FLOW Vision News: MAY 2007

Dear FLOW members

Happy Earth Day! In honor of Earth Day, I'll sketch the foundations for environmental optimism.

In 1968, economist Garret Hardin described the concept of tragedy of the commons: When ranchers own their own grazing land, they rarely over-graze their land; they know that in order to feed their livestock next year, and the year after, they must maintain the quality of their pastures. But when ranchers let their livestock loose on common areas, those either un-owned or owned by government, each rancher has an incentive to allow his livestock to graze as much as possible. This situation is called "the tragedy of the commons"and it has been used to analyze almost all environmental issues: atmospheric pollution, over-fishing, over-grazing, water pollution, etc.

Our instinctive response to such situations is to reproach those individuals who pollute, over-fish, over-graze, etc. "Stop the polluters! Stop greed!" Many idealistic people then become angry and frustrated when their exhortations do not result in changes in behavior. And, in the small communities of 150 or so in which we evolved, such a blaming approach was, in fact, an effective means of preserving the commons. In such communities, in which everyone had more or less the same beliefs generation after generation, exhortations to respect the sacredness of the natural world, in combination with tribal sanctions against individual offenders, allowed the tribe to enforce cultural norms ensuring sustainable stewardship of the natural world. Even so, from time to time individuals in indigenous communities did, in fact, misbehave and take more than their share from the commons, but such behaviors could be controlled.

In today's world of more than six billion, our instinctive moral approach to environmental sustainability is an ineffective agenda that will inevitably result in frustration for those who believe that such exhortation ought to be enough. No matter how hard we strive to blame those who pollute, or teach an ethos in which nature is to be regarded as sacred, there will be "free riders" those who take more than their share. Even traditional cultures, as they grew larger than a tribe, began to create formal institutions in order to resolve commons problems. In order to create an environmentally sustainable world, we must create those formal institutions needed to solve these problems. For this reason, my efforts with respect to environmental sustainability are almost 100% focused on educating people on the need for such institutions and building political coalitions that could implement them.

In our brief tour of such institutions, our first mention is Elinor Ostrom's work, Governing the Commons, on community solutions to preserving the commons. Ostrom studied diverse communities around the world that had succeeded in developing cooperative approaches to managing the commons, in high meadows of Switzerland, irrigation rights in Spain, and elsewhere based on formal community arrangements. She has shown that, under restricted circumstances, communities can manage regional environmental commons without government assistance, and in some cases have done so successfully for hundreds of years. But those circumstances include a stable community with stable social norms in a regional setting, circumstances which limit the applicability of "Ostrom solutions."

A more general class of solution to commons problems are "property rights solutions." In the description of the problem above, it is clear that because most privately managed resources are more environmentally sustainable than are commons, the obvious solution to tragedy of the commons problems is to privatize the commons. Although this type of solution was first proposed in the late 1960s, its first major success was the sulfur dioxide emissions trading program, launched in 1990.

Polluters were given a specified property right in sulfur dioxide emissions, essentially a saleable right to emit a specified amount of emissions. What was predicted to happen then happened faster than anyone imagined: Those polluters for whom it was cheap to reduce their emissions created innovative devices to reduce emissions so that they could sell their rights to polluters for whom it was cheaper to buy extra rights than to reduce emissions. Meanwhile, some environmental organizations bought pollution rights in order to reduce the overall amount polluted, and the market for emissions reduction equipment reduced the price of such equipment, gradually allowing polluters for whom it had originally been too expensive to install such equipment. The result was that the air was cleaned more quickly and more cheaply than anyone had imagined possible: the EPA estimates that this program resulted in $122 billion in environmental benefits for a cost of just $3 billion. Emissions were reduced 22% below mandated levels.

Environmental trusts are the most exciting, and lasting, property rights solution to commons problems. Environmental trusts are property rights solutions to tragedy of the commons problems but with a special twist: instead of privatizing the commons to private individuals, sensitive commons are instead "privatized�" to a trust entity, where the trustees have a permanent obligation to protect the commons.

Peter Barnes' recent Capitalism 3.0, a free download, is the most comprehensive statement of environmental trusts as a solution to environmental issues. He rightly describes his envisioned system of trusts as a new operating system for capitalism, one that will allow free enterprise to provide its extraordinary benefits to the world in a environmentally sustainable manner. A a short lecture by Barnes, given to the E.F. Schumacher society, is posted on our site as this month's Member Platform. It contains an excellent description of environmental trusts.

In a world in which Democratic partisans encourage us to believe that Republicans are evil, and Republican partisans encourage us to believe that Democrats are evil, environmental trusts are a brilliant transpartisan innovation. Barnes' book has been endorsed by an A-list of progressive and environmentalist leaders, including George Lakoff, Frances Moore Lappe, Robert F. Kennedy, Bill McKibben, Ben Cohen, Michael Pollan, Carl Pope, ED of The Sierra Club, and Joan Blades, founder of Moveon.org.

Oh-oh, sounds like a partisan solution.

But wait; the Cato Institute, the leading free market think tank and in some respects an official gatekeeper of Republican opinion on environmental issues, published a paper several years ago that proposed the idea of environmental trusts, co-authored by Nobel Laureate Vernon Smith. Moreover, Barnes, the self-identified progressive, explicitly acknowledges his intellectual debt to Ronald Coase, a leading Chicago free market economist and also a Nobel laureate.

To be sure, Barnes' rhetoric repels Republicans. And the Cato Institute paper reluctantly includes environmental trusts as an improvement on government ownership of public lands. But in a world in which most partisans regard the other side so negatively, especially in the environmental arena, it strikes me as most productive to appreciate that the most far-reaching vision for environmental sustainability, Capitalism 3.0, has very solid transpartisan credentials.

I have opened conversations with individuals on both sides of the divide in an attempt to move this idea forward as a permanent solution to domestic environmental problems. Progress is slow, but there are definitely individuals on both sides who are open to, and supportive of, this transpartisan solution. The controversy over global warming, in particular, has slowed progress towards a transpartisan solution; but with respect to forest trusts there is much greater transpartisan sympathy. There are many complexities that I can't address here.

This year for Earth Day, in addition to whatever other celebrations you engage in, I encourage you to learn about Barnes' proposed new OS for Capitalism. As Al Gore has said,

"Free market capitalist economics is arguably the most powerful tool ever used by civilization. As the world's leading exemplar of free market economics, the US has a special obligation to discover effective ways of using the power of market forces to help save the environment."

Environmental problems will not be solved by means of anger or self-righteousness. For the most part, they will be solved by the installation of a new operating system for capitalism. The good news is that the proposed new operating system, celebrated by leading progressives and environmentalists, is built on the ideas of free market economists. Though it may take years, and there are challenging details to be worked out, we can create a transpartisan political coalition in support of these ideas.

Towards peace, prosperity, happiness and well-being for all,

Michael Strong
CEO & Chief Visionary Officer
FLOW, Inc.

P.S. For more depth, in addition to Barnes' E.F. Schumacher talk and his Capitalism 3.0, see my "Sustainability in a Bright Green Future" also on our home page and our links at "Ensure Sustainability".

Please contact us at contact@flowidealism.org with ideas, insights, and inspiration. And remember that FLOW is a non-profit organization that promotes economic freedom and broadly distributed prosperity. You can support FLOW through your financial contributions among other means.