Nature’s Case for Restoring Strong Property Rights

Elizabeth Brubaker
November 5, 1994

Prepared for the Fraser Institute’s Student Seminar on Public Policy Issues
Toronto, Ontario

Good morning. I’m delighted to see so many people here today. When I was a student, I wouldn’t have been caught dead at a Fraser Forum. That was in Montreal in the 1970s . . . and free markets were definitely not cool. We all assumed that the answer to problems lay in government. Different government, perhaps, but lots of it.

As an activist in several so-called progressive fields, I’ve seen a lot of governments since then: some better, some worse. But my eight years with an environmental group have persuaded me that even the better governments really screw things up. As resource owners, governments bear direct responsibility for allowing—more often, encouraging—most resource degradation and pollution. They squander their natural capital, razing their forests and plundering their fisheries. They also destroy resources they don’t own, licensing and subsidizing polluters that foul private lands. Governments support environmental abuses that no free market would tolerate.

I want to talk this morning about just one aspect of free markets: property rights. Specifically, I want to talk about property rights’ role in environmental protection. I’ll try to keep theory to a minimum. Instead, I’ll tell you stories that will let you see for yourself how people use property rights to protect the environment, and how, when government takes away peoples’ property rights, the environment suffers. I’ll start with the story of a man named Eugene Bourgeois.

Bourgeois raises sheep on the Bruce Peninsula, about three kilometres away from Ontario Hydro’s Bruce nuclear complex. According to him, poisonous emissions from the complex have been harming both his flock and himself for almost a decade. Hundreds of sheep have mysteriously died. Lambs have been born without the instinct to nurse. At one time, 85 percent of the flock went blind. Bourgeois himself has suffered. While working in his fields he has become nauseous, disoriented, and faint. And he has developed excruciating headaches and an inability to concentrate.

Ontario Hydro’s records show that the worst incidents have coincided with releases of a deadly gas—hydrogen sulphide—from its heavy water plant.

A number of doctors and scientists have confirmed that Bourgeois’ symptoms—and those of this sheep—are consistent with hydrogen sulphide poisoning.

But Hydro has denied any responsibility. Oh yes, it has conducted studies. And it has publicized those demonstrating its innocence. According to Bourgeois, it has also suppressed at least one study indicating that there might indeed be a problem.

But Hydro’s best defence isn’t scientific studies. Its best defence is that it is following the rules: according to readings from a nearby air-monitoring station, its emissions haven’t exceeded provincial guidelines. As one of Hydro’s lawyers explained, “what we have tried to do is to show that there is a full regulatory process in place, [that] limits have been established, and that there is compliance with those limits.” Apparently it’s okay to leak lethal gas—even in amounts that kill sheep—as long as the leaks remain within approved limits.

But approved by whom? That’s the key question. Politicians and bureaucrats—rather than the people affected—have the power to make decisions about air quality on the Bruce Peninsula. And those government representatives have implemented laws and regulations allowing emissions that might well, in their absence, be unlawful.

In the absence of specific laws approved by governments, a body of law called the common law applies. The common law evolved in England, which passed it down to her colonies, including Canada. Governments often override the common law with their own statutes. But where they have not done so, the common law continues to apply.

The common law is court-made law. Judges—rather than politicians—created and refined it. In the Middle Ages, local custom often determined a judge’s decision. As decisions were recorded and made available to other judges, legal custom began to replace local custom. Judges followed previous decisions, or precedents, thus entrenching a number of legal principles.

From this almost seamless transition from ancient custom to the contemporary common law emerged a number of principles regarding property. Under the common law, people have very strong property rights: they have the right to both use and enjoy their property. They also have a responsibility not to interfere with their neighbours’ rights to use and enjoy their property. Any such interference is a nuisance, and will be stopped by the courts.

This principle is as old as the recorded law itself. A thirteenth century legal scholar wrote that “no one may do in his own estate anything whereby damage or nuisance may happen to his neighbour.” The principle is embodied in a maxim that governs court decisions to this day: “use your own property so as not to harm another’s.” Clearly, that maxim has profound environmental implications.

