November 1, 1997
Presentation to the Fraser Institute Student Seminar on Public Policy Issues, held in Toronto, Ontario, on November 1, 1997.
The ad on the screen appeared in the Toronto Evening Telegram in 1912. It promoted a new residential development on St. Clair Avenue. The neighbourhood’s biggest selling point? Its belching factories! The ad promised workingmen that the development would be withing easy walking distance of all the factories of West Toronto. The family pictured in the ad was placing its home in the middle of a circle formed by nine factories. The decorative border around the ad was a ring of black soot, which was pouring from eleven smokestacks.
Apparently, in 1912, polluting factories could be considered assets in working class neighbourhoods. Factories – smoke and all – could sell homes.
Mind you, in those days, not everyone treasured proximity to polluting industry. Take Mr. Beamish. In 1911, Mr. Beamish bought a lot in Toronto’s east end. He built a house there. Four years later, a blacksmith bought the lot next door. Mr. Beamish didn’t want to live near a noisy, smelly, smoky smithy. He asked City Council to deny the blacksmith a permit. But the City had no problem with the smithy and was happy to approve it. The business started up.
Mr. Beamish went to court. He claimed that the smithy violated his property rights – that it constituted a nuisance and kept him from enjoying his property. He explained that the clanging of the hammer on the anvil and the smell of singed hoofs forced him to keep his windows closed, even on the hottest days. Mr. Beamish won his case. The court agreed that the smithy violated his property rights. It issued an injunction against it.
I’ve started with two stories from the same time and the same place to illustrate how differently different people can perceive pollution. Eighty-five years ago, some Torontonians were choosing their homes on the basis of their proximity to polluters. Others were going to court to kick polluters out of their neighbourhoods. These differences reflected people’s socio-economic status. They also reflected perfectly legitimate differences in personal preferences and sensitivities.
The fact of the matter is that, in 1912, there was no single best level of pollution for all of Toronto. There was no single public good that could be identified and enforced by the government. How could the government know what the needs and preferences of different citizens would be? It couldn’t. Indeed, in Mr. Beamish’s case, the government misjudged. It permitted an operation that was extremely offensive to its neighbour. Fortunately, Mr. Beamish had strong property rights. He could defend his preferences in court.
These problems are as real today as they were 85 years ago. It’s just as true now as it was then that one man’s medicine is another man’s poison. And it’s just as hard for governments – especially remote, centralized governments – to determine what is in the public interest.
The Wall Street Journal recently ran an article entitled “‘Environmental Justice’ Kills Jobs for the Poor.” The article described a town in Louisiana. Convent, Louisiana. The town is predominantly black. A company called Shintech had proposed building a plastics plant in Convent. But in September, the US Environmental Protection Agency – the EPA – delayed approving the plant. It was concerned about the potential for what is known as “environmental racism.” As the head of the EPA explained, “It is essential that minority and low-income communities not be disproportionately subjected to environmental hazards.”
The EPA’s decision might have pleased environmentalists and civil rights activists, but it didn’t please many of the residents of Convent. One resident told The Wall Street Journal that those who had fought the plant were elitists who didn’t speak for her community. She complained, “These environmental groups never came here and asked me if I wanted the plant.”
And indeed, many local people did want the plant. An NAACP poll found that 73% of the people in the black communities near the proposed plant were in favour of it. People saw the plant as an opportunity – an opportunity for 165 higher paying jobs, for safer work, for tax dollars to support their schools, for a better standard of living. They saw the EPA’s decision as harming rather than protecting them. And they resented the harm being couched in the language of preventing racism. In the words of one resident, “We find the exploitative use of the color of our skin … sickening and insulting.”
I ask you: How can the EPA know what is best for the residents of Convent? How can an agency in Washington DC judge whether the local people value clean air more than they value better jobs or better education for their kids? How can it determine what is in the public interest? I don’t think it can.
