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The Role of Ethics in Environmental Economics Why environmental economists often do not speak the same language? Lenka Čamrová, University of Economics in Prague
Introduction The main goal of the paper is to describe the role of the ethics in environmental economics, the dynamically evolving sub-field of economic science. We would like to explain how the so-called “environmental ethics” were integrated into environmental economics, what are the consequences of this integration and what other solution to solve environmental problems can be found if we completely remove ethics. In the early 70s’, environmental economics started to be considered as the separate sub-field of economics. Its main goal was to find a solution to the increasing environmental problems. At the same time, natural resources and other environmental components (e. g. water, air, forests, biodiversity, etc.) started to be treated as special, life preserving assets, within the field of economic science. As moderately described in Turner, Pearce & Bateman1: “… it is of crucial importance for an understanding of environmental economics, that we recognize that our economic system (which provides us with all the material goods and services necessary for a ‘modern’ standard of living) is underpinned by and cannot operate without the support of ecological systems of plants and animals and their interrelationships (collectively known as the biosphere), and not vice versa.”2
Because of this declared importance, which can be considered as an ethical statement, supported by the economic concept of externalities, the allocation and consumption of environmental assets was regarded as needing other economic principles as opposed to ordinary goods. Why? And what is the consequence of it? In this paper, we will mainly focus on ethical rather than economics arguments. 1
Many other statements of the importance of nature in the economy were done by people who call themselves economists: „… the spaceship economy – the metaphor for the world as a whole – is characterized by limited material and food supplies. The survival strategy in this case is economic use of materials, energy and environment, and maximisation of recycling of substance, materials and products.“ (Bergh, van den, 2000, pp. 3). 2 Turner, Pearce, Bateman, 1994, pp. 1.
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Over the decades, many ethical concepts were developed to support the idea of the natural degradation and the necessity of resource depletion under the current institutional and political arrangement (e. g. the “spaceship earth”, “invisible foot”, “sustainable growth” and others3). The extent of this infiltration into environmental economics directly influences the way in which environmental economists think about the economic system we live in and the solutions they see to protect the environment. Differences of opinion regarding these solutions vary from the general belief in the role of the free-market economy to the absolute confidence of its harmful effects on the environment.4 Unfortunately, the battle of wills is not often anchored in different economic schools of thought (where the discussion on different methodological views, concepts or restrictive assumption is possible), but in more or less stronger trust in sacredness of the nature. In following chapters, we will try to depict particular ethical stands contained in environmental economics and discuss whether and why they do not comply with the common economic tools. We will show which solutions to environmental problems are currently suggested from the position of leading environmental economists and in which way the ethical insight modify their suggestions.
The core of economics Over centuries, economics gained its own position among the social sciences. It developed its own methodological grounds and analytic apparatus to be distinguished from sociology, philosophy, ethics and others, and brought its own original perspective on human society. This perspective is grounded in trying to reveal why and how people act.5 Therefore, universally valid statements about human action became an integral part of economic analysis.6 The application of economics to any kind of social problem (such as environmental protection) has to respect its main premises and methods. Before we come to a description of environmental economics, lets’ start with introducing some important economic assumptions or core principles which distinguish economics from other fields of science:
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See note 1 and 4 of this paper. See also e.g. Kula, E.: Economics of Natural Resources and the Environment, Springer, 2006. 4 E. g. in Anderson and Leal’s Free Market Environmentalism (2001) we can read: “In general, free market environmentalism emphasizes the positive incentives associated with prices, profits, and entrepreneurship, as opposed to political environmentalism, which emphasizes negative incentives associated with regulation and taxes. At the heart of free market environmentalism is a system of well-specified property rights to natural and environmental resources.” [Anderson & Leal, 2001, pp. 4]. On the other hand, according to one key representative of ecological economics – Herman Daly – the system works in another way: “Traditional free-enterprise economics has relied on an invisible hand, operating in the free market to work things out for the best. [But] … besides the invisible benevolent hand, which leads selfinterest unwittingly to serve the common good, there is the invisible foot, which ‘leads self-interest to kick the common good to pieces’. What is needed is public restrain – what Hardin calls ‘mutually agreed upon, mutually coercive rules’ – to preserve our environmental capital and to distribute resources more equitably … - in order that everyone has enough, but no one has more than his or her fair share.” [Pojman, 2000, pp. 346] 5 For a detailed description of the importance of economic analysis see e. g. Holman, 2002, Chapter 1. 6 They are such as: The law of decreasing marginal utility, the time preference (the fact that people in general like to satisfy their needs sooner rather than later), motives that drive the tragedy of the commons, etc.
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a) Economics is a value free science – i. e. it describes why people act (to fulfil their needs) and how they act (what tools they choose to satisfy their needs). Economics does not judge human preferences, it takes them as given.7 b) Man is always considered as being rational, which means that in a particular place and time he chooses what he thinks is the best option for him (the option that maximizes his pleasure and minimizes loss). The valuation done in a particular place and time is always subjective, therefore nobody can judge his choice as ineffective or irrational. c) Economics is a social science about human action – i. e. only human beings and their motivations and mutual interactions are at the centre of its focus. At first sight, there is nothing to disagree with in the description of these principles. Despite the fact that the language used belongs primarily to Austrian economists, mainstream economics has no severe objections against them. 8 In Samuelson, for example, the distinction between positive and normative economics is stated. Although primarily positive (value free) science, an economic theory has also its normative part which includes value judgements about what should be done. However, according to Samuelson, there is a severe complication regarding these judgements or individual opinions: “We can dispute about them, but the science can never solve them. There is no right or wrong answer on the question … if the society should help to the poor or to spent money on the defense.”9
Therefore, the heart of an economic explanation of social problems always lies in its positive part, from which the normative (subjective) statements of a scientist has to be clearly distinguished. To keep the above mentioned economic principles in force, there is a limited space for morality of any kind – i.e. what or who is right or wrong, what should or should not be done, etc. But still, economics as a science commands powerful tools to explain why people act as they do. If there is some controversial side-effect of rational human action in the economy, an economist is able to discover what is wrong in the system (not in people) and to suggest what institutional change should be done if we want provide individuals with different motivations.
