Property rights and the environment – a response to Pope Francis’ encyclical
Similarly, the call for moral restraint by businesses and individuals, and an end to seeing consumption as an end in itself, is important. Some may disagree with the message, but it is a point well made.
The Pope seems to entrust a large role to public policy when it comes to solving environmental problems and this was discussed in long sections of the document. They are not the best sections to say the least. This is a problem because misguided public policy in this area could have catastrophic consequences.
Firstly, as is often the case with Pope Francis, his analysis of the economic state of the world is unduly pessimistic. It is correct to say that pollution leads to premature deaths. Indeed, many would argue that climate change will do so and some that it already does so. But, there are trade-offs. And the underlying picture is one of huge increases in life expectancy and health because of the economic development that is taking place. Indeed, in many parts of the world, the environment is improving dramatically.
Within the document there are also various ad hoc attacks on the market economy, some of which are somewhat bizarre. For example, the Pope argues that water should not be privatised because it is a scarce resource. In fact, the purpose of markets is to allocate scarce resources. Whilst it is important that all have access to clean water – and improvements in this regard are a crucial element of the economic development of the last 30 years – to argue that it should not be provided by markets is no more sensible than arguing that food should not be provided by markets. Indeed, in many African and Asian countries (as well as in the US and Australia, for that matter), water shortages are seriously exacerbated by relatively wealthy industrial and farming interests benefiting from water subsidies and growing totally inappropriate water-thirsty crops. These subsidies are highly regressive.
Though he criticised water privatisation, nowhere in the document did the Pope mention fossil fuel energy subsidies – in other words, the policy of paying people to emit greenhouses gases. As The Economist put it: “It would be hard to find a worse [mistake] than energy subsidies. Recent research has shown that they enrich middlemen, depress economic output and help the rich, who use lots of energy, more than they do the poor…But now a new working paper by the International Monetary Fund highlights another cost too: damage to the environment. Including this, the authors reckon that the total drag on the global economy caused by fuel subsidies now amounts to a stonking $5.3 trillion each year…Poorer countries dole out the largest amount of subsidies; some spend up to 18 per cent of their GDP a year on them.”
Readers might ask why the Pope should mention something so specific? But he brought up many detailed issues. As well as criticising water privatisation, he also criticised carbon tax credits – widely regarded as the way to reduce carbon emissions that has the smallest cost to the poor.
There is much to debate, but that is not the impression given in the document. Nowhere is it recognised that the models of development that are criticised have led to rapidly falling rates of poverty, global inequality and deaths from natural disasters whilst access to education and healthcare has improved. Furthermore, nowhere is it acknowledged that the natural resource intensity of production falls dramatically as countries develop. The carbon intensity of production falls; we stop using whales for oil; we stop plundering forests and instead nurture them; and so on. This does not alter the fundamental moral problem the Pope was addressing but it does put a different spin on the models of political economy that we might embrace to achieve desirable results.
In numbers 142-152, there is much good material on the importance of institutions. This is interesting because economists see environmental problems as problems of property rights not being enforced or defined. For example, business ABC cuts down a rain forest in Brazil and destroys the livelihoods of indigenous tribes and causes flooding in a neighbouring country. In developed countries, these problems are generally solved. Sometimes they are solved using regulation and sometimes using traditional common law property rights. Good governance, the rule of law and the effective definition of property rights are essential pre-requisites for addressing many environmental problems. In many traditions, this is often combined with the engagement of the community whose property rights in fisheries, forests and so on are implicit but nevertheless crucial for the sustainable management of the resource.
Many economists are working or have worked in these areas, including the 2009 Nobel Prize winner (the first woman to win the Nobel Prize) the late Elinor Ostrom – she is somebody feted by both the left and supporters of markets. Indeed, this whole approach fits in so well with the great tradition of Catholic social teaching (interestingly, Cafod contributed to an IEA publication in this area). Given that poorly defined and enforced property rights lie at the heart of so many environmental problems, especially in poor countries, this whole area is a big omission from this encyclical. This is not a trivial issue or sniping from the sidelines. It is far more fundamental than many of the political-economic issues discussed by Pope Francis which really were a diversion from the excellent moral-theological analysis.
Prof Philip Booth is the IEA’s Editorial and Programme Director and Professor of Insurance and Risk Management at Cass Business School. This article first appeared in the Catholic Herald.