It's pretty common to gesture to the Reagan Administration as the birth of these policies at the national level -- David Harvey, perhaps the best critical chronicler of "neoliberalism", begins his story by pointing to the figures of Thatcher and Reagan, but then shows how we arrived at the moment where they could be seen as pivotal figures. While it's true that a lot of people who supported market-led policies got jobs in those Administrations, Harvey's correct: market environmentalism did not spring from Ronnie's forehead. The ground had been well laid for years prior to Reagan taking office, and I've just gotten hold of some of the key documents from that period that shed some interesting light on the history of market environmentalism.
First, though, I just want to acknowledge the academic and economic groundwork that had been laid by Ronald Coase and JH Dales. Dales laid out with amazing precision, in 1968, the nature and elements of a credit market in water quality -- even to the point of predicting a derivatives market in water quality credits. Coase's 1960 article "The Problem of Social Cost" was introduced to me by my economics professor as "the most widely-cited and least-read paper in the world". Which is a pity, because Coase is very readable. His argument was widely misunderstood as this: "Hey, environmental problems can be solved simply by letting the injured party negotiate with the polluter over the value of the damage. The state's only role is to guarantee the rights of the injured to negotiate." In this way, the two parties could arrive at the least-cost solution and the state could neither seek rents nor enforce imprecise or overzealous goals unrelated to people's actual interests as expressed in negotiations.
Coase's article is routinely invoked as the philosophical underpinning for the move to market-like negotiations in environmental policy. So it's worth reading what Coase himself said about that article, writing 28 years later, noting that his scenario assumed that all parties had access to perfect information about the environment:
"The world of zero transaction costs has often been described as a Coasian world. Nothing could be further from the truth. It is the world of modern economic theory, one which I was hoping to persuade economists to leave."Crucially, Coase was trying to point out to us that the "Coase Doctrine" can't really apply to most real world problems, in which transactions costs can be high and good information about the environment can be hard to come by. Since much of what constitutes "the environment" is still the subject of cutting-edge research and a steep public learning-curve, Coase's warning is relevant: "It would be unreasonable to assume that people could include in contracts a reference to rights of which they are unable to conceive."
But none of this stopped the move toward the the incorporation of economic instruments in environmental policy -- which, after all, was coming from many directions, not least the requirements in the 1970 National Environmental Policy Act that the government seek to account for hard-to-quantify environmental impacts of projects, the long-standing cost-benefit analysis requirements of projects approved under Water Resource Development Acts, and a host of other requirements that the government account for environmental damage.
How did this happen? How did we go from Dales' 1968 paper to the use of air pollution offsets in California in 1977? To the proposal of wetland mitigation banking in the Lafayette Field Office in Louisana in 1981? There were intermediate steps, and by their nature they are mostly unrecorded discussions or left their marks in office memoranda that have been long since landfilled. But there are a few traces, and over the next few years I'll be seeking out more traces and talking with some of the people who were there at the time.
The take-home message, however, is that it didn't start with Reagan. From the very beginning of the Carter Administration, in 1977, Carter was asking for a coordinated effort to rethink and streamline regulation in ways that are recognizable today in market environmentalism. In fact, the suite of documents he commissioned in 1977, and which were delivered to him in June 1980, read as a remarkably prescient future history of regulatory reform and market environmentalism. People in my generation may not realize that Al Gore's "Reinventing Government" initiative (thoughtfully archived at the University of North Texas) was really a re-iteration of Carter's initial push. If anything Reagan's first two years (1981-2) marked a retreat from market environmentalism, as his EPA and Interior appointees pursued more of a scorched-earth policy toward environmentalism, endeavoring to dismantle the regulatory structures built in the 1970s. It was only after his EPA Administrator Anne Gorsuch Burford (charged with contempt of Congress) and his Interior Secretary James Watt both resigned in 1983 that the Reagan Administration returned to what was essentially a Carter-esque track toward regulatory reform and market environmentalism.
And what was it that Carter's advisers recommended? We'll see in the next post.