Understanding environmental economics Does environmental economics comply with the main economic principles mentioned in the previous chapter? To be able to answer this question, we will go through some definitions of environmental economics. But first, to gain a better understanding, it is necessary to briefly introduce different groups of thinking within environmental economics. Who is an environmental economist for the purpose of this paper?
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For more argumentation see e. g. Mises, 2003, pp. 37 - 39 Sometimes, there are confusions in understanding the term “rationality” and arguments are made against the assumption that people are objectively rational – i. e. there are situations in which a person under the circumstance of imperfect information acts differently to how they would if he knew everything. So, in this case, is the person irrational? No! Because we simply do not live in a world of perfect information, the rationality of a person cannot be judged from the position of the external valuator. The rationality therefore does not lie in the fact, that people are flawless, but in the fact that they do not systematically repeat mistakes, but they learn from them and correct their behaviour according to their new knowledge. (Holman, 2002, pp. 20) 9 Samuelson, 1991, pp. 1. 8
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So far, we used the term “environmental economics” as covering for all thoughts dealing with economics and the environment. This is not perfectly correct because several approaches with different titles have evolved over the past 40 years. They were inspired by different economic schools of thought and each of them represents a different mixture of economic theory and environmental ethics (see picture 1). Picture 1: Representation of the ethics in sub-divisions of the environmental economics
The thinking which can be found in current environmental economics books are labelled as “mainstream environmental economics” here.10 It emerged from neoclassical welfare economics based on the concept of market failures (Pigou) and some of its critiques (Coase, Demsetz). It kept a strong neoclassical ethical background coming from the utilitarianism of Jeremy Bentham (only switching essential conditions for maximising social wealth). Ecological economics is the competing sub-field of economics and the environment sciences. It has severe objections against mainstream (neoclassical) environmental economics tools and conclusions and its main ethical goal is to reach a sustainable use of environmental resources at any “price”. Ecological economics was inspired by economists who dealt with resource depletion and environmental crisis (e. g. Malthus, Mill, Marx). Another step further to the left, there is environmentalism targeting to use as little of environmental assets as possible. The protection of ecosystems is essential per se. There is very little economics as such, although some regulatory measurements of the economy are suggested within this “school”. Finally, free market environmentalism as a relatively new field of thoughts was inspired by the property-right and the government failure concepts (Public Choice, Austrian School). In comparison with other schools, there is minimal ethical insight here (it is only used as one of the arguments to support individualism and the property rights doctrine).11 Since every ethical insight is simply based on the subjective belief what people should or should not do and how they should be organized, it is not surprising that there are so many 10
See e. g. Tietenberg, T.: Environmental and Natural Resource Economics, 1984; Pearce, D., Turner, K.: Economics of Natural Resources and the Environment, The John Hopkins University Press, 1990; Kolstad, Ch.: Environmental Economics, Oxford University Press, 2000, or Czech publications Sauer, P. a kol.: Základy ekonomiky životního prostředí, VŠE v Praze, 1997, Jílková, J.: „Daně, dotace a obchodovatelná povolení – nástroje ochrany ovzduší a klimatu“, IREAS, Institutu pro strukturální politiku, o.p.s., 2003. 11 As written by the founder, Terry L. Anderson, free market environmentalism principles correspond with natural principles: “Since Charles Darwin’s revolutionary study of evolution, most scientific approaches have implicitly assumed that self-interest generally dominates behavior for higher as well as lower forms of life. Individual members of a species may act in altruistic ways and may cooperate with other species, but species survival depends on adjustments to changing parameters in ways that enhance the probability of individual and species survival. To assume that man is not self-interested… requires heroic assumptions about Homo sapiens vis-á-vis other species.”
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confusions and misunderstandings between environmental economists belonging to the different groups described above. To solve these several disputes it is extremely important to distinguish and, ideally, to isolate particular ethical and economic arguments. What is environmental economics about? Keeping the principle of value-free science in mind, the broadest definition of environmental economics was given at the beginning of the chapter: Environmental economics describes human actions that directly interfere with the environment, i.e. particularly satisfying needs for which environmental assets are needed for the production or consumption of goods. It solves conflicts between individuals competing for scarce natural resources and it explains the reasons and consequences of human actions under different institutional arrangements.12 From this general understanding of environmental economics it results, that regarding environmental assets (as any other assets) people act by satisfying their most urgent needs. The role of an economist is to describe their actions in a given institutional frame. In this overall/broad interpretation, environmental economics fully complies with the core economic principles mentioned above – it is positive, anthropocentric and respects the rationality of human action per se. Contrarily, we list some of the currently used definitions of environmental economics. Mainstream environmental economics is, in various modifications, defined as follows: • According to the definition of the Environmental Protection Agency: „Environmental economics [is] a market-based approach to achieving a sustainable economy that integrates long-term economic growth, environmental quality and social fairness through innovative taxes, tax incentives, auctioned permits and other market-based mechanisms (adapted from the Centre for a Sustainable Economy website).”13
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According to the leading mainstream environmental economist, Charles D. Kolstad: “Environmental economics is concerned with the impact of the economy on the environment, the significance of the environment to the economy, and the appropriate way of regulating economic activity so that balance is achieved among environmental, economic and other social goals.”14
From first sight (although it is difficult to make conclusion from a few sentences), we can disclose terms such as “social fairness” or “social goals” that indicate the significant shift of the focus from the individual to the collectivistic action. We can also find the purpose (goal) of this action - “to achieve a sustainable economy” – and tools suggested to reach this goal – taxes, market-based permits and other kinds of government regulation. The ecological economics definition moves this perspective another step forward: “The core of ecological economics can be associated with the goal of sustainable development, interpreted as both intra- and intergenerational equity, the view that the economy is a subsystem of a larger local and global ecosystem that sets limits to the physical growth of the economy… In addition, ecological economics seems to discard consumer sovereignty when giving priority to the interest of systems above the freedom of choice of individuals, as in environmental movements like ‘deep ecology’.“15