I’ve had to grapple with this question in the context of toxic waste disposal. A couple of years ago, I was commissioned to do a study of the siting of controversial facilities – everything from transmission lines to nuclear waste dumps. I was asked to look at what has worked in other jurisdictions. In particular, I was asked to examine the potential for a voluntary process – one that depended on a community volunteering to host a facility.
In the course of my study, I learned of a number of communities that actively sought out toxic facilities. In Alberta, towns actually competed against one another for the privilege of hosting a hazardous waste treatment centre. When the government selected the town of Swan Hills as the site, citizens from another town in the running actually took out a full page ad in The Edmonton Journal to protest the decision.
I learned that even nuclear waste isn’t too hot for some communities. Not surprisingly, most are working their hardest not to be considered for a nuclear waste disposal site. But I came across several fascinating exceptions. One was a group of First Nations in northern Saskatchewan. At the time of my research, the Meadow Lake Tribal Council, which represents nine First Nations, had one paramount goal: self-government. It understood that self-government required self-sufficiency. It looked at a number of economic development plans. It decided to study nuclear waste disposal as one option.
A representative of the tribal council explained: “This was not forced upon us, we were not coerced nor were promises of unlimited wealth made to us by governments, the industry or anyone else. We need not be told by outsiders what is good for us or what is not. Nor do we welcome the so-called ethical argument posed by some who are not First Nation people that ‘the Indians need to be saved from themselves.’ We are quite capable of assessing potential or the lack thereof and deciding as a community what is good for our people.”
A native community south of the border used similar arguments to explain its own interest in storing nuclear waste. At the time of my research, the Mescalero Apache reserve in New Mexico was terribly poor. It probably still is. The 1990 Census found a median family income of less than $14,000. One out of three was unemployed. The reserve wanted jobs and services. And it thought it knew how to get them. It started negotiating with dozens of power companies across the US. It would agree to store their wastes for 40 years. And what did it expect in return? Jobs. And $25 million bucks a year. In the words of the tribe’s president, the project would be “another step on our road to self-sufficiency.”
I haven’t followed these issues and I’m not sure what’s happened in either Saskatchewan or New Mexico. I think that in the former case interest dwindled and that in the latter case negotiations fell apart. But that doesn’t affect my point. My point is that no central planner could have made these decisions on behalf of these communities. Imagine if some bureaucrat in Ottawa or Washington had imposed nuclear waste on these First Nations. I think that given the known dangers of nuclear waste, and the unknown technologies that must contain these dangers, such an imposition would be unethical. I don’t think that people should be exposed to serious risks without their consent.
But I also believe that it’s unethical to prevent a community from accepting risk – as long as its decision is an informed one, as long as it doesn’t put other communities at risk, and as long as individuals within the community retain their ability to protect themselves. If those conditions are met, it just doesn’t seem right to force a community to go without jobs or desperately needed income. It’s awfully patronizing to presume that we know what’s good for a community – that we somehow know what’s in the public interest. How dare we condescend to a poor community, or a black community, or a native community, and tell it that it doesn’t know how to better its lot. I think we have to trust people and to believe that if they have good information they will make good decisions. Locally appropriate decisions.
And there’s an environmental benefit to allowing people to choose what’s best for themselves. If they have the power to negotiate a deal – to control the risks – they’re likely to demand that their air and water be well protected. They depend on these resources. They know their limits. And they – and their children – are going to have to live with any changes. And so they’ll insist on effective mitigation – on measures that will reduce environmental costs and risks.
Having said that, I want to stress those caveats that I mentioned a moment ago. One community’s decision must not put others at risk. This is critical, and it’s very difficult to achieve if we’re talking about something as complex as nuclear waste disposal. A simple community – one defined by municipal boundaries – doesn’t mean much in that context. More useful is the notion of communities of interest – groups of people who are likely to experience similar impacts. Close neighbours would make up one community of interest. Another community of interest might include those within a certain radius of a proposed facility. Or those living downwind or downstream of it. Or those living along transportation corridors. All such affected communities must agree to assume a risk. One community can’t make that decision on behalf of another, any more than a remote government can.
