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'Economic freedom' and the politics of environmental performance

The Fraser Institute released a report (on Earth Day naturally) claiming that, "air pollution declines as economic freedom rises." PressProgress provided a quick reality check on some of the main idiocies of the report.

But there is more to be said about this report and what it tells us about the ways that conservative forces attempt to appropriate (and de facto, even if this is not their intent, undermine) environmental policy. In part this is because behind the ideological obfuscation, the report asks a good question – can we say anything sensible about the political conditions under which good environmental policy is made?

It turns out the answer to this question is yes, but it doesn’t produce results that sit easily with the Fraser Institute’s conclusions. We have a vast corpus of work in comparative environmental policy that helps us address this question, of which the Fraser Institute cites precisely two, both by the same authors (see here and here).

When we address this literature seriously, we quickly realise that none of it uses the notion of ‘economic freedom’ as an organising device. There are good reasons for this. It is because: (a) the concept is decidedly ideological and non-scientific (try asking yourself who is this freedom really for?); (b) because it is absurdly simplistic as a means of thinking about how the relationship between the state and the economy works, especially regarding environmental policy; and (c) the causal processes by which ‘economic freedom’ generates improved environmental performance are decidedly shaky, and in the Fraser Institute report not really explained at all.

On this last point, the Fraser Institute report cites Ronald Coase’s classic article of 1960. The problem is that Coase’s own analysis is rather limited to specific instances of localised pollution problems whereby he can imagine solving environmental problems most efficiently by bargaining between different social actors, all of whom have precise property rights. In fact this doesn’t explain what people like the Fraser Institute want it to explain. Specifically, there are no well established property rights in the Particulate Matter pollution that is their empirical case, and no bargaining between social actors, so Coase’s proposed solution cannot explain what they want it to. Much of these particulate emissions reductions can instead be directly associated with the imposition of regulations by governments, even ones that respect 'economic freedom'. In effect, they over-extend their use of him wildly to a generalised 'government is bad, market is good' rhetoric, while Coase himself was rather more measured.

Conversely, there is a good theoretical claim we can draw on contained in studies of comparative politics and policy to understand these variations in environmental performance. This is that we can identify different patterns of economic intervention by states across countries.

The three broad types of countries often identified in this literature on 'varieties of capitalism' are Liberal Market Economies (e.g. US, Canada, Australia), Coordinated Market Economies (Sweden, Germany, Japan) and Developmental States (China, South Korea). The terms are reasonably self-explanatory, but LMEs have arms length relations to corporations and labour, while CMEs coordinate these sectors more actively, and developmental states pursue economic growth via state activity in a much more activist manner than either of the other two. In other literatures, the first two of these are sometimes called 'pluralist' and 'corporatist' respectively.

The punch line in relation to the Fraser Institute report is that all of these literatures show that CMEs display systematically stronger environmental performance than LMEs. This is the case for a whole basket of environmental problems (not just for one cherry-picked measure of air pollution that the Fraser Institute report relies on), as shown magisterially by Lyle Scruggs in his Sustaining Abundance, and also works for carbon dioxide emissions, as Erick Lachapelle and I showed in a paper published in Climate Policy published last year.

So countries that have traditions of coordinating activity amongst firms, labour and the State do better in environmental policy than countries that have laissez-faire traditions. This is absolutely contrary to the general thrust of the Fraser Institute report.

The theoretical logic is also easier to understand. Collaborative traditions among key economic interest groups and the State lead in CMEs to the existence of relatively high levels of mutual trust, learning among groups, and adaptation to each other’s agendas. Business in particular tends to adapt to social and governmental concerns rather than resist tooth and nail (see this, or this, comparative study on the oil industry and climate change for a good example of this). Conversely, the State learns from industry how to design regulations that do not impede profitability or competitiveness to strongly.

In LMEs, by contrast environmental policy becomes bogged down in negative campaigning and foot-dragging by business and endless litigation.

So let’s get beyond the simplistic ideological attempt to apply the 'governments bad, markets good' agenda to environmental problems. Dealing effectively with a sustainability requires a complex understanding of the inter-relations between governments (at various levels), firms, consumers, workers, cities and many others, and the coordinating role of governments is important in enabling all to achieve what we need to – even if it is imperfect in many ways. 

Matthew Paterson is a professor with the Faculty of Graduate and Postdoctoral Studies at the University of Ottawa. His work focuses on the intersection of global political economy and global environmental politics.