freeze frame
"Next time you shop for the cheapest product, press pause and think."
Not for the first time, I stopped and thought for a while. Was he right? Could extending the reach of 'the market' to everything really be the answer to the problems that 'the market' creates today?
This happened as I was talking to Andy outside the Shooting Star. It was a sunny evening; over a pint or two a few of us chatted. I can't remember how, but we ended up talking about the car. I remember opining that the car is the great symbol of doom. That it is has enhanced people's freedom too much for them to ever give it up, yet every day an unimaginably vast quantity of cars pump out an even more unimaginable amount of poison that we expect the planet to soak up, like it is some infinitely extensive rubbish dump.
Some people claim that if they don't wash their hair, it washes itself. Guess what, it isn't true. And the earth doesn't clean itself either: the poison stays around.
Anyway Andy argued that the market would solve the problem. The oil would start to run out, so the price of oil would go up. Under threat, oil companies would be forced to develop new energy avenues. The air would become polluted to the point that public opinion forced taxes on polluters. In short, not to become greener would become unprofitable.
The need would be driven, as always, by profit. And driven by this need, technology would always find a way out of the hole. It was a rosy picture. A beautiful symmetry: the very rules that seem to cause doom will themselves find the solution. And I frowned.
One of the great flaws in this argument is that for it to work, things have to get pretty bad before the market reacts. The oil has to nearly run out. Public opinion has to turn sufficiently until governments actually do something (this takes a long time...and might even need a revolt or two...). But there is logic to the argument, so it should never be dismissed out of hand. And so it was on that sunny evening over a pint, I stared into space just to think about it for a while.
The next time I did that was tonight, as I watched the documentary 'The Corporation'. An interviewee voiced the opinion that everything should be owned. Air, water, trees, oceans, space, maybe even people. Everything should have a price. Only then, he said, could the market fully take account of everyone's needs. The costs which are currently externalised by companies (meaning those negative effects caused to third parties for which they are not compensated) such as pollution, could be valued by the market and traded. Those who were affected would be compensated; if the negative effect became too great, the higher price of compensation would become an inhibitor to these negative actions. It would become unprofitable to pollute, or deforest. In many ways this was a similar argument to Andy's, but with a different slant: that the market cannot currently tread a path through all interests because some interests are not represented in the market. That companies pollute with abandon because there is no penalty for doing so. That this skewing is a product of not taking the market far enough.
This was a new slant. I paused the video.
Recently the EU ratified an emissions trading scheme designed to help the trading bloc members meet their obligations to the Kyoto treaty. Many people (and I am one) believe that this is the best choice going that the market will stomach, research shows that even in worst case scenarios such a framework should increase the rate of emissions reduction by a factor of 2. In any case, this is perhaps the first example of introducing the negative effect of pollution into a marketplace. Companies have to pay market price for their pollution. Maybe the market argument was correct? Could this work?
Let's ignore the fact that unless the marketplace is truly global and all polluters are held equally accountable under a common set of laws and penalties, then it cannot work long term. In fact let's imagine that this global marketplace exists today. Now let's say I am Luxemburg. I have the right to pollute to the tune of 20 shits a day (hey, I needed a unit of pollution, alright? :) ). But I don't really have much polluting industry. I might only use up 5 shits out of my quota per day. I have 15 shits in hand (yuk!). So I sell them daily in the marketplace, and I have a revenue stream. Self interest says that I will always sell; I never consider that I might not sell and thereby force the world to be a less polluted place that day. For I am a government and I have a duty to my taxpayers to provide them with better services and for that I need all the money I can get.
So the first thing to realise is that the capacity of the emissions marketplace will always be reached on any particular day. All pollution will be sold that day. Who sets the capacity? Governments. That this is a problem will become clear.
Second problem: lack of enforcement. A market in potatoes is self enforcing; after all if noone has any potatoes to sell then I, the buyer, cannot magic them out of thin air. I just cannot buy potatoes that day. A market in emissions is not like this. If I cannot buy my quota of pollution that day, I have a choice. Do I telephone my factory and tell them to shut it all down (=$$$) and go home early? Or do I take a chance that the local pollution police are not in my district that day? What if the pollution police had their budget cut by my favourite politician I just donated $30m to? Would they have less patrols and be less likely to spot that I had just exceeded my pollution quota... ? more than likely.
So we're back at governments. The market quota is set by government and the enforcement is done by governmental agencies. The same governments that are lobbied extensively by those corporations who 'donated' over $500m on both sides of the last US presidential election. Does anyone believe they do this out of the goodness of their hearts?
The point should be clear, but in case it is not: governments depend on corporations for jobs and tax. The political parties depend on corporate finance for their campaigns. In all senses, governments are becoming (have become?) lapdogs to their corporate masters