I mentioned another very important caveat: Individuals must retain their ability to protect themselves. They must retain their property rights. Remember Mr. Beamish? The one who didn’t want to live next to a blacksmith? He lived in a city that allowed pollution. But he had strong common law property rights. So he could go to court to protect himself from the pollution when it harmed him personally.
There’s a huge difference between now and Mr. Beamish’s time. In the intervening years, people have lost many of their property rights. The victims of pollution now find it far more difficult to defend themselves in court. What happened? Well, governments have overridden people’s common law property rights. They’ve passed scores of laws that prevent people from defending themselves against pollution. Ironically, they’ve done so in the name of the public good.
Here in Ontario, the process started back in 1885 with a man named Antoine Ratté. Mr. Ratté owned a waterfront lot and a boat rental business on the Ottawa River. He objected to water pollution from upstream sawmills. Sawdust, bark, and blocks of wood piled up on the river bank near his business. Mill wastes also formed floating islands, interfering with boat traffic. Gasses accumulating in the rotting sawdust stank. And they exploded. Mr. Ratté filed a lawsuit against the sawmills. He sought damages and an injunction.
The lawsuit alarmed the Ontario government. Mind you, it wasn’t concerned about the water pollution. No, it was concerned that the lawsuit might close down the sawmills – sawmills that provided jobs and public revenues. The government wanted to shield the mills. And so it passed a law curbing the courts’ ability to protect Mr. Ratté’s property rights. The new law required courts to consider the lumber trade’s economic importance before issuing injunctions against sawmill pollution. Courts, it said, must take into account the benefits conferred on the locality and its inhabitants. The law made this change in the name of the public good. Let me read you its first lines: “Whereas in the public interest, and in order to conserve the public revenue of the Province, it is expedient to prevent the stoppage of sawmills situated on or near the Ottawa River … ”
Apparently, the government of the day decided that the public interest didn’t lie in clean water. It didn’t lie in unimpeded river transportation. It didn’t lie in the health of small businesses along the Ottawa River. No, the government decided, the public interest lay in the continued operation of sawmills. It was, as the law said, expedient to prevent their stoppage.
Those of you who’ve read the handouts for this event will know that the Ontario government afforded similar protection to pulp and paper mills in 1950. Four years earlier, the KVP Company had started up a mill on the Spanish River, in Northern Ontario. In those days, the Spanish River was a popular tourist destination. It had clean water and abundant game fish. But when KVP started up its mill, that changed. Every day, the mill dumped several tons of wood fibres and chemicals into the Spanish River. The wastes robbed the water of oxygen and killed fish by the thousands. The river also began to stink. And it tasted disgusting. Even farm animals wouldn’t drink it.
Not surprisingly, those living downstream from the mill started complaining … but to no avail. So six downstream landowners launched lawsuits against KVP. One had a summer house on his property; several operated tourist camps; some farmed their land; and one was a commercial fisherman. The six complaints were tried together.
The case went all the way to the Supreme Court of Canada. At each stage, judges confirmed that KVP had violated the property rights of the plaintiffs. At each stage, they agreed that they should issue an injunction to prevent KVP from polluting the river.
If KVP had been operating in a world of common law property rights, it would have negotiated with the downstreamers to reach some mutually agreeable solution. Perhaps it would have paid them to drop their law suit. Perhaps it would have installed abatement equipment or switched to alternative disposal methods used by other mills. Probably it would have sought some combination of the above, arriving at some level of pollution that the downstream residents could live with. But it never had to negotiate. It knew of a cheaper, easier solution: lobbying. And so it lobbied the provincial government to obtain a right to pollute. It threatened to close if required to clean up. And closure would mean the loss of 1,500 jobs.