Let’s return to the Bruce Peninsula for a moment. Assuming that Eugene Bourgeois and his scientists are right, Ontario Hydro is using its property in a way that harms others. The utility, in short, is violating Bourgeois’ property rights.

So what can he do? If the common law applied, Bourgeois could sue Hydro. If he convinced the court that, on the balance of probabilities, his case had merit, the court would likely issue an injunction. An injunction is a court order that requires a defendant to refrain from acting in a particular way or, in some cases, requires it to take specific action. For example, a court might order a company to shut down if it doesn’t stop polluting within two months. Or it might order it to install abatement equipment.

Injunctions are the most common remedies in Canadian property rights cases. In fact, before 1877, Ontario courts had no choice but to issue injunctions if they found that plaintiffs’ property rights had been violated. Courts now have the authority to grant damages instead of injunctions. But they are often reluctant to do so.

And with good reason. Judges can’t put a dollar value on many injuries. Only the victim himself can know what value he places on clean water, or how much money he would be willing to accept for breathing foul air. But the victim doesn’t determine the amount of court-awarded damages. In other words, by substituting damages for an injunction, a court forces the victim to sell his property rights at its price.

In contrast, injunctions allow the victim to negotiate his own price. If his environment is priceless, he may simply tell the polluter to go away. Alternatively, he may bargain away his rights or reach a compromise that benefits both him and the polluter.

Furthermore, only injunctions can prevent the recurrence of property rights violations. A court that replaces an injunction with damages says, in effect, that a polluter who is willing to pay may go on polluting. The court thus licenses the pollution. Fortunately, courts generally reject this role.

One possible scenario, then, is that if Eugene Bourgeois sued, a court would issue an injunction forbidding Hydro from releasing hydrogen sulphide. That injunction could, in effect, shut down the Bruce heavy water plant.

Unfortunately, it’s not so simple. Government-made law applies here. The government gave Hydro permission to build and operate a heavy water plant. The utility can’t produce heavy water without hydrogen sulphide. To the extent that its pollution is an inevitable result of its carrying on an approved activity, Hydro is operating under what lawyers call “statutory authority.”

If Bourgeois tried to sue Hydro, the utility would doubtless claim immunity using statutory authority as its defence. Polluters have long relied on that defence. Nineteenth century railway barons cited it all the time. They argued that Parliament, in authorizing their railways, gave them permission to set farmers’ fields ablaze. Their reasoning went like this: All trains inevitably produce sparks. Government authorization of a non-sparking railway would be useless. The government doesn’t knowingly do useless things. And so, in authorizing a railway, Parliament must have intended to authorize a sparking railway.

Governments and courts alike bought this argument. The railways’ victims weren’t so wild about it. That’s because once Parliament authorized sparking railways, those living along the tracks lost their right to sue for fire damage. Parliament, in its wisdom, had overridden the common law. It had, in effect, expropriated the farmers’ property rights.

And so today’s government has expropriated Eugene Bourgeois’ property rights. Bourgeois is by no means unique. As his name so aptly suggests, his plight characterizes millions of ordinary Canadians, virtually all of whom have property interests of one kind or another, and virtually all of whose rights have been violated time and again.

Ronald Coase, who won a Nobel prize in economics, understood just how often governments sanction the violation of their citizens’ property rights. In a famous article entitled “The Problem of Social Cost,” Coase mocked economists for calling for still more government regulation. I’ll read you a passage:

“When they are prevented from sleeping at night by the roar of jet planes overhead (publicly authorized and perhaps publicly operated), are unable to think (or rest) in the day because of the noise and vibration from passing trains (publicly authorized and perhaps publicly operated), find it difficult to breathe because of the odour from a local sewage farm (publicly authorized and perhaps publicly operated) and are unable to escape because their driveways are blocked by a road obstruction (without any doubt, publicly devised), their nerves frayed and mental balance disturbed, they proceed to declaim about the disadvantages of private enterprise and the need for Government regulation.”

Coase is right. All too often, government regulation is the environmental culprit.

