State of the World

Speech delivered at Foundation for the Future, August 12, 2001

Ronald Bailey | August 12, 2001

(Page 3 of 4)

SOLUTIONS--Despite the foregoing good news about the current state of the planet, it could certainly be a lot better. First, despite abundant food supplies, 800 million people are still malnourished. 1.2 billion live on less than a dollar a day. 2 billion still don’t have access to clean water, sanitation and electricity. In the meantime, tropical forests are still being cut a unsustainable rates, global biodiversity appears to be imperiled, and ocean fisheries overfished. What to do? Well make polluters and other environmental despoilers pay. But not in the usual way.

I want to maintain two things will solve most environmental problems--first that all environmental problems occur in open access commons and second that richer is cleaner and therefore slowing economic growth and development will delay eventual environmental clean up.

COMMONS--First, what is an open-access commons? Ecologist Garrett Hardin made this concept famous with his Science magazine article, The Tragedy of the Commons in the 1960s. An open access commons occurs when any member of the public may use a resource without paying anyone else for it. In a commons, if a person wants to leave some of a resource behind, say a fish to breed so that he can harvest more later, he won’t because he knows that someone else will simply come along and take the fish and gain all of the benefits for themselves. Open access commons exist generally as relics of a time when the resource was abundant and users few. Airsheds, rivers and lakes, fisheries, are prototypical examples. Unfortunately, Hardin and many others came to the conclusion that only top down bureaucratic management was the solution for solving the tragedy of the commons. True such management can score quick gains initially, the imposing catalytic converters on cars have reduced their polluting emissions by 95 percent. But top down can also discourage innovation that leads to more environmentally sound ways of doing things. For example, in the United States, the Clean Air Act effectively mandated that electric utilities use smokestack scrubbers to reduce their sulfur dioxide emissions when other alternatives such as a switch to burning cleaner coal, would have reduced emissions even further and more cheaply too.

A far more effective way to protect environmental goods is to take them out of the commons altogether by privatizing them. Contrast the political top down management of the U.S. and Canadian Atlantic cod fisheries which have essentially collapsed with the growing and healthy privatized fisheries of Iceland and New Zealand. Or the market in sulfur dioxide emissions permits in the U.S. which greatly reduced those emissions and much less cost once it was instituted. The fact is that if you own a resource, you’re far more likely to use it efficiently.

Perversely many environmental activists fault markets for not properly valuing natural capital or ecosystem services and they continue to call for placing more resources in public hands. In effect, they want more open-access commons. But if no one has to pay for a resource, then they consider it to be free. The way to take environmental goods into account is exactly the way we take all other goods into account--we put them into the market where people and most especially corporations, have to pay for what they use.

My second proposition is that richer is cleaner which flies in the fact of Paul Ehrlich’s infamous I=PAT equation published in the 1970s in Science magazine. I stands for environmental Impact--P stands for Population, A stands for Affluence (consumption nowadays) and T stands for Technology. All of them, Population, Affluence and Technology are bad for the environment. I declare now that that equation gets it almost exactly backwards. Wealthy technologically advanced market economies are seeing rapid declines in fertility, clearing air and water, expanding forests, and increasing life expectancies. I hope by now it is clear that Paul Ehrlich is a reverse Cassandra--In the Odyssey, Cassandra made true predictions that nobody believed, while Ehrlich makes false predictions that nearly everybody believes.

NEW GROWTH THEORY--How has humanity avoided the Malthusian trap?

Stanford University economist, Paul Romer describes the situation as follows: "We now know that the classical suggestion that we can grow rich by accumulating more and more pieces of physical capital like fork lifts is simply wrong. The problem an economy faces …is what economists call "diminishing returns." In handling heavy objects, a fork lift is a very useful piece of equipment. When there were few fork lifts in the economy, the return on an investment in an additional fork lift drops rapidly. Eventually, additional fork lifts would have no value and become a nuisance. The return on investment in an additional fork lift diminishes and eventually becomes negative. As a result, an economy cannot grow merely by accumulating more and more of the same kind of capital goods."

This neoclassical model of economic growth was incorporated into The Limits to Growth computer model and accounts for why the MIT researchers predicted eventual collapse as the inevitable result of continued economic and population growth.

In the last two decades, economists, largely ignored by ecologists and environmental activists, have made a conceptual breakthrough that has given them a way to rigorously and accurately describe how economic growth occurs and how, with the proper social institutions, it can go on for the foreseeable future.

"New growth theorists now start by dividing the world into two fundamentally different types of productive inputs that can be called "ideas" and "things. Ideas are nonrival goods that could be stored in a bit string. Things are rival goods with mass (or energy). With ideas and things, one can explain how economic growth works. Nonrival ideas can be used to rearrange things, for example, when one follows a recipe and transforms noxious olives into tasty and healthful olive oil. Economic growth arises from the discovery of new recipes and the transformation of things from low to high value configurations," explains Romer.

Decoding the clunky economic terminology, "rival" goods are simply things that cannot be used by two or more persons at once, e.g., cars, drill presses, computers, even human bodies and brains, hence "rivalry" to use them. "Nonrival" goods can be used by any number of people simultaneously, e.g., recipes for bread, blueprints for houses, techniques for growing corn, formulas for pharmaceuticals, scientific principles like the law of gravity, and computer programs.

To understand the potency of ideas, just consider that a few decades ago, the only thing humanity could use iron oxide (ordinary rust) for was as pigment in paintings. Now scientists and engineers have developed an elaborate set of instructions that tell manufacturers how to apply iron oxide to plastic tapes to store video and audio information and to computer diskettes to preserve digital information. Fifty years ago, silicon was used to make glass, now we have created designs that also show us how to use it to make very complicated and high valued microchips to run our computers and optical fibers to transmit vast amounts of data over the Internet. In fact, the Internet is a perfect example of how technology permits very rapid exponential growth-the number of people using the Internet is doubling every hundred days.

Ideas are a different kind of resource-they are immaterial and can be shared at nearly no cost among a great many people. Once a new technique or new discovery is made, it can be passed along to other people without much effort. It is easy to see how this works. Take the situation 10,000 years ago when some neolithic woman noticed that delicious grass seeds could be collected and covered in soil, and that she could come back later to more easily harvest the concentrated numbers of nutritious seeds. With this new knowledge, she greatly increased the capacity of the ecosystem to feed more people than hunting and gathering could support. The finite resources of the earth were not increased, just rearranged. The breakthrough was not the seeds-human beings had been gathering and eating grass seeds for tens of thousands of years-the breakthrough was the idea that they could be deliberately increased by planting them. Thus farming grass seeds resulted in increasing returns, while simply gathering and eating them immediately led to diminishing returns. As one wag put it, "both jayhawks and men eat chickens, but whilst more jayhawks mean fewer chickens, more men means more chickens."

Romer explains it this way: "Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable. A useful metaphor for production in an economy comes from the kitchen. To create valuable products, we mix inexpensive ingredients together according to a recipe. The cooking one can do is limited by the supply of ingredients, and most cooking in the economy produces undesirable side effects. If economic growth could be achieved only by doing more and more of the same kind of cooking, we would eventually run out of raw materials and suffer from unacceptable levels of pollution and nuisance. Human history teaches us, however, that economic growth springs from better recipes, not just from more cooking. New recipes generally produce fewer unpleasant side effects and generate more economic value per unit of raw material."