Gernot Wagner, an economist at the Environmental Defence Fund, recently released a book arguing ‘smart economics’ is the key to sustainability (full title is ‘But will the planet notice? How smart economics can save the world’). The fact that a major NGO employs economists arguing for “working with” and “liberating” market forces is consistent with trends I’ve observed and written about. (See pdf of article entitled ‘Environmentalism in Transition?’).
Indeed Wagner contrasts the tradition of “direction action against the market’s brutal forces” with the need today to harness market forces. Like similar authors he is of the view that a shift in strategy is needed because of the emergence of larger, more complex problems. He goes to great lengths to make the case that our personal actions and choices are dwarfed to the point of irrelevance. In systems thinking terms, we need to shift focus to the larger ‘structures’ that influence behaviour. Wagner asserts that:
“Scientists can tell us how bad it will get. Activists can make us pay attention to the ensuing instabilities and make politicians take note. When the task comes to formulating policy, only economists can help guide us out of this morass” (p.11).
A real strength of the book is its consideration of the role of market forces in different environmental and conservation issues. For example, it’s argued that being able to establish ‘property rights’ for lobsters has been central to preserving lobster stocks in Maine, New England (their limited movements enable creation and maintenance of defined territories); whereas tuna is a “global scuffle … chasing increasingly dwindling stocks. Letting tuna go today does not mean you will catch more next year. It means your competitor will catch them tomorrow”. Similarly, he convincingly argues that the unintended consequences of various government policies are often due to not sufficiently understanding relevant market forces.
The contrasting of the worldviews and models of ecologists (who tend to be pessimistic regarding the sustainbility problematique) and economists (who tend to be more optimistic) was also insightful. Even though Wagner criticises mainstream economics, e.g. for creating models that tend to “assume away limits to growth” and do not sufficienly consider (natural) raw materials, he ultimately comes down on their side of the argument… although he sees a stronger, necessary role for government policy and notes the importance of ‘substitutability’ to the outcomes he expects (or hopes for). For example, we mostly don’t yet have good, functional substitutes for oil.
There’s still much in this book that I need to reflect on… but he believes what’s most important is making the price of goods and services “reflect the now largely socialised costs of those actions”, so that it is “in our interests to do the right thing” (p.216) . This will inevitably mean increasing the prices of many goods and services – such as increasing the price of air travel via a tax or cap on pollution, and inclusion of other socialised costs (e.g. due to subsidising of new airports and runways) – in order to change peoples’ behaviour. This is unlikely to be popular!! Right now I can’t help thinking this will often be the achilles’ heel of many prescriptions of environmental economists.
NOTE: recent shifts the stated purpose of Environmental Defense Fund reflects this book – “We are passionate, pragmatic environmental advocates who believe in prosperity and stewardship. Grounded in science, we forge partnership an harness the power of market incentives“