Why do governments override property rights? Why do they so often promote development at the expense of the environment and those who depend upon it? (And at the expense, for that matter, of the taxpayer?) Generally they act in the name of “progress” or some undefined “public good.” Railways apparently promoted the public good. Nuclear power, whose production is moderated by heavy water, apparently promotes the public good.

But the story behind the Bruce heavy water plant suggests just how tenuous this public good can be. Ontario Hydro doesn’t need any more heavy water. It has enough stockpiled to keep its reactors running for the rest of their lives. All of the heavy water it now produces goes to Atomic Energy of Canada Limited (AECL), which in turn sells it to South Korea. AECL could supply South Korea from its own reserves. But it wants to preserve its stockpile in case it succeeds in selling a reactor abroad someday. Those phantom customers could demand heavy water. In short, Eugene Bourgeois’ lambs are dying so that AECL’s export effort can have a future.

Sometimes revenue generation drives governments to override property rights. It was our host, Michael Walker, who made me aware of one egregious example. Michael recommended a book called The Medieval Machine, which included a number of stories about medieval Europeans exercising their property rights. Tucked into that book was the story of how one industry—the mining industry—trampled others’ rights with impunity.

In the thirteenth century, several European governments were desperate for the revenues produced by mining. They did everything they could to promote the activity. They gave miners free land. They exempted them from military service. But many of the perks came at the expense of local landowners and the environment. Governments encouraged miners to prospect anywhere—even on private property, with the exception of churchyards, orchards and gardens. They allowed them to cut privately-owned trees—which they sometimes prevented the owners themselves from cutting. They allowed them to divert streams. And then, to ensure that the miners’ victims couldn’t fight back, they freed the miners from the jurisdiction of local magistrates.

Seven hundred years later, special privileges given to Sudbury’s miners proved that nothing had changed. At the beginning of this century, Sudbury’s nickel business had the makings of a very important industry. Scientists had recently discovered nickel’s military value: it could plate armour, or coat armour-piercing bullets. And Sudbury’s mines supplied most of the world.

But mining and processing nickel devastated the local environment. The miners would roast huge heaps of ore to burn off the sulphur in it and reduce shipping costs. Since sulphur dioxide was heavier than air, it would linger at ground level until dispersed by the wind. Clouds of sulphurous fumes limited visibility. They killed crops and damaged soil. A reporter for the Globe described a spot near Sudbury as “one of the most unattractive places under the sun, for the sulphur fumes from the beds where its nickel ore is ‘roasted’ have destroyed vegetation in the whole locality, leaving the rocky hills bare of trees and the streets and lawns innocent of a blade of grass.”

In 1916, a number of farmers sued two nickel giants. One judge tried six of the cases together. And in a decision that contradicted all Canadian precedents, he allowed the companies to continue polluting, as long as they compensated their victims. Since mines inevitably produced smoke, he reasoned, forbidding smoke could ruin the industry. That must not happen. In the judge’s words, “The Court ought not to destroy the mining industry—nickel is of great value to the world—even if a few farms are damaged or destroyed.”

Fortunately for the environment, that was a very unusual court decision. The government knew that it couldn’t count on more like it. And people were continuing to sue. So the government took its own measures to ensure against their success. In 1921 it passed a law—The Damage by Fumes Arbitration Act—forbidding courts to hear cases about sulphur fumes. Instead, a government-appointed arbitrator would award damages. In no circumstances would the arbitrator issue injunctions. From that day on, local property owners could do nothing to prevent the ruin of their environment. They could collect compensation. But they could neither prevent nor correct the pollution.

Today’s government still tramples property rights to promote mining. Remember Shelley Martel, who recently resigned as Minister of Northern Development and Mines? There’s an outrageous story behind her resignation. Martel had released personal information about an Ottawa landowner who had protested the Mining Land Tax. And what a tax. Essentially, it forces owners of lands dubbed “mining lands” to either develop their properties or to give them to the government.

