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#771 - Subsidizing the Destruction of the Commons, 11-Jun-2003

Published August 7, 2003

For decades, major polluters have been claiming that they
cannot afford to clean up their acts without laying off
workers: "jobs vs. environment" is the common phrase.

Naturally, such talk can make workers feel insecure and
resentful of community activists. So for decades the "jobs vs.
environment" argument has served to divide workers from many of
their best natural allies -- activists concerned about quality
of life in their communities (including the natural environment
AND jobs). All too often, "jobs vs. environment" has allowed
the polluters to divide and then conquer whole communities,
even whole states.

Recent economic research shows that the "jobs vs. environment"
argument doesn't hold water. Communities and states that fail
to protect their environment don't do well. They tend to have
stagnant economies (low rates of job growth) and low average
incomes, unfair taxes (taxing the rich least of all, as a
proportion of income), and high prices for energy for the
average person. They also tend to have huge gaps between the
rich and everyone else, and mediocre public health (partly
related to pollution, partly related to the huge inequalities
in income). And finally, they have low participation in
elections (perhaps because people feel the system is rigged,
which in these states it tends to be).

States that enact strong environmental protections tend to
create good jobs, spread the wealth around more fairly, have
better public health, fairer taxes, and greater democratic
participation. In sum, numerous studies now show that good
jobs, a clean environment, and better quality of life all go
hand in hand. From the community's perspective, pollution does
not pay.

For example, studying Los Angeles County, California,
sociologist Manuel Pastor, Jr. has shown that the most
dangerously polluted areas of the county have the highest
proportion of minority residents and the lowest rate of job
growth. Thus it is apparent that jobs do not necessarily
increase when the environment is allowed to deteriorate. As Dr.
Pastor says, "Instead, it looks like environmental degradation
and economic weakness go hand in hand." [1, pg. 12]

In a series of studies over a decade's time, Professor Paul
Templet has analyzed all 50 states of the U.S. and found that
states with lax environmental enforcement are the poorest
states in the union, economically. Dr. Templet served as
Secretary of the Louisiana Department of Environmental Quality
from 1988 to 1992, and is now professor of environmental
studies at Louisiana State University.

Corporations that dump pollutants into air, water or soil are
using nature (a public resource) as a free toilet. But of
course nature's toilet (which economists prefer to call a "sink
resource") isn't really free. Someone besides the polluter
eventually pays -- for abandonment of a resource such as
shellfish beds, for cleanup, or for harm to health (asthma,
diabetes, cancer and so on).

Economists like to say that such polluters have "externalized
their costs" by dumping their poisons into public spaces,
forcing the public to bear the costs. In essence, the poisoners
have received a public subsidy in the form of a free toilet.

In the same way, a timber company is receiving a subsidy when
it logs a forest without paying the attendant costs of soil
erosion, stream siltation, loss of flood control that the
forest provided by storing water, and other environmental
damage.

These "pollution subsidies" increase a firm's profits while
imposing costs on those who are affected, ranging from
immediate neighbors to all taxpayers. Thus pollution moves
large sums of money from the pockets of its victims into the
pockets of its perpetrators. [2, pgs. 3-4]

Viewed by an economist, those who pollute without paying the
full costs are depreciating a "public trust resource" that
belongs to society at large.[3] They are appropriating
("taking" or "privatizing") a resource that belongs to
everyone, without paying compensation. Normally when a public
servant embezzles or steals financial capital from the public,
society imposes penalties including disgrace, monetary fines
and, in rare cases, imprisonment. But when polluters
appropriate and degrade public-trust resources, such as water
and air, they often get away scot free.

Many states provide a second kind of subsidy to corporations --energy
subsidies. In the U.S., the average residential consumer
pays about twice as much per unit of energy as an industrial
firm pays. This represents a subsidy by individual rate-payers
to the big consumers of energy.