The government fell for it. The Premier soon announced that he would take “whatever steps necessary” to ensure KVP’s continued operation. Those steps ended up being quite extreme: The government passed a law dissolving the injunction. With one stroke of a pen, it wiped out the entire downstream community’s property rights.
The government justified its decision on the grounds that northern industrial development was essential. In the Attorney General’s words, “the development of the north country depends upon industry, and we cannot allow industry to close down.” More specifically, the government was concerned about jobs. The Premier vowed, “the employment conditions in Espanola shall not be disturbed.” Apparently the government was blind to the jobs created by the other economic activity that the pulp mill precluded. I suspect that’s because those tourism, fishing, and farming businesses, being small-scale and decentralized, had no political voice.
To be fair, the government did recognize that its decision created costs. It claimed, however, that it was its job to determine who should benefit and who should pay. The Attorney General explained, “we sometimes have to balance the difficulties arising out of the interests of an industry … and the ill effects which almost always follow …” The Premier agreed, adding that “When there is a dispute between certain persons, the duty of the government is to see that everything is done in the public interest …”
The government, in other words, was doing its best to play God. But the government wasn’t God. It couldn’t possibly find the single best solution. It couldn’t possibly substitute its own calculations for those of the individuals affected. It couldn’t possibly know all of the costs of its decisions or weigh them against all of the benefits. What it could weigh were the political costs and benefits of a particular decision. Saving jobs was politically popular. It didn’t matter if they were sustainable jobs. And it didn’t matter if they were saved at the expense of other jobs.
If this sounds familiar, it’s because our governments do it all the time. They make decisions about resources – be they rivers, or forests, or endangered species, or even the atmosphere – for political reasons. They look for highly visible short-term results that will ensure their reelection. The price – economic, environmental, and social – can be exorbitant. But government decision makers don’t have to pay the price. Politicians and the bureaucrats they control aren’t held accountable for making particular decisions. They’re not rewarded for making good decisions. And they’re not punished for making bad decisions.
Nowhere has this been clearer than in our fisheries. Our east coast fishery has provided a textbook case of the mismanagement of a resource for political gain. For centuries, a rich fishery sustained the east coast. In the 1970s, the federal government stepped up its involvement in the management of this fishery. It promoted what it called an “expansionist development philosophy” centred on creating jobs. The government based catch limits not on what the fish stocks could bear but on the economic needs of fishing communities. It supported fishers, boat owners, and processors with construction and insurance subsidies, tax breaks, loan guarantees, and Unemployment Insurance benefits.
By the 1980s, inshore fishers were warning that something was terribly wrong with the cod stocks. A number of scientists also sounded warning bells. But the government paid them no heed. An internal government report that was released a few months ago admitted that scientific information was “gruesomely mangled and corrupted to meet political ends.” The report accused fisheries managers of “scientific deception, misinformation, and obfuscation.” It went on to say: “It has become far too convenient for resource managers and others to publicly state that their decisions were based on scientific advice when this is clearly not the case. It appears that science is too much integrated into the politics of the department.”
Other recent reports have revealed that the government routinely gagged scientists who warned that overfishing threatened cod stocks. This summer, an article in a major fisheries journal accused the government of repressing politically inconvenient scientific findings and reprimanding scientists who didn’t toe the official line.
And what was the result of all of this? A collapse of the cod stocks. A moratorium, since 1992, on fishing for cod and many other groundfish. 40,000 fishers and processors thrown out of work. A social, economic, and ecological disaster.
What I want to know is: who was held accountable for this? Who got fired, or demoted, or even reprimanded? No one! That’s who. It’s disgraceful.
Even more disgraceful is that we didn’t learn our lesson from the cod catastrophe. Earlier this year, just before the federal election was called, the government announced that it would be reopening the cod fishery. The fisheries minister said “it felt like Christmas” on announcing the reopening. That’s how elections are. The government plays Santa Claus, giving out goodies to the electorate.