Mining lands aren’t simply mined lands, or lands owned by miners. The category includes lands that were granted long ago under various Mining Acts … even if they have never been mined and even if their current owners have no intention to mine them. (An owner might, for example, have purchased the land for a cottage, and might find the prospect of mining his little wilderness quite distasteful.)

Back in the 1960s, the province discovered that landowners were mining less than one half of one percent of the mining lands. For a government that valued the wealth and jobs generated by mining, that was disastrous news. Land must not be allowed to lie idle. And so, in 1969, to encourage landowners to mine, or to free up their lands for others to mine, the government quintupled the Mining Land Tax.

The increase had its desired effect. Many owners couldn’t afford to pay the tax. Nor could they sell their land. Who would buy property with taxes much higher than those on neighbouring lands, which happened to have been granted under some non-mining program? Even mining companies wouldn’t buy the land—they could lease it from the government for less. And so, over the following twenty years, owners returned one quarter of all mining lands to the Crown.

But the taxes weren’t high enough to force everyone’s hand. Some owners kept their lands, but refused to develop mines. Their stubbornness outraged Gilles Pouliot. “Let me tell you,” the Mining Minister explained, “there are widows in Arizona who own property in Ontario, and because they own it mines are not being developed. The only way that mines will develop and Ontario will prosper is if we take their properties away from them.”

The government again chose taxation as its preferred confiscation mechanism. Ontario’s 1991 Mining Act, along with its regulations, introduced a 500 percent increase in the Mining Land Tax. Pouliot hoped that the tax would finally convince holdouts to forfeit their lands. He was both unambiguous and unapologetic about the tax’s expropriative nature. It had, in his words, “always been intended as a means of returning land to the Crown.”

I brought up mines, you will recall, to illustrate the variety of reasons why governments override property rights. Governments act to encourage industrial development. Under ideal conditions, industry will generate both revenues and jobs.

These days, however, the government often pays for—instead of earns revenue from—property rights violations. This is particularly true when it overrides property rights to create jobs. But while job creation projects may not make governments rich, they do create political capital. Jobs—even expensive, temporary, or ultimately counterproductive jobs—mean votes. And to most governments, votes are even more valuable than money.

Doubtless, that’s why Ontario Hydro plays the job creation card whenever it asks the government for permission to build a new project. The government loves using the utility to create jobs. Never mind that the province doesn’t need more power. Never mind that others can produce it more efficiently than can Hydro. And never mind that unnecessary projects, by increasing power costs to Ontario’s businesses, actually destroy jobs. Those jobs, scattered about the province, are invisible. Hydro creates visible jobs.

That’s one of the reasons why the government will soon let Hydro build one new dam and expand three others on the Mattagami River, up near James Bay. Energy and Environment Minister Bud Wildman has decided to by-pass an environmental assessment hearing for the project. Such a hearing might have considered the ways in which Hydro has trampled the property rights of the native people living in the river basin. A 1991 hearing dealing with dams in that basin opened with the story of construction crews chasing native people off their land, and then burning down their campsites to ensure they wouldn’t return.

After uprooting the local people in the 1960s, Hydro made a terrible mess of their rivers. The utility operates its generating stations to meet peak electricity demands. It’s like flushing a toilet: the water is held in a reservoir and then, swoosh, it comes rushing down. That’s not so great for fish. It also wreaks havoc on river transportation. It’s not unheard of for native people to travel up the Mattagami River and then find themselves stranded when the water flow stops.

If the communities that depend on the Mattagami River had strong property rights, they could ensure that new projects went ahead only if their concerns about peaking and other matters were met. Since Hydro has not met their concerns about the proposed project, they would likely veto it.

But the government, unrestrained, will almost certainly approve the Mattagami project. Why? A provincial representative offered one reason. In his words, “non-native communities have been promised jobs.” So much for the environment. So much for native rights. Both, so ardently defended by the NDP in its opposition days, will be sacrificed for jobs.

I don’t mean to be particularly hard on the NDP. Other parties’ records are also rotten. The solution isn’t merely to change parties. The solution is to take power away from governments of all stripes … and to put it back into the hands of the people. The solution, in other words, is to strengthen people’s property rights.

