalism and its similarities to and differences from communitarian ontology. Finally, in the third section, I offer a Hayekian defense of free-market environmentalism against the central claims of green communitarian thought.
Free-Market Environmentalism versus Green Communitarianism
Environmental problems for much of the postwar period were treated as classic examples of "market failure," a treatment inspired by developments in neoclassical welfare economics. In this perspective, market processes result in socially suboptimal environmental decisions because private decision makers are not held properly to account for the consequences of their actions owing to the prevalence of collective goods and externality problems. Seen in this light, the task of environmental policy is to devise ways of correcting imbalances in the market system via the judicious use of taxes, subsidies, and regulatory controls in order to ensure the appropriate provision of environmental goods.
The emergence of free-market environmentalism represents a significant advance in how environmental problems are conceived. Building on the work of Ronald Coase (1960), Harold Demsetz (1969), and developments in public-choice theory, free-market environmentalism suggests that the mere identification of market failures is not a sufficient justification for widespread government intervention. Insofar as markets are prone to 'Tail" in the environmental sphere, they do so mainly because of the high costs of establishing private-property rights. These obstacles to market exchange prevent the successful internalization of spillover effects. Transaction costs are not the sole preserve of the market system, however, and we commit the "nirvana fallacy" if we suggest that the alternative to an imperfect market is a government immune from the same sort of problems. …