Economists say that some disparity in price can be justified
because the cost of delivering large quantities of energy to
one end-user is lower than the cost of delivering the same
amount of energy to many end-users. However, some states are
clearly favoring large users at the expense of small users --thus
taking money from individuals and putting it into the
pockets of corporations.

In Louisiana and Alaska, for example, individual consumers pay
four times as much per unit of energy as industrial users pay.
As Paul Templet observes, "The energy subsidy... reduces the
cost of obtaining a natural resource. There is no particular
reason that industry should enjoy drastically cheaper energy
than the public does.... The huge price differences in certain
states reflect political power. Eliminating the energy subsidy
would return the appropriated natural assets to citizens in the
form of reduced pollution and more equitable prices. It would
also promote more efficient use of energy, and enhance public
health. Citizens could spend less on energy, and more on
education or other needs." [2, pgs. 6, 13]

A third kind of subsidy occurs through taxation. In general,
income taxes and property taxes take a larger proportion of
wealth from the rich than from the poor. Such taxes are labeled
"progressive."

On the other hand, sales taxes tend to have the opposite effect
and are thus labeled "regressive." Sales taxes are regressive
because they take a fixed share of whatever is consumed and
those with low and moderate incomes tend to spend a greater
portion of their income on consumption, compared to the rich. A
poor person and a rich person will pay the same amount of sales
tax on the purchase of a hot water heater, but the cost of a
hot water heater is a much larger proportion of a poor person's
income than of a rich person's income, so the sales tax is
regressive -- it stings the poor worse than it stings the rich.
A state that relies on regressive taxes more than progressive
taxes is providing a subsidy to those with high incomes and
large property holdings, a subsidy paid by those with low
incomes and few property holdings. It is a way of picking the
pockets of the poor and handing the proceeds to the rich. Thus
a sales tax is like Robin Hood in reverse.

Professor Templet has shown that all three kinds of subsidies
-- pollution, energy and tax -- are associated with poor
environmental performance.

Templet examined all 50 states in terms of a Green Policy Index
(developed by the Institute for Southern Studies[4]), which
took into account 77 indicators of effective environmental
policies. Templet also examined all 50 states in terms of a
Green Conditions Index[4], which is based on 179 measures of
environmental quality.

Templet found that states that provide the largest subsidies to
polluters, energy hogs, and the rich are the same states that
have the weakest environmental protection policies and the most
degraded environments. The 25 states providing more total
subsidies than the national average are (in order of biggest
subsidies to the smallest): Louisiana, Utah, Florida,
Tennessee, Mississippi, Alabama, Washington, Nevada, Texas,
Arizona, New Mexico, Oklahoma, Hawaii, West Virginia, Arkansas,
South Carolina, North Dakota, Indiana, South Dakota, Virginia,
Kansas, Missouri, North Carolina, Alaska, and Georgia.

Templet also examined the relationship between the three kinds
of subsidies and various measures of economic well-being. He
found that the pollution subsidy is a good predictor of poor
economic performance as measured by poverty, income
inequalities (the gap between high and low incomes),
unemployment, and low average personal income.

In other words, as firms are allowed to externalize more of
their costs (freely dumping into the public's common-heritage
resources of air and water), poverty increases, the gap between
rich and poor increases, and average income declines.

As Templet notes, "This suggests that spending to control
pollution constitutes a progressive policy in terms of income
distribution." The benefits may be more than just economic,
since is it the poor, and often minorities, who are most likely
to live near polluting facilities, and who therefore bear the
burden of health damage as well.

Templet found that large energy subsidies are, likewise,
correlated with poverty, unemployment, income inequalities and
low personal incomes. The tax subsidy is also correlated with
increased poverty, greater inequalities in income, and lower
average incomes, not surprisingly because tax subsidies
effectively take from the poor and give to the rich.

Templet examined the pollution subsidy in relation to economic
growth and found a negative correlation: as firms dump more
pollution and thus externalize more costs, their states forego
jobs. Pollution retards economic growth.