To complete the picture (mentioning the requirement of deep ecology or environmentalism in other words):
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Author’s definition from the forthcoming book on environmental economics. Definition of Environmental Protection Agency (http://www.epa.qld.gov.au/environmental_management/sustainability/industry/sustainability_roadmap/glossary /), 7.6.2005 14 Kolstad, 2000, pp. 1. 15 Bergh van den, 2000, pp. 2 a 7. 13
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“Environmentalism refers to a way of thinking and a movement of political activism based on the common conviction that our natural environment should be protected.”16 “Deep ecology is a recent philosophy or ecosophy based on a shift away from the anthropocentric bias of established environmental and green movements. The philosophy is marked by a new interpretation of "self" which de-emphasizes the rationalistic duality between the human organism and its environment, thus allowing emphasis to be placed on the intrinsic value of other species, systems and processes in nature.”17
From these quotations it is obvious that the position of the individual or the individual human action is strongly suppressed. Man’s goals are replaced by “artificial” social goals (e.g. fairness, sustainability, equity) which he as the individual is usually reluctant to voluntarily follow. The positive description of the individual action is replaced by the normative setting of social goals and by discussing the most effective ways of achieving them. The violation of the value-free principle and questioning human rationality has only one logical consequence – a call for government action to correct the economy. Not only does the market fail (due to the existence of externalities and public goods), people themselves also fail in reflecting the “appropriate” environmental protection in their actions. Even in the perfectly competitive market, people will underestimate the importance of the future generation’s survival and will take “wrong” actions. As stated e.g. by Pigou: “Over-hasty exploitation of the best coal seams by methods that cover up and render unworkable for ever worse, but still valuable, seams; fishing operations so conducted as to disregard breeding seasons, thus threatening certain species of fish with extinction; farming operations so conducted as to exhaust the fertility of the soil, are all instances in point... [O]ne generation, though not destroying more actual stuff than it itself obtains, uses up for trivial purposes a natural product which is abundant now but which is likely to become scarce and not readily available, even for every important purposes, to future generations. This sort of waste is illustrated when enormous quantities of coal are employed in high-speed vessels in order to shorten in a small degree the time of a journey that is already short. We cut an hour off the time of our passage to New York at the cost of preventing, perhaps, one of our descendants from making the passage at all.”18
We need more protection than people voluntarily do, so we have to force them to change their behaviour. But is it the correct and only solution to environmental problems? And where do these social goals come from? Since economics has only tools to discover how people act (not why they want what they want), it is not capable of creating/setting social goals. Therefore, these social goals originate from another source –environmental ethics.
Impact of environmental ethics To briefly summarize our previous findings within environmental economics: Although economics is primarily considered as a value-free science respecting the rationality of human actions, environmental economics does not follow these premises much. Environmental assets are of a special kind and they have to be treated in a sustainable manner and allocated equally. In practice, this can be done only through government regulation. Therefore, the role of an environmental economist is not to “watch, describe or deduce”, but to design
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Mazzotti, 2001, pp. 1. Definition stated in Wikipedia (http://en.wikipedia.org/wiki/Deep_ecology), see also Edward-Jones, G., Davies, B., Hussain, S. S.: Ecological Economics: An Introduction, Blackwell Publishing, 3 edition, 2000. 18 Pigou, 1932, Part I, Chapter II. 17
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appropriate policies to reach social goals. These goals are made up outside of economics – in the field of environmental ethics. Finally, we come to the point where we discover what environmental ethics really is and how exactly it contributes to environmental economics. Environmental ethics is defined as follows: “Environmental ethics is a way of applying normative ethics to a particular set of practical issues, but it also is a new way of doing normative ethics in general. Environmental ethics asks what we owe each other, and to ourselves, given our ecological context. It also asks what, if anything, we owe to nonhuman animals, to plants, to fragile geological wonders, to species, and even to ecosystems themselves. It asks what kind of life we should aspire to live, and what kind of world we should aspire to live in.”19
There are several books20 describing the main thoughts of environmental ethics – i. e. what precisely should be done to avoid forthcoming ecological disasters. These thoughts can be summarized as follows: • society should aim to achieve sustainable growth (sometimes define as the “zero economic growth”), in short: to use ecosystems less than today, • the intrinsic (inherent) value of the environment should be incorporated into economic consideration, • moral standings of animals and plants should be taken into account.21 Environmental ethicists very often view the pure economic thinking negatively and they indicate it as “the heart of the ecological crisis… [So] we need to reject, rethink, or revise mainstream economics to take into account long-term environmental welfare.”22 In brief, economics should not independently analyze people’s behaviour taking their preferences as given (in other words, just make them maximize material wealth23), but it should serve moral ends. What is economically sound may not be morally so, to implement some kind of (environmental) ethics is the necessary consequence. “We must first figure out what our goals are and then use economics to help get us there. In understanding these goals, we must realize and incorporate moral principles.”24 The urgency of these wishes or calls is underlined by describing catastrophic pictures of the world today: “At present the Earth’s population is 6 billion. Where will it end? Large numbers of unemployed, unhoused people crowd the cities of our world, potentialing crime and conflict. Famines and armed conflicts are already devastating large sections of the world, and a fifth of the world lives in abject poverty.”25
The requirement of environmental ethicists is clear: “They, economists, do not watch and describe why and how people act, but push them (by all available means) to do what we consider as right.” Who are “we”? In this particular case ecologically conscious scientists who know exactly what has to be done to save the planet. But, if we listen to this advice, we will sooner or later collide with all three core economic principles mentioned at the beginning of the paper. How? • we are asked to implement some given “true” preferences for people (or to force them to follow our preferences) in the name of reaching the abstract goal of sustainable growth, 19
Schmidtz & Willott, 2002, pp. xii. See Pojman, 2000, and Schmidtz & Willott, 2002. 21 Pojman, 2000. 22 Pojman, 2000, pp. 327 - 341. 23 Ibid. 24 Ibid., pp. 346. 25 Pojman, 2000, pp. IV. 20