Well you know, an election is not Christmas and the government was in no position to start giving away the cod. Even the fisheries department admitted that there were “considerable uncertainties” about the stocks. Independent scientists were far blunter, warning that stocks are still dangerously low – perhaps as low as one or two per cent of their former levels. Some stocks, they warned, are still declining. Reopening the fishery, they said, was a “risky and irresponsible” “pre-election ploy.”
The more I’ve learned about fisheries, forests, and other natural resources, the more convinced I’ve become that governments are no more capable of setting sustainable harvests than they are of setting appropriate pollution limits. The problems are the same in both cases. Once again: Governments have short-term time horizons. They’re subject to lobbying by special interests. They aren’t held accountable for their decisions.
The solutions are also the same in both cases: The people most affected by decisions should be the ones making the decisions. In the case of pollution, it’s the people living downstream or downwind of factories that are most affected. The Mr. Beamishes and the Mr. Rattés of this world. In the case of fisheries, it’s the fishers and fishing communities that are most affected. And they are the ones who should be making the decisions.
You’ll remember my caveats about decision making regarding pollution. Well, those same caveats apply to decision making regarding the harvesting of natural resources: First, decision makers must not harm others. Second, they must have strong property rights.
Take the fishery as an example: If you give fishers decision-making authority without property rights, you’re asking for trouble. You’re creating a tragedy of the commons. That phrase is usually used to describe an open access fishery. But it also applies to any situation in which fishers don’t have exclusive, permanent rights in fish. Without such rights, fishers have incentives to catch as much as they can. No fisher has any reason to conserve. That’s because if he leaves a fish uncaught, there’s no guarantee that it’ll be around to spawn … or to catch next year. More likely, it’ll end up in his competitor’s hands. So the fisher thinks, if he doesn’t get it, the other guy will. Of course, the other guy is thinking the same thing. It’s a vicious circle. And it’s one that leads even the most honourable fishers to race for fish and to catch more than they should.
Property rights change this. If fishers have permanent, enforceable property rights, they have a long-term interest in conserving stocks. As the stocks grow, and catches become easier or larger, the value of their rights increases. If the right is in the form of a quota, the market value of the quota increases. If the right is to a particular habitat, it’s the real estate that has an ever-increasing value. Either way, the rights holders have strong economic incentives to preserve and enhance their assets. They will manage the resource sustainably. And that’s a lot more than we can say for governments.
In the last half hour, I’ve tried to explain that governments cannot act as the guardians of the public good. They have all the wrong incentives. And even if they had the right incentives, they wouldn’t have the tools with which to identify the public interest. What is good changes with time, and place, and circumstance. It depends on the unique characteristics of particular resources. It depends on the individuals affected. Remote governments can’t possibly make informed decisions about what is good for a particular resource, or community, or individual. Historically – with, say, river pollution and fish – they’ve tended to make decisions that have allowed “too much” resource use. Too much, that is, according to the victims. On the other hand, down in Convent, Louisiana, the government may have allowed “too little” pollution – or at least, too little according to those who would be most affected by it. But the point isn’t that governments will allow either too much or too little pollution, or logging, or fishing. The point is that central planners simply can’t know how much is too much or too little. When central planners do try to decide what’s best for the public – or at least claim to be acting in the public interest – they often do more harm than good.
Decisions about resource use should be made closer to the situations themselves. They should be made by those who will be most affected by them – those who have a long-term interest in the health of the resource. In other words, they should be made by those who have property rights in the resource. People with strong property rights have the tools and the incentives to make the best decisions. They will choose the optimum level of resource use.
I’m suggesting an approach that is means-oriented rather than ends-oriented. My emphasis is on who should make decisions rather than on what decisions should be made. I’m arguing for processes rather than outcomes. I’m arguing for a diversity of solutions rather than one-size-fits-all solutions that don’t really fit anyone. I believe that if we decentralize, if we give power to the people, they will work for what is good for them. The sum of all these private goods will be as close to the public good as we can get.