And how do we do that? Well, there are a number of ways. First, governments—both federal and provincial—can ensure that their laws don’t override people’s common law property rights. They can stop granting expropriation powers. And when authorizing an industry’s activities, they can specify that they are not legalizing nuisances or other property rights violations. Then, when victims sue the industry, it won’t be able to use the defence of statutory authority.

The federal government can take a more dramatic step: it can enshrine property rights in the Charter. Doing so won’t by any means strait-jacket governments. The Charter just isn’t that strong. But protecting property rights in the Charter will at least raise the legal hurdles and increase the political costs of overriding them. And to the degree that the Charter restrains governments, the environment will benefit.

Property rights, once restored, will empower the people that I’ve been describing as pollution’s victims—the people living near heavy water plants or nickel smelters, those owning land under which minerals may lie, or those living downstream from hydrodams. Victims no more, these people will set the rules. They will have veto power over developments that threaten to harm them. And they will ensure mutual benefit from projects that do proceed by negotiating effective mitigation measures and extracting compensation of their choosing for any damages suffered.

But it’s not just sheep farmers, cottage owners, and northern natives who will benefit from stronger property rights. Small businesses will also win. Historically, a huge number of the plaintiffs in property rights cases have been businessmen.

Entrepreneurs have challenged water pollution for centuries. Let me throw out a handful of examples from the last 150 years to give you an idea of the variety of these challenges. In England, the owner of a cotton mill sued a coal company for acidifying Borsdane Brook, whose water corroded the mill’s boilers. In New York, a factory owner sued a salt manufacturer for salinating Oatka Creek, causing his machinery to rust. In one of my favourite cases, a Scottish distiller sued a coal mine for hardening the water in the Doups Burn, making it unfit for whiskey. The owner of an American meat market sued a town whose sewage, dumped into a river, filled his building with foul smells. And a hotel owner sued the town of Cobourg, Ontario, whose sewer emptied into a creek that crossed its grounds.

Air pollution has also been a favourite target of businessmen. A British innkeeper sued an electric company whose generating station showered his inn with steam. A florist in St. Catharines sued a foundry whose oily fumes coated his greenhouse. In Oshawa, a vehicle-transport business sued a foundry whose fumes damaged the finish on cars parked in its lot. An Alberta motel owner sued a sawmill whose sawdust and noise forced him to shut down. And just a few years ago, the owner of an apartment building in Windsor sued a steel stamping plant whose vibrations drove his tenants out.

All of these entrepreneurs had an economic interest in clean water, clean air, or peace and quiet. Their manufacturing processes depended on them. Their tenants or clients demanded them. And they could achieve them because they had strong property rights, which the courts were willing to enforce. Restoring property rights will restore business as a powerful force for environmental protection.

Of course, some industries—particularly the larger, more powerful ones that are frequently victimizers rather than victims—will be less than enthusiastic about stronger property rights. And no wonder. It is often much more expensive to respect property rights than it is to follow government regulations. As one industry advisor noted, “No industry offered the opportunity to be regulated should decline it. Few industries have done so.”

With the help of government, polluters have gotten the affected public and the taxpayers to pick up the tab for environmental damage. In economics jargon, they have externalized their costs. A strong property rights regime will internalize costs. And when polluters have to factor environmental costs into their decisions about what equipment to install or how to operate, the environment will benefit.

A story from Florida illustrates how differently industry will behave when it has to bear the costs of its pollution. In the 1950s, a number of phosphate fertilizer companies polluted the air with fluorides. The fluorides settled onto neighbouring grasslands, where cattle grazed. Many cattle developed fluorosis. Their joints stiffened. They became so completely immobilized that they starved to death.

In 1958, the government ordered the fertilizer companies to reduce fluoride emissions or to purchase polluted lands. The companies balked at the 16 million dollars it would cost to install pollution-control equipment. And so, over the next six years, they spent 25 million bucks buying 200,000 polluted acres. They became huge land owners. And do you know what they realized? They realized that to protect revenues from their new grazing lands, it made financial sense to install the pollution-control equipment. That’s cost internalization for you.