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we severely question human rationality by creating the concept of intrinsic value, which, in other words, means that people are not able to give a value to things which serves to satisfy their needs (which also seriously undermines the subjectivist concept of value26 as such), • by discussing the moral standing of animals and plants – i.e. their rights as the opposition to human (property) rights – we violate the subject of the social science “economics” itself and we shift the whole discussion about the extent of environmental protection into the field of philosophy. Despite this strong violation of the economic building blocks – human rationality, positivism of economics and the subject of economics as such – it is necessary to emphasize, that environmental ethics has already been fully implemented into sub-fields of environmental economics situated on the left (see picture 1). Further, it is gradually becoming increasingly included in the thoughts of “mainstream environmental economists”.27 What then is the result of this implementation? Environmental economics in general is becoming a strongly limited normative science dictating to people what they must do regarding environmental assets, depending on the pre-set environmental goals created by certain groups of (natural) scientists. Due to this fact, unfortunately, it looses its original and crucial ability to discuss the means of achieving optimal environmental protection based on individual human preferences. Some environmental economists do not view themselves capable of setting social environmental goals, so they are more pragmatic. In reality, they say, it is impossible to identify and implement some desirable level of pollution (e. g. the sustainable level), because the information necessary for this decision is simply not available to the decision-maker. Therefore, the government should fix some socially “desirable” or “tolerable” level of pollution and environmental economists should implement this environmental standard with minimal overall costs.28 In this situation, the success of environmental protection of any kind implicitly and inevitably depends on the effectiveness of the political process. But is it a useful application of economic science? And is it really the only contribution that economics can make in relation to environmental protection? We do not think so. Since the violation of each principle mentioned above is a very serious problem for further economic analysis, in the following sub-chapters we will discuss them one after another. We will argue why violating any of the core principles through the adoption of environmental ethics deforms the economic analysis and leads to questionable conclusions.
Why keep economics primarily value free? The absence of value judgments in positive economic analysis is described as its scientific fundamentals and the integral part of its methodology. In the words of Ludwig von Mises: “It is true that economics is a theoretical science and as such abstains from any judgment of value. It is not its task to tell people what ends they should aim at. It is a science of the means to be applied for the attainment of ends chosen, not, to be sure, a science of the choosing of ends. Ultimate decisions,
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See e. g. Menger, 1994, Chapter III – Theory of Value, pp. 114-164. Compare e.g. Pearce, D. W., Turner, K. R.: Economics of Natural Resources and the Environment, The John Hopkins University Press, 1990, with up-to-date Kolstad, 2000. 28 Baumol, Oates, 1971. 27
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the valuations and the choosing of ends, are beyond the scope of any science. Science never tells a man how he should act, it merely shows how a man must act if he wants to attain definite ends.”29
Therefore, any value adopted within economics is of a subjective nature – it can be traced back to an individual valuator. The main goal of economics is not to argue about particular subjective opinions, but to search for objective and universally valid rules of human action. One of these well-known universally valid laws applied in the field of environmental economics is, for instance, the tragedy of the commons. It says, if people (society, state) want to avoid the destruction of a scarce environmental resource in public ownership (e.g. a pasture, an ocean), it has to privatize it. Economists in this context do not state that privatization is good or bad. They simply say that if we want to increase the quality of a resource in degradation which belongs to everybody (so, in fact no individual has a motivation to care about it), we have to establish individual property rights to particular portions of this resource.30 As Mises further says, there are two groups of opponents of the economic neutrality whose arguments are in mutual contradiction: “While many people blame economics for its neutrality with regard to value judgments, other people blame it for its alleged indulgence in them. Some contend that economics must necessarily express judgments of value and is therefore not really scientific, as the criterion of science is its valuation indifference. Others maintain that good economics should be and could be impartial, and that only bad economists sin against this postulate.”31 32
We will further discuss the opinion that economics should contain judgments of value because without them its outputs are useless for policy recommendations (e.g. how much to tax oil, what mining limits to impose etc.). So, what is the main problem with this claim? As we emphasized earlier in this paper, there is a serious complication with violating the value-free principle, because any value judgment belongs to someone. This person or group of persons carry a certain opinion (e.g. what human beings owe to nature or how much of a resource they should use) based on a personal belief or some kind of the scientific data and they intend to persuade other people (often by force) to adopt these values and to follow them. So the serious complication - since no one has perfect information about the state of the world and the future development – is, that this opinion can be wrong Let us consider an example. The author of a value judgment can be a politician or a scientist and this judgment can have the following form: “The study showed that the area of forests is decreasing, so we need to safe current forests and to ensure an increase in forest land of 5 % a year.” The right policy inspired by this opinion would be for example the prohibition of timber harvesting and the conversion of the appropriate portion of the land into forests. But several questions arise: Why do we have to save all the forests we have right now? Why do we need to increase the proportion of forested land? What is the evidence that the right rate of
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Mises, 1998, pp. 10. See several examples described in Block, W. E.: „Environmental Problems, Private Property Rights Solutions“. In: Economics and the Environment: A Reconciliation, Walter E. Block ed., The Fraser Institute, 1990, Vancouver, Canada, pp. 281-332. 31 Mises, 1998, pp. 879. See further argumentation on this topic in this chapter. 32 In Pojman’s Environmental Ethics this opinion is expressed as follows: „Mainstream economics claim to be a science, a pure neutral description of how the market, led by supply and demand, works. It is free from value commitments or moral prescriptions. But this is a myth. It presupposes a powerful ideology – that selfish behavior is good, that material growth is always good, and that the former leads inexorably by an invisible hand to the latter.“ (Pojman, 2000, pp. 332). 30
