Can Markets Protect the Environment?

It has only been a short while since I got really interested in environmental movement and issues related to it. Till now my interest and involvement had been only superficial and will stay on that way for a while. Until now I have been more of an environmental "sympathizer" rather than an activist. In my opinion you have to "proactively" try to change things in your life and your immediate environment to be an activist. Blogging about it or reading about it doesn't count. I am however trying to use my blog as a meeting place of ideas I encounter and post about things I have learnt. One of the ideas that I have recently come across is "Free market environmentalism" [FME].

Proponents of FME argue that current methods pursued by the environmental movement focus too much on the government taking care of the environment. This means lobbying for new laws and stricter regulation for protecting the environment. FME proponents say that the government is very inefficient in doing the job and it can be better accomplished by utilizing the power of free markets. FME advocates propose market based measures like use of well specified property rights for protection of natural resources. Nature Conservancy is one of the leading organizations which is using such measures. It has purchased large areas of property (more than 117 million acres of land and 5,000 miles of river around the world) which are ecologically important for conservation.

There are many other market based approaches which are being tried. Some of them are trading of carbon credits to reduce CO2 emissions, Socially responsible investing [SRI] or green investing. Green investing is really interesting because it gives people the power to invest in companies which have implemented socially and environmentally responsible practices and in companies which are developing alternative energy sources. SRI philosophy does not stop at simply screening companies on the basis of their policies. SRI also advocates community investing and shareholder activism as further steps. As shareholders of a company you get to vote on the policies and direction of the company. A large number of environmentally conscious shareholders can then influence the company policies. Sierra Club has started its own green mutual funds to foster this idea.

There was one thing that struck me while reading about FME. The wikipedia entry on the subject lists several objections to the concept. One of the objections goes as follows:

The conservation of endangered species not necessarily achievable using the free market, especially where there is little economic value in the species in question. For example: there might be only limited profit to be made from a piece of land by maintaining it as the habitat of a rare beetle, whereas alternative economic uses for that land (which might be deleterious to the welfare of the beetle) - such as building a parking lot on it - might yield a greater profit. This objection (impliedly) assumes that the beetle has some innate value (even irrespective of its role in the ecosystem which, by definition, must be limited), an assumption which is not unproblematic, relying as it does on a conception of natural rights which has been comprehensively rebutted by thinkers such as Jeremy Bentham (who famously described the idea of inalienable natural rights as "nonsense on stilts").

I strongly believe that ecological niches which harbor rare species have innate environmental value even if they may not have "economical value". It may be because of my philosophical beliefs, but I find it very hard to deny any sentient being the right to exist simply because it does not have any economic value to humans.

I recently came across an article in India Together by Rajani Bakshi, about Green Investing in India. Although the idea is in its infancy in India, it is slowly growing roots. Bakshi gives a nice analogy for the slow transformation of the market through SRI or "mindful markets" as she calls it. It is the analogy of transformation of the caterpillar into a butterfly. Here it is in her own words:

"Let us reflect a moment on that phase when the caterpillar has turned into a seemingly inert and dull chrysalis. But inside that chrysalis an incredible revolution is taking place. Within the amorphous pulp of the erstwhile caterpillar new kinds of cells begin to appear which some scientists call imaginal cells. It is these cells which carry the code, the pattern of the yet to be formed butterfly. The old caterpillar cells, naturally resist these alien cells and fight back. But the imaginal cells are determined little fellows. Gradually, the old cells get the message that they are not being threatened with destruction. Instead the imaginal cells are an invitation to be transformed into an incredibly beautiful new creation. Thus the butterfly comes into being.

The striving to foster Mindful Markets is today akin to those imaginal cells. So it is perfectly understandable if, at first, the idea of fundamentally re-programming markets seems destructive, anti-profits, some kind of fluffy romantic non-sense."

Truly beautiful!

While I agree that markets and market based approaches will definitely be needed to further environmental causes, I don't agree that relying on the power of free-markets "only" will lead to all the solutions. An ideal free market may indeed be able to protect the environment in the most effective way and to the fullest of human ability but even in the "free-est" of countries markets are far from ideal.

Some good blogs I came across regarding this topic: The Commons blog, Environmental Economics

Technorati Tags: Free Market Environmentalism, Socially responsible investing, Green investing, Conservation, Environment

Currently Reading: Naked Economics

Naked Economics by Charles Wheelan lives up to its pitch: "Undressing the dismal science".

I studied a subject called "Economics and Industrial Psychology" in my undergraduate study in India. It was a really really boring. The textbook was amazingly dull and could have worked very effectively as a sleep aid for an insomniac. The lectures used to be... well I don't know how they were... coz I don't remember attending them ;-). The only thing I do remember is barely scraping through the exams.

Anyway, so economics somehow never registered as an interesting topic in my memory. But my interest was aroused by some of my latest readings on the fair trade movement. I realized that many of the terms thrown around didn't ring any bells. Terms like "market based solution" and "inefficiencies in the market" and "market barriers" only symbolized indecipherable financial lingo used by well dressed "analysts" on TV. So I went to my local library and hunted down a book that will explain "economics in plain English". So far this book has done just that in a very very readable, entertaining style. Still reading the book, but will point a couple of interesting things here.

:: The author, Charles Wheelan, is the Midwest correspondent for The Economist. So checked out the website for The Economist. Now this is a weekly magazine which you can subscribe to. So you need to be a subscriber to access the premium content online. But the website gives you an option to view an online advertisement and get a free one day pass to the premium content online. You can do this pretty much every day. This, according to my recently acquired knowledge of economics, is aligning the incentives of the advertisers to those of the readers. I had to click through three pages of the ad to reach the homepage. This amply ensured that the stuff being advertised (CISCO products) registered in my brain. In return I got to read all the premium content. I wish NYT would follow a similar model instead of the 50 bucks a year "Times Select"

:: My second observation: The author, in the third chapter, tries to explain "externalities" associated with economic decisions (in this case, his purchase of a SUV). He says:

"...Nor do I have to compensate asthamatic children who will be made worse off by the exhaust I generate as I cruise around the city getting nine miles to the gallon. And I have never mailed a check to the people of New Orleans who may someday find their houses underwater because my CO2 emissions are melting the polar ice caps. Yet these are the real costs associated with driving a less fuel-efficient car."

This book was published in 2002. I wonder what kind of shock he must have felt when he saw the horrible aftermath of hurricane Katrina this September. It must have been terrible to see ones own written word come true so literally. I still haven't read the whole book, but Charles Wheelan does appear to be sensitive to many of the environmental issues of the day.

So far, an all round good read about economics. Suggestions about similar books on the topic would be welcome.

Technorati Tags: Naked Economics, Charles Wheelan, Economics, The Economist