I’ve been discussing the financial and environmental implications of stronger property rights. There is also a moral dimension. Under a strong property rights regime, negotiation will replace expropriation. Free choice will replace force.

That prospect scares the industries that now have expropriation powers. They worry that people, if free to choose, will say no to their attempts to pollute, or to use their land. As one oil executive warned, “If people in Alberta had property rights we’d have to stop most of our drilling. If you let individual property owners decide when we can drill on their land, they’ll hold us up to ransom.”

He’s partially right. Some people will refuse to negotiate. Others will hold out for prices higher than companies are willing to pay. And that’s their prerogative. But most companies should survive. After all, their counterparts who can’t expropriate seem to be doing fine.

Just look at the real estate tycoons who assemble land for huge developments. They offer sufficiently attractive prices to persuade people to sell. Sometimes they can’t get all the land they want. So they go elsewhere. Or they simply build around the holdout. Next time you’re at the corner of Yonge and Queen, notice that the Eaton Centre wraps around a Royal Bank Building. That’s what happens when people can’t expropriate. If you ask me, it’s not terribly serious.

Power producers provide another good example. While corporate giants like Ontario Hydro can expropriate, small independent producers don’t have that privilege. They have to buy the land or easements they need for their transmission lines. They may face holdouts. They may have to raise their offers. They may have to reroute their lines. Or they may simply decide that it makes more sense to generate power closer to where it will be used, obviating the need for so much negotiation.

Independent power producers are also learning how to negotiate permission to build generating stations. In the late 1980s, a company called Conwest proposed building a small hydro station on the Black River, just north of Lake Superior. It knew that it needed approval from the Pic Heron First Nation, whose reserve was adjacent to the proposed site.

The two parties reached an agreement that both would profit from. Conwest agreed to protect the environment. It chose a run-of-the-river station that wouldn’t require a dam. Its low intake wouldn’t disrupt the river’s flow. And below the station it constructed a fish spawning area, along with nursery habitat.

The First Nation got a 10 percent interest in the project, worth $150,000 a year for 50 years. It also negotiated construction jobs and training in plant operation and maintenance. Everyone benefited. In fact, the experience was so successful that the First Nation is now developing another small hydro project. So you see, rights don’t have to be development stoppers.

Eugene Bourgeois, the sheep farmer, confirms this. I said earlier that a court might issue an injunction shutting down the Bruce heavy water plant. But Bourgeois says he wouldn’t seek plant closure. His demands would be modest. He would ask Hydro to reimburse him for the dead sheep. He would ask the utility to release gas at night, and in the winter, when it is least likely to do damage. He would ask it to inform him in advance of gas releases, so that he could take precautions against exposure. And he would ask it to provide him with protective gear to wear when he’s working outside. In fact, Bourgeois has been asking Hydro to do these things since 1986. If he had property rights, enforced by the courts, he would have seen his requests acted upon long ago. Hydro would still be producing heavy water. But Bourgeois wouldn’t be losing lambs.

Ronald Coase, the Nobel economist, studied the conditions under which property rights will or will not impede development. He demonstrated that if transactions costs are low, the assignment of property rights will not affect resource allocation. If information is readily available and bargaining is easy, the same decisions will be made regardless of which party has the power to decide. In economics jargon, voluntary arrangements will produce efficient results. Whoever values a resource most will end up with it.

Not too long ago, my neighbour and I played out Coase’s theory. I have two small horse chestnut trees in my backyard. I like them. They block the view of an ugly garage behind my property. My neighbour hates them. He worries that as they grow, they’ll shade his flower beds, and worse, drop chestnuts everywhere. But he can’t make me cut them down, because in this case I have the property right. If my neighbour wants a change, he’ll have to make it worth my while. He’ll have to pay. And that’s exactly what he offered to do. He offered to bear the cost of cutting down the trees, and of replacing them with a row of cedars, which would block my view of the garage, but would be less offensive to him.