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recovery is 5%? Within a positive economic analysis, an economist is not able to provide justification for such a policy.33 Since in economics all preferences and values are derived from individuals, the mentioned “study” showed that people, through markets, expressed their wish at a certain point of time to have fewer forests and more houses. Due to this preference, the value of housing land is increasing and there is a pressure to get more of it i.e. at the expense of forest land. But is it all wrong? On what ground can we judge it? If people prefer housing to forest recreation at a certain time and place, there are no other objections against this behaviour besides those grounded in a subjective belief that more forests is better. Of course, there are more (mainly institutional) factors that influence the whole situation. For example, since owners of forests are sometimes prohibited to charge hikers and pickers, the value of the forest land is artificially lowered. Or due to the introduction of government cheap mortgages for young families, there is suddenly a stronger demand for new housing, etc. So without these regulations, the portion of forest land could be stable or even increasing.34 But the main point of this example is that within economics no one is able to decide, how much forests is enough and to judge if current trends are good or bad. Therefore, in general there is no objective truth in planning how many resources to save, especially in the world of public environmental goods (environmental socialism in other words), in which market mechanisms do not work to provide individuals with the right signals. Searching for intrinsic value Despite this, there are many scientists who devote a great deal of effort to find the universally valid answer to how much environmental resources usage is “sustainable” – they focus on valuating environmental assets for which there are no markets and they also calculate negative externalities of production and consumption to correct existing market prices (of oil, electricity, plastic packages, etc.).35 They follow an onerous goal and search for an “objective truth” based on scientific data and objective economic analysis. Their effort is worth admiring, but in the field of the environment they are trying to do the same job – calculations for government planning – as central planners in the former Soviet Union tried to do for the whole economy. As stated by Mises during the famous debate on the “(im)possibility of economic calculation in the socialist commonwealth”, once and forever, such central planning cannot be successful. “Given, therefore, the infinitude of the relationships of complementarity and substitutability simultaneously subsisting among the various types of productive resources, a single human mind-even if it were miraculously endowed with complete and accurate knowledge of the quantities and qualities of the available factors of production, of the latest techniques for combining and transforming these factors into consumer goods, and of the set of all individuals’ value rankings of consumer goods--would be utterly incapable of determining the optimal pattern of resource allocation or even if a particular plan was ludicrously and destructively uneconomic. Not only would this perfectly knowledgeable person be unable to devise a rational solution of the problem, he or she would be unable to even achieve a full intellectual “survey” of the problem in all its complexity.”36 33
The example was inspired by Block, 1990, pp. 295-299. The whole example is a strong simplification of reality and its main purpose is to express the possible conflict between different uses of land in general. Surely, an increase in the demand for housing would also increase the demand for wood and the result could be the increase in a portion of housing AND forest land at the expense of agricultural land etc. 35 See e. g. Arrow, K. J., Bateman, I. J., Willis, K. G.: Valuing Environmental Preferences: Theory and Practice of the Contingent Valuation Method in the US, EU, and Developing Countries. Oxford University Press, 2002. Freeman, A. M.: The Measurements of Environmental and Resource Values: Theory and Methods, PRF Press, 2003. 36 Salerno, 1990, pp. 35. 34
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In other words, there are always dozens of alternative ways of production of a certain good people wish to consume. In the market economy, the most effective production process is determined by the prices of production factors (labour, capital, land or other resources) according to which the economic calculation is made. If an entrepreneur fails in doing this calculation (due to imperfect information, an incorrect prediction of the future market situation etc.), he is priced-out by more successful competitors. Through this spontaneous mechanism, the most effective processes are selected in time and production factors are continuously re-allocated between different uses accordingly to reach their highest usefulness. On the other hand, in a centrally planned economy (or a sector of the economy) the prices of production factors do not exist, so the calculation of the production process described above is impossible. In our case of environmental socialism, the true prices of land or other resources are unknown or distorted. The central planner has to determine the prices of these factors (e.g. to establish the value of a forest for recreation) or to arbitrarily establish the preferred production process (e.g. glass packaging is better that plastic packaging). But, as pointed out in the quotation above and further developed in the works of Mises and Hayek, the central planner never faces the same motivation of possible loss as the individual entrepreneur and any mistakes in decision-making will remain unpunished. Due to the nonexistence of information needed for planning at the central level and due to the impossibility of economic calculation, central planning systematically brings incorrect solutions to existing problems. For these reasons, environmental calculators also face severe complications at every step of their analysis. How to evaluate water, air, biodiversity and other resources which have been 100% nationalized? How many resources to save for future generations and how much of them should be used now? All these non-existing answers must be replaced by a value judgment based on the best conscience of a scientist.37 Simply said, there is no pure scientific method which could compensate the spontaneous processes proceeding at decentralized markets and through which we can reveal some objective concrete environmental goals at the central level. The replacement of individual preferences by calculated “objective” environmental goals is therefore a step toward more ethical (subjective) statements in economic analysis. If we are persuaded that individuals, through their actions on markets, are not able to correctly establish the appropriate level of environmental protection, then economics itself does not offer any alternative mechanisms to find the right answer. The argument, that it is better to follow an imperfect calculation burdened by the information failure than to rely on the free will of individuals (who are wrong), will be discussed in the following chapter. But the scientific calculation of “objective” environmental goals is not the last step which has to be done to adopt “appropriate” environmental protection. To be in force, these particular goals must go through the political process, which causes further problems. It is not surprising that, contrary to environmental scientists, the goal of politicians is not to reach the sustainable use of environmental resources, but (ideally) to adopt only socially acceptable regulation. 37
Only some environmental economists recognize ethical problems in this process. As stated e.g by Kneese: „This raises the question of how the rights and preferences of future generations can be represented in this decision process. Realistically, the preferences of the existing generation must govern. The question is whether simple desires of existing persons are to rule or whether it is necessary to persuade the present generation to adopt some ethical rule or rules of a constitutional nature in considering questions of future generations.“ (Kneese, 1995, pp. 195).
