| Incorporating the Environment into the Market |
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The market is a metaphorical term for all the buying and selling that goes on in the economy. The market value or price of a commodity is supposed to be based on supply and demand; that is, on how much of it is available, and on how many people want it and what they are willing to pay for it. Many economists argue that the free-market system can attain the best possible allocation of resources through individuals acting in their own best interests and without intervention from the government. This is because each individual consumer knows what he or she wants better than anyone else does, and each individual producer similarly knows what he or she is able to produce better than anyone else does. Each will act upon this information in the market. If it were any other way, all such information (about consumers' preferences and manufacturers' capabilities) would have to be collected and analysed. The market system automatically and efficiently collects and handles that information, and determines which goods should be produced, how they should be produced, and in what quantities. The market is also responsive to change, and it allows consumers to express their choices in the ways they spend their money. Many economists assume that individuals act to optimise their own interests &emdash;this is the principle behind the market system. For them, 'the intelligent pursuit of private gain' is the essence of rationality (Daly & Cobb 1989, p. 5). They do not consider altruistic behaviour as rational. Together with business people, they argue that government interference with market mechanisms has led to distortion of market signals in resource-using industries, and has itself encouraged environmental degradation. For example, the Business Council of Australia claims that price subsidies have led to inappropriate clearing of areas susceptible to soil and water erosion, and that underpricing of water in publicly funded irrigation schemes has led to severe problems of soil salinity. Similarly, the ecologically sustainable development working group on manufacturing said that: The underpricing of certain public resources has almost certainly had significant impact on the development of manufacturing industry. Local government, for example, has an incentive to keep general rates low to encourage development and therefore charges lower prices for serviced land, water and other infrastructure than if the full economic and environmental costs were incorporated. The result, in turn, is an incentive to use more factory space and a disincentive to save resources through recycling and waste minimisation. Similarly, the underpricing of landfill areas for rubbish tips means there has been little incentive for recycling and reduction of factory wastes and also probably inadequate attention paid to alternative disposal methods. (ESD Working Groups 1991a, pp. 92&endash;3) The market system also fails to accord appropriate prices to environmental goods. The market works best for goods that can be measured in terms of physical quantity and can therefore be priced. The environment cannot easily be parcelled up in this way. Even where it can be measured in quantitative terms, such as by area or volume, such measures fail to incorporate the nature of ecosystems which are more than just areas of land or volumes of water; rather, they are complex interacting systems of living and non-living things. Some environmental resources; such as timber, fish and minerals; are bought and sold in the market. But their price often does not reflect the true cost of obtaining them 'because their valuation has invariably been based on the resource as an entity by itself and not as the component of a resource system' (Thampapillai 1991, p. 15). Thus the price of a resource may include the partial but obvious cost of obtaining it, but not the cost of environmental damage caused in the process.
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© 2001 Sharon Beder