Templet also wondered whether corporate profits increased in
those states where subsidies were highest. Data on corporate
profits were not available, but he found a surrogate measure --value
added in manufacturing -- that allowed him to test
whether profits increased as subsidies rose. They did.

If firms invested these increased profits within the state,
then they might contribute to public welfare through increased
employment and income. Unfortunately, Templet found that most
of the profits go to shareholders and managers, most of whom
live in other states and even other countries.

As value added per job (the surrogate for corporate profits)
increases, a greater proportion of gross state product leaves
the state, Templet found. "In general," he says, "profits tend
to leak from high-subsidy, low-income states to low-subsidy,
high-income states, fueling inter-state inequality." [2, pg.
10]

Leakage of profits from high-subsidy states to low-subsidy
states is a major source of income inequalities between states.
It drains income from states that consume the most resources
and generate the most pollution. As income leaks from a state,
we see a rise in unemployment, poverty, and pollution. Leakage
goes somewhere -- in general, it goes to the states where the
owners live. Indeed, a number of the richer states actually
import income -- their total income exceeds their gross state
product. "The situation is analogous to colonialism in which
the mother country draws resources and other wealth from the
colony, proffering little compensation in return. In this
respect, the United States displays a kind of internal
colonialism," Templet says.

In addition to environmental degradation and economic decline,
subsidies also damage our democratic ideals. By examining all
50 states, Paul Templet found that, as subsidies increase for
polluters, energy hogs, and the rich, political participation
declines -- fewer people bother to go to the polls at election
time. States with above-average total subsidies have a voter
participation rate that is 15% below the U.S. average.

Based on his personal experience as a cabinet official in
Louisiana state government, Templet believes that subsidies
damage democracy because polluters and the rich use their extra
profits to buy political favors to further increase their own
power. He says, "Citizens in high-subsidy states may well feel
disenfranchised, perceiving that their elected representatives
cater to special interests. They may doubt that voting will
change anything. Yet low [voter] participation itself
contributes to the further concentration of power."

Templet goes on: "Those receiving subsidies can use additional
financial capital in a number of ways. One obvious way is to
spend more on campaign contributions, and to hire more
lobbyists to protect and augment the subsidies. Industrial
corporations are major contributors to political campaigns. In
making contributions, special interests not only help to elect
representatives, but may also influence choices for appointed
positions.

"In my experience as a cabinet official in Louisiana's state
government, I found that the quality of public leadership
declines as special interests increase their sway. Even
federally funded programs tend to languish. State agencies
become less responsive to citizens, who in turn withdraw from
the political process. The state becomes a less attractive
place to live and do business. The end result is institutional
failure, the erosion of democracy and the loss of social
capital." [2, pg. 11]

Templet shows that all three subsidies -- pollution, energy,
and tax -- foster inequality in at least three ways:

(1) Subsidies diminish productivity, disposable income, health,
and quality of life for those who bear the costs.

(2) Subsidies enhance the political power of those who are
subsidized, allowing them to manipulate markets and the
political process to further their own interests; and

(3) Subsidies deprive governments of revenues that they could
have used for education, health care, and other programs that
serve citizens. [2, pg. 4]

In sum, Templet describes a vicious circle. By discharging
poisons into air, water, and soil, corporations take -- without
compensation -- the public's clean environment and the public's
health. In so doing, the poisoners capture subsidies, for which
the public pays the price. Thus the poisoners increase their
profits. With their ill-gotten gains, the poisoners then
purchase favors from public officials, who in turn pass (and
fail to enforce) weak laws that allow the poisoners to continue
using the environment as a free toilet. These policies make the
state less attractive to other firms, so the diversity of the
economy declines.