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“The incentive structure in the political sector is less likely to tend toward efficiency because voters are rationally ignorant, because benefits can be concentrated and costs diffused, and because individual voters seldom (probably never) influence the outcome of elections. For these reasons, it is unlikely that elections will link political decisions to efficiency in the same way that private ownership does in the market process.”38
Socially acceptable environmental regulation reflects such needs of national policy as the necessity of low prices of energy, water etc., for households instead of imposing the full cost of energy or drinking water production on them.39 The government also prefers the protection of employment by subsidizing large, ineffective and often heavily polluting factories instead of aiming at environmental protection. The rational ignorance of voters is followed by other negative by-products of public policy, such as rent-seeking, budget maximization, corruption and other forms of behaviour in which one acts at the expense of others. In short: “Turning moral values into political issues and arguing that it is a matter of treading more lightly on the Earth, however, becomes another form of rent seeking, wherein people with one set of moral values get what they want at the expense of others.”40
To conclude our argumentation against the violation of the value-free principle – not even “ideal” centrally-planned environmental protection can be revealed/calculated on the scientific field, but neither can reasonable environmental goals be the output of the political process. These two findings must be strongly emphasized whenever discussing the implementation of government regulation in the name of sustainability instead of keeping markets in force.41 The current evaluation of regulations adopted decades ago clearly confirms our theoretical arguments.42
Why put aside questioning rationality of human action? It is assumed by environmental ethicists that individuals themselves cannot ensure the appropriate (sustainable) level of environmental protection because they have “wrong” preferences. The reason is that most people are not able to give a “right” value to things, because they do not include, environmental ethicists argue, the intrinsic value contained in environmental assets. In other words, the intrinsic value of ecological systems exists 38
Anderson, Leal, 2001, pp. 21. See e. g. Economic study of the Czech pipelines and sewerage companies who „...mainly covers operational costs, but only partly covers the investment costs. Because of the danger of the high social burden, the full cost is not transferred to the final users (households), which could be a problem in the future, because the costs of reconstruction and operation of new facilities will not be covered from Central Government resources.“ Camrova, L.: Assesment and Development of Municipal Water and Wastewater Tarrifs and Effluent Charges in the Danube River Basin. UNDP-GEF Danube Regional Project, September 2004. [on-line: http://www.ireas.cz/download/projekty/www_vak/national_profile.pdf, 30 October 2006] 40 Anderson, Leal, 2001, pp. 24. 41 As revealed in several studies, the so-called market failures are often caused by the absence of rules enabling the proper functioning of markets. Since the government is the main ruler in most countries, the pollution and environmental degradation is rather a government failure than a market failure. As emphasized by Block: „Commercial transactions are only the most easily identifiable aspects of the marketplace. Of even greater importance are the laws that underline the system, particularly the rules that define property rights. Unfortunately, in this crucial property rights area, legislatures and the courts have failed to perform their assigned tasks. The pollution problem is essentially a manifestation of this breakdown.“ (Block, 1990, pp. 282) 42 See e. g. reports of PERC, such as Fretwell, H. L: Public Lands Report I: The Price We Pay. [on-line: http://www.perc.org/perc.php?subsection=9&id=134#intro, 30 October 2006], Benjamin, D. K.: Eight Great Myths of Recycling. PERC Policy Series, Issue No. PS-28, September 2003, etc. 39
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independently of humanity's recognition of it. The understanding of value in environmental ethics is briefly as follows: “To say valuing is a relation between valuing subject and valued object is not to say value is purely subjective... An object has instrumental value to me when it is useful to me. It has intrinsic value to me when I value it in its own right, independently of what it is good for. Both are values to me, although not in the same way.”43
If we consider an example: “After the last person is gone, there will be no valuing subjects left, therefore no one to whom the last redwood can be useful, and therefore no possibility of the redwood having instrumental value. Must we say the same about the redwood’s intrinsic value, since no one is left who can value the last redwood for its own sake? When no one is left to value it, does that mean it will have no value? ... When the last person is gone, there will be no perspective in that world from which the last redwood would have value, but it remains true that the last redwood would have value from my perspective, here and now.“44
The existence of intrinsic value causes people to act irrationally, i.e. if they knew the true value of environmental resources which they indirectly or directly use, they would act differently, mostly toward greater conservation. The market mechanisms described above, through which human preferences are transformed into economic transactions, are therefore not a sufficient tool to ensure appropriate environmental protection. Some additional values coming from “outside” have to be implemented by force (e.g. by injunctions or by imposing fees or modifying the tax system). But where do these values originate? How big they are? And who and how can recognize them? Advocating some kind of “objective” value in the environment seems to be a strong argument for correcting individual preferences until we introduce it as a purely ethical one. Despite the statement of environmental ethicists about the nature of different values, the economic theory of value, on the contrary, brings a slightly different approach. Beginning from the marginalistic revolution, economists developed and with a few exceptions follow the socalled subjective theory of value. According to its founder, Carl Menger: “Value is thus the importance that individual goods or quantities of goods attain for us because we are conscious of being dependent on command of them for the satisfaction of our needs... Value is therefore nothing inherent in goods, no property of them, but merely the importance that we first attribute to the satisfaction of our needs, that is, to our lives and well-being, and in consequence carry over to economic goods.....”45
This claim implies that every value is from its nature always subjective expressing the individual satisfaction from a certain action and it is objectively indefinable and immeasurable. As pointed out by Rothbard: “It is important to realize that there is never any possibility of measuring increases or decreases in happiness or satisfaction. Not only is it impossible to measure or compare changes in the satisfaction of different people; it is not possible to measure changes in the happiness of any given person. In order for any measurement to be possible, there must be an eternally fixed and objectively given unit with which other units may be compared. There is no such objective unit in the field of human valuation. The in-dividual must determine subjectively for himself whether he is better or worse off as a result of any change.”46
Even our so-called “intrinsic value” is in reality a subjective one – often introduced by people with a much stronger environmental feeling than an average member of the society has. Even this value does not exist if not expressed by the individual valuator who claims that the value of a tree or of an animal is (according to his or her opinion) much greater than others think. This is a legitimate claim and the author of it is free to act according to his or her preference, 43