Let’s say that I decide to accept my neighbour’s offer. That will indicate that he values sunlight and a clean garden more than I value horse chestnut trees. Rejecting his offer, on the other hand, would indicate that I place a higher value on my trees, and that they should remain standing. Of course, if I reject his offer he might up the ante, throwing in some chrysanthemums, or cold hard cash. Whatever the details, whoever values his preference more will ultimately win the dispute.

Now say, for the sake of argument, that it is my neighbour who has the stronger property rights. Perhaps he has the right to sunlight, or the right to be free of horse chestnuts. In that case, he can force me to cut down my trees at my expense. If I treasure those trees, I can try to purchase his property rights. I can offer him a sum to allow the trees to remain standing. Or I can propose some amenity from which he will benefit.

The same result will be achieved in either case. But as Coase pointed out, the distribution of income will change depending on who has what rights. If I hold stronger rights, my neighbour ends up paying. If he holds stronger rights, I end up paying.

Coase would say that my exchange with my neighbour is typical of many resource use conflicts. Just substitute a free-flowing river, or clean air, or peace and quiet for horse chestnut trees.

To the extent that it applies, Coase’s theory should allay industry’s worst fears about property rights. More specifically, truly viable industries have little to fear. If resources are more valuable to them than to others, they will be able to acquire rights to them. Or they’ll install abatement equipment, as did the Florida fertilizer companies. It’s the unsustainable industries that will suffer—the parasites that can exist only at the expense of others. They often won’t be able to acquire rights to resources that are of marginal value to them. And without such rights, they may well disappear. But I, for one, won’t be sorry to see them go.

Let me leave you with one final story. It’s a story that brings together many of the ideas I’ve been talking about. It demonstrates the power of common law property rights, the determination of local people to protect their environment, the government’s concern for jobs, and its willingness to override individuals’ rights in the name of the common good. It also illustrates how harmful such a policy can be, both economically and environmentally.

It’s the story of KVP, the Kalamazoo Vegetable Parchment Company. KVP used to own a pulp and paper mill on the Spanish River—the mill in Espanola that E.B. Eddy now owns.

Back in the 1940s, the Spanish River was a popular tourist destination. Its clean water and abundant game fish made it a perfect northern resort. But when KVP started up its mill in 1946, that changed. Every day, the mill released several tons of wood fibres and chemicals into the Spanish River. The river began to stink. It tasted disgusting. Fish died by the thousands.

A fisherman, a farmer, and several tourist operators sued KVP. The plant, they claimed, was violating their property rights and destroying their businesses. It should be shut down.

The judge agreed. People living along rivers, he said, have common law property rights to clean water. No industry—no matter how important—may alter the water’s character in any way. And so the judge issued an injunction: if KVP didn’t clean up its act within six months, it would have to close.

The provincial government was furious. Didn’t the judge realize how many people that plant employed? To save KVP, the government amended the Lakes and Rivers Improvement Act. It instructed courts to consider the economic importance of a polluting mill before issuing an injunction against it. Armed with the new amendment, KVP went to the Supreme Court of Canada, to ask it to reconsider the injunction. But the court ruled that the injunction should stand.

Unfortunately, that’s not the end of this story. The government was determined to keep KVP alive. In the Attorney General’s words, “the development of the north country depends upon industry, and we cannot allow industry to close down.” And so the government passed a law dissolving the injunction.

The mill, able to externalize its pollution costs, survived. But even that huge subsidy didn’t make it profitable. It was shuffled from one owner to the next, losing money sporadically and eventually requiring millions in government assistance. Meanwhile, the small businesses that had once thrived along the Spanish River disappeared. Commercial fishermen couldn’t sell the tainted fish that remained in the river. Tourist operators couldn’t attract clients. Farmers couldn’t water their animals. In losing their struggle to clean up the river, these once-viable businesses lost their very lives.

And the pollution? It continued for years. Not until the 1980s, when the International Joint Commission declared the Lower Spanish River an Area of Concern, did clean-up begin in earnest.

I’ll say it one last time. Don’t trust governments to protect the environment. Trust people. They have an interest in protecting their land, and water, and air. We must empower them to do so. We must strengthen their property rights.


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