As Templet notes, "Communities may be left with a 'company
town' syndrome. They grow poorer, more polluted, more subject
to boom-and-bust cycles, and more dependent on the industries
that are reaping the benefits. As concentrated wealth fosters
concentrated power, public policy embraces subsidies even more.
The result is a spiral of public and ultimately private
decline. Although corporations can eventually pick up and go
elsewhere, the public as a whole cannot." [2, pg. 14]

The public sees what is going on but believes it cannot affect
the outcome of this corrupt game, and so drops out, refusing to
participate in elections or other forms of democratic
engagement. Thus social capital (an economists's phrase for
civic spirit) declines, leading to the further decline of
public-trust resources -- a downward spiral of social,
economic, and environmental decay.

What can be done? The short answer is that we could improve
public health and well-being, and enhance environmental
quality, first by reducing or eliminating subsidies for
corporate polluters, energy hogs, and the rich, and, secondly,
by taking back control of "the commons" to put citizens in
control of our public-trust resources, the environment. It is
time we denied special interests the right to "privatize" our
air and water (and the environment's limited capacity to absorb
wastes) without full compensation to their rightful owners --the public.

One way to tackle these problems would be by reviving and
revitalizing the ancient "public trust doctrine" -- the legal
doctrine that says state governments have an affirmative duty
to protect our common-heritage resources, such as water and
air, for generations unborn. States have an affirmative duty to
prevent private parties from "taking" or degrading our
common-heritage resources. Like the "precautionary principle,"
the "public trust doctrine" is a powerful new tool for
community protection that can be learned, articulated,
expanded, and advanced by grass-roots activists.[3] You'll be
hearing more about this from us. --Peter Montague

=========================

* My thanks to Carolyn Raffensperger and her colleagues at the
Science and Environmental Health Network for their exploration
of the "public trust doctrine."

[1] Templet, Paul H. 2001. Defending the Public Domain:
Pollution, Subsidies, and Poverty [PERI Working Paper No.
DPE-01-03]. Amherst, Mass.: University of Massachusetts,
Amherst, Political Economy Research Institute. Available at:
target="_blank">http://www.umass.edu/peri/pdfs/WP12.pdf .

[2] Pastor, Jr., Manuel. 2001. Building Social Capital To
Protect Natural Capital: The Quest for Environmental Justice
[PERI Working Paper No. DPE-01-02]. Amherst, Mass.: University
of Massachusetts, Amherst, Political Economy Research
Institute. Available at:
target="_blank">http://www.umass.edu/peri/pdfs/WP11.pdf .

[3] Air, water, and soil are sometimes called "public trust
resources" because they are common resources owned by everyone
and by no one. Under a legal doctrine traceable back to the
laws of ancient Rome, governments have a special duty to
protect these public trust resources for the benefit of future
generations. This "public trust doctrine" is firmly embedded in
state laws in the U.S., though like all laws it is sometimes
forgotten, sometimes ignored and sometimes breached. We at ERF
believe it is a powerful, little-used idea that grass-roots
activists should be learning about, speaking about, and
expanding. On the public trust doctrine, see:

James T. Paul, "The Public Trust Doctrine: Who Has the Burden
of Proof," paper presented at the July, 1996 Meeting in
Honolulu, Hawaii of the Western Association of Wildlife and
Fisheries Administrators, Hosted by the State of Hawaii
Department of Land and Natural Resources." Available on the web
at target="_blank">http://www.rachel.org/library/getfile.cfm?ID=190

and:

Carolyn Raffensperger, "Precaution and a Theory of Property,"
The Environmental Forum May/June, 2003 (a publication of the
Environmental Law Institute in Washington, D.C.). Available at:
target="_blank">http://www.rachel.org/library/getfile.cfm?ID=192

and:

Mark Dowie, "In Law We Trust," Orion Magazine July/August 2003.
Available at: http://www.rachel.org/library/getfile.cfm?
ID=191

[4] Hall, Bob, and Mary Lee Kerr. 1991-1992 Green Index; A
State-By-State Guide to the Nation's Environmental Health.
1991. Washington, D.C.: Island Press. ISBN 1-55963-114-7.