Schmidtz & Willott, 2002, pp. xv. Schmidtz & Willott, 2002, pp. xv-xvi. 45 Menger, 1994, pp. 115-116. 46 Rothbard, 2004, Chapter 1.5.A. 44
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i.e. probably to behave more ecologically friendly than others. What is not in order, is to force other members of society (through regulatory measures) to follow my values only because I think I am right.47 The whole confusion about different types of value (instrumental and intrinsic value in our case) originates from a misunderstanding of the crucial role of the individual’s free will in economics. As understood by environmental ethicists, any individual suffers from disunity when acting just for himself according to his selfish preference (e.g. going to the cinema) or when doing what he feels is good for the community (e.g. to clean up a public park). Besides selfish preferences: “We also make judgments about what is valuable ... As consumers we have preferences and make choices based on them, but we also regard ourselves as citizens. As consumers we choose for ourselves, but as citizens we judge what we think is good for the community. Our judgments and preferences may conflict.”48
This persuasion follows the previously quoted general view of economics as a science celebrating the accumulation of material wealth. But this is all wrong. People can value the maximization of material wealth as well as a walk in a forest or the preservation of natural beauties for their children. They may behave (and they often do) in altruistic ways. Economics does not sort out human values and preferences into material and non-material or into selfish and non-selfish, but it takes them all as given. As further described by Mises: “In making his choice man chooses not only between various material things and services. All human values are offered for option. All ends and all means, both material and ideal issues, the sublime and the base, the noble and the ignoble, are ranged in a single row and subjected to a decision which picks out one thing and sets aside another. Nothing that men aim at or want to avoid remains outside of this arrangement into a unique scale of gradation and preference... There are people whose only aim is to improve the condition of their own ego. There are other people with whom awareness of the troubles of their fellow men causes as much uneasiness as or even more uneasiness than their own wants. There are people who desire nothing else than the satisfaction of their appetites for sexual intercourse, food, drinks, fine homes, and other material things. But other men care more for the satisfactions commonly called ‘higher’ and ‘ideal.’”49
Whatever satisfies various and countless people’s needs (i.e. whatever is valuable), is automatically created or demanded. And because people do care about the environment (the clean and quiet surroundings of their houses, visiting natural beauties, preservation of endangered species etc.), environmental protection is realized through their preferences and consecutive actions. This is done without the need for implementing some hidden natural values. But what if it is not enough? What if people do not care much or do not have enough information on how to protect the environment on their own? The answer, firstly, is that many institutional instruments exist to let people express their environmental preferences in actions, as environmental protection is a nationalized and strongly regulated sector of the economy. Secondly, if the current state is not enough, how much is enough? And how and on which grounds can we judge it? To sum up in the words of Mises: “Human action is necessarily always rational. The term ‘rational action’ is therefore pleonastic and must be rejected as such. When applied to the ultimate ends of action, the terms rational and irrational 47
Besides, as pointed out by Rothbard, any measurement or the numerical expression of value is impossible. We cannot say, that I value a tree three times more than my mother or that the intrinsic value of a tree is plus 5 points (of what?) than the instrumental value of this tree for the regular person. Further, every effort to implement environmental policy respecting the intrinsic value would face calculation, information and the political-process problem discussed in the previous chapter. 48 Pojman, 2000, pp. 336. 49 Mises, 1998, pp. 4 and 15-16.
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are inappropriate and meaningless. The ultimate end of action is always the satisfaction of some desires of the acting man. Since nobody is in a position to substitute his own value judgments for those of the acting individual, it is vain to pass judgment on other people's aims and volitions. No man is qualified to declare what would make another man happier or less discontented. The critic either tells us what he believes he would aim at if he were in the place of his fellow; or, in dictatorial arrogance blithely disposing of his fellow's will and aspirations, declares what condition of this other man would better suit himself, the critic.”50
Questioning the rationality of human actions therefore, in this sense, has to be refused on this ground. If we only consider human beings (i.e. following the anthropocentric approach), the economic theory of value and its application seems to overcome ethical objections regarding the problem of valuation. This is not true if the values of non-human entities (i.e. an ecocentric approach) are taken into account. That is why we need to discuss the moral position of these entities at the end.
Why the moral standing of animals and plants cannot be accepted? Before entering the last issue, one very important point must be made at the beginning: our focus here is not to start a philosophic discussion as to whether animals and plants should have some kind of moral standing in general.51 Our question addresses the problem why nonhuman entities cannot posses human-like rights within economics – i.e., why it is useless to declare the existence of “animal rights” for the purpose of economic analysis. We will start our argumentation with Watson’s argument introduced in Kneese: “... to say that an entity has rights makes sense only if that entity can fulfill reciprocal duties, i.e. can act as a moral agent. To be such, again he [Watson] claims, an entity must be (1) self-conscious, (2) understand general principles, (3) have free will, (4) understand given principles, (5) be physically capable of acting, and (6) intend to act according to or against the given principles.”52
As further developed by Block: “If they [animals] are to claim any rights of the sort human beings enjoy, they must do one of two things to establish some sort of cross-species linkage. One possibility is that they must petition for their rights in some manner or other. There are those who claim that chimpanzees and porpoises, among others, will be able in the future to do so, or to be taught to do so. On that day, humans will be honour-bound to consider their declarations. Alternatively, if animals are to have rights, they must at least show that they respect the rights of human beings. That is, if the lion claims the right not to be hunted by us, then, we must both get up unharmed when the human and the lion lay down together. Why we should do more for the lion (or the bear, or others beloved by the animal ‘rights’ organizations) than it is willing to do for us?”53
From these quotations it is obvious that economists do not dispute rights for animals. They just point out that so-far animals are not able to enter the social contract with humans and to gain these rights increasing, thus mutual prosperity.54 As is further emphasized, this inability 50
Mises, 1998, pp. 20. The discussion is very sophisticated and many problems remained unsolved even within the field of environmental ethics. „Could we argue that moral standing come in degrees? ... What is the connection between having the capacity for self-conscious moral agency and having moral standing? ... Can species have moral standing? How about fragile ecosystems?“ (Schmidtz & Willott, 2002, pp. xviii-xix). 52 Kneese, 1995, pp. 197. 53 Block, 1990, pp. 306-307. 54 The parallel with the alien species is offered by Rothbard: “What of the ‘Martians’ problem? If we should ever discover and make contact with beings from other planets, could they be said to have the rights of human beings? It would depend on their nature. If our hypothetical ‘Martians’ were like human beings – conscious, rational, able to communicate with us and participate in the division of labor, then presumably they too would 51
