Savage and Hart (1993, 3) point out that the dominant way of thinking in economics is that the "most effective means of dealing with environmental problems is to subject them to the discipline of the market mechanism":

A 'proper' price places environmental resources beyond the reach of those who wish to exploit them, or, at the very least, ensures that the social benefits of exploitation exceed the social costs, however these benefits and costs are measured. Accordingly the solution to environmental problems becomes one of 'marketising' the environment through the creation of markets in pollution rights, imposing taxes or subsidies so that prices reflect social costs and awarding quotas of right to pollute. (1993, 3)

Both price-based and rights-based measures are market-based measures. In the first case, price-based measures, an economist would say that a price is set and demand determines the quantity of emissions that are released. In the second case, rights-based measures, the quantity of emissions is set and demand determines the price to be paid to discharge them (Schelling 1983, 19).

The economists' preference for market solutions is an ideologically based one:

Its first pillar comes squarely out of a philosophical tradition that grew from Adam Smith's notion that individual pursuit of self-interest would, in a regime of competitive markets, maximise the social good. That tradition is so firmly embedded in economics by now that most economists probably do not realize, unless they venture out into the world of noneconomists, that it is a proposition of moral philosophy... (Kelman 1983, 297)

Not all economists are of this persuasion but the neoclassical approach which embodies this philosophy dominates research and teaching in environmental economics (Rosewarne 1993, 61-2). Given the workings of the market in reality, and the well-elaborated imperfections and problems associated with it (Moran and Wright 1991), what is surprising is that neoclassical economics has not only dominated environmental economics but has also increasingly dominated the whole public discussion of sustainable development.

The renewed push for the use of economic and market instruments has been due in part to the influence of the ideology of economic fundamentalism in many Western governments during the 1980s and fits into a trend over the last two decades of increasing deregulation and privatisation in Western capitalist economies (Steiner 1991).

The promotion of market-based instruments is now viewed as a way of resurrecting the role of the market in the face of environmental failure. Advocates claim that economic instruments provide a way that the power of the market can be harnessed to environmental goals (Tietenberg 1990, 42; Stavins, 1989). They serve a political purpose in that they reinforce the role of the 'free market' at a time when environmentalism most threatens it.

Chant et al (1990, 62) argue that "contrary to the popular view that a market system leads to the abuse of the environment" it is in fact the absence of a market which leads to environmental degradation. They claim that where the environment consists of common property or ill-defined property rights then there are no markets "to price and allocate valuable environmental assets." Their underlying agenda comes through when they point out that the use of the price mechanism, such as effluent charges or tradeable pollution rights, not only corrects this situation but "has an important additional advantage in that it extends the operation of the market system and limits the growth of bureaucratic forms of government control" (66).

Similarly, Anderson and Leal (1991, 171) reveal their concerns with government intervention in the form of legislation when they say that "free market environmentalism emphasizes the importance of human institutions that facilitate rather than discourage the evolution of individual rights." They argue that even if legislation improves environmental quality it is at the expense of "individual freedom and liberty".

In 1978 Washington-based government officials were interviewed about their attitudes to economic instruments. Their responses indicated that their opinions about economic instruments were based on ideological arguments:

"Proponents of charges were endorsing, in a general ideological way, "the market," and excoriating government and bureaucrats: opponents of charges were uneasy about or hostile to "the market" and more convinced of the necessity for the government, bureaucrats and all."(Kelman 1983, 302.

The survey found that Republicans tended to be pro-economic instruments, and Democrats tended to be opposed to them. The same survey found that people from industry were generally opposed to economic instruments and that environmentalists were split, the majority however being opposed to them. Much has changed since that time. Environmental economists have succeeded in enrolling other groups by getting them to use (and in many cases accept) their definition of the problem, that environmental degradation results from a failure of the market to attach a price to environmental goods and services.

Back...