Is the Environment a Public Good?

I’m frequently asked how an anarchist society would deal with things like pollution and other kinds of corporate malfeasance in the absence of a regulatory state.

One remedy commonly put forward by market anarchists is tort liability, enforced by local juries or arbitration services. For example, a corporation that spilled large quantities of gasoline and polluted the groundwater would be sued by the farmers whose wells were affected.

Libertarian writer Don Boudreaux (“Demsetz on the Costs of Markets,” Cafe Hayek, Jan. 21) cites economist Harold Demsetz to the effect that property rights (like the right to clean air) may go unprotected in a free market because protection costs too much. The transaction costs of defining the property rights, assigning a market value to them, and identifying and punishing violations, are simply more than it’s worth to those who are protected.

If this is the case, Boudreaux’s argument essentially mirrors that of progressives: That the prevention of pollution is a public good. They simply disagree on whether the market’s forbearance is a “market failure” or a rational allocation of resources away from an activity that’s just not worth it.

I don’t think either is correct.

If we look at the actual historical record of how tort liability law has dealt with negative externalities like pollution, it’s clear that the state has had a huge effect on shifting the comparative transaction costs of enforcing different kinds of property rights in a particular direction — namely, reducing the costs for large property owners (in particular firms in extractive industries) to enforce their rights against squatters and trespassers, while increasing the costs of small interests enforcing (for example) rights against polluters.

The bare act of large-scale engrossment of vacant land by the early American state, followed by large-scale land grants or grants of preferential access to favored railroad, mining, drilling, timber and ranching interests, is one example.

Another is the changes which American courts made in common law liability rules, as described by Morton Horwitz in “The Transformation of American Law.” The common law of liability was substantially changed in the early decades of the nineteenth century to protect businesses against liability for things that were regarded as a normal part of doing business, even if it resulted in real harms to third parties.

Yet a third example is the twentieth century regulatory state, which preempted common law liability altogether and created safe harbors for those who met its dumbed-down standards. In functional terms, this was a direct continuation of the process Horwitz described. A polluter who meets EPA standards can point to that as a legal defense, even if a plaintiff can marshal good scientific evidence that the pollution caused her significant harm.

According to Gabriel Kolko, in “The Triumph of Conservatism,” a good deal of the Progressive Era regulatory agenda was actually promoted by the regulated industries, as a way of creating de facto regulatory cartels that would apply the same standards to an entire industry across the board — thereby removing the subject matter of the regulations as an issue of cost competition between firms in the industry.

In fact, in some industries we actually see federal regulatory standards being used as a pretext by some businesses for preventing their competitors from voluntarily adhering to standards more stringent than those set by the regulatory authorities.

So we have not had a free marketplace, where civil protections against pollution and other tortious activity never arose because the transaction costs were too high. What we have actually had is a state capitalist marketplace, where the state artificially raised the transaction costs of enforcing civil protections against pollution — and thereby reduced the transaction costs of pollution.

As always, it’s not a question of what we’ll do when the state stops solving the problem. It’s a question of how to stop the state from creating the problem.

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