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rises from the different nature of animals whose actions are mostly driven by instincts. On the contrary: “Man is not a being who cannot help yielding to the impulse that most urgently asks for satisfaction. Man is a being capable of subduing his instincts, emotions, and impulses; he can rationalize his behavior. He renounces the satisfaction of a burning impulse in order to satisfy other desires. He is not a puppet of his appetites. A man does not ravish every female that stirs his senses; he does not devour every piece of food that entices him; he does not knock down every fellow he would like to kill. He arranges his wishes and desires into a scale, he chooses; in short, he acts. What distinguishes man from beasts is precisely that he adjusts his behavior deliberatively.”55
Difficulties with mutual understanding which disallows or burden mutual social co-operation are described by Hoppe in the example of Robinson and the gorilla: “Obviously, just as Crusoe could face conflict regarding his body and its standing room with Friday the man, so might he with Friday the gorilla. ... The gorilla might want to occupy the same space that Crusoe already occupied. ... Either the gorilla would push aside, crush or devour Crusoe – that would be the gorilla’s solution to the problem – or Crusoe would tame, chase, beat, or kill the gorilla – that would be Crusoe’s solution. In this situation, one might indeed speak of moral relativism. However, it would be more appropriate to refer to this situation as one in which the question of justice and rationality simply would not arise, that is, it would be considered an extra-moral situation. The existence of Friday the gorilla would pose a technical, not a moral, problem to Crusoe. He would have no other choice than to learn how to successfully manage and control the movements of the gorilla just as he would have to learn to manage and control other inanimate objects of his environment.”56
There is no doubt that most people share some kind of moral values regarding animals – e.g. not to torture them, not to kill them or even not to eat them etc. They also behave according to their moral persuasion while solving technical questions of using their private property and ensuring their personal well-being. But there is no point to study, judge or influence these individual moral stands within economics. On the central level, there is also no point in pretending that animals are able to enter some kind of social contract with humans (e.g. to defend their own property rights) and to force people to act according to it. If animals really could do it, they would have already done so. And if they cannot, no arbitrary decision will be a corresponding substitute – i.e. the mere declaration of animals’ rights by humans would not affect individual human action towards animals. Finally, if we decide to force people to respect some (factually non-existent) animals rights, we would necessarily face a similar problem in decision-making as already discussed in the previous chapter on the origin of values and economic neutrality. Therefore, by pointing out the gap between human and non-human entities, it is clearer why the “action” of animals, plants or even natural monuments is of a different kind, and therefore it is not a theme of economic analysis taking the subject of the science of economics into account.
Conclusion
possess the rights now confined to ‘earthbound’ humans. But suppose, on the other hand, that the Martians also had the characteristics, the nature, of the legendary vampire, and could only exist by feeding on human blood. In that case, regardless of their intelligence, the Martians would be our deadly enemy and we could not consider that they were entitled to the rights of humanity. Deadly enemy, again, not because they were wicked aggressors, but because of the needs and requirements of their nature, which would clash ineluctably with ours.” (Rothbard, 1998, pp. 156) 55 Mises, 1998, pp. 17-18. 56 Hoppe, 2004, pp. 51.
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The goal of this paper was to open the wide discussion about the role of environmental ethics in environmental economics, which has so far been turned aside in most disputes and arguments between environmental economists. Our finding here is that environmental ethics is the reason for this quarrel – i.e. why ecological economists blame environmental economists, why also environmentalists (or “deep” ecologists) blame ecological economists and why all these groups together blame free market environmentalism. Environmental ethics is in fact our subjective stand regarding the state of the environment and the extent of interactions of humans with the environment. This feeling widely differs among individuals. In this paper we strongly defend the idea, that environmental ethics (as well as any other kind of moral values) has nothing to do within economics. It does not help to solve conflicts among scarce natural resources, although conflicts are the main reason for environmental degradation. It inordinately relies on government regulation (the stronger the ethical statements, the lower the belief in an ability of individuals to act), although the lack of information and political failures of these actions have been known for decades. Finally, environmental ethics also labels environmental goods as “superior”, which on an economic ground is not true – regardless of the kind of a good (bacon or natural reservation, watching TV or walking in the forest), human action is driven by the same economic principles. Both types – hand-made goods or natural goods, material or non-material values – are scarce and they have an ability to satisfy human needs. There is no reason to automatically declare that the bacon industry is sub-optimal and should be regulated, so why should it be done for any other kind of natural goods and services. We would be glad to see more discussions on market failures (if any) dealing with the environment, externalities and public goods, free-riders and community ownership, based on the economic arguments regarding these concepts – most of them have defenders as well as strong opponents. What we refuse, on economic grounds, is the never-ending discussion about the excessive use of ecosystems (although who knows precisely how we should use them), about intrinsically wrong human values (although nobody knows what the right values are) and about animals rights that are difficult to express and defend. But does it mean that environmental ethics is useless at all? We do not think so. It can surely educate people – as individuals - and to raise controversial questions in their minds. It can make them voluntarily reconsider their current value scales. Fortunately, not all environmental ethicists declare the ambition to drive people only through government interventions. Especially in the situation when other options are available. As declared in Environmental Ethics written by Willott and Schmidtz: “For better or worse, we are, in many ways free to choose how to live, and for the most part we choose as individuals. No person or government is in any position simply to decide how ‘we’ are going to act. As individuals, we must decide how to live in a world full of people deciding how to live, each coming to different conclusions. Therefore, after we come to our own conclusions about what really matters, we still have a long way to go before we figure out what really works. Each of us needs to learn how to live in peace – an environmentally friendly peace – with people who have to come to different conclusions about what really matters.”57
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Schmidtz & Willott, 2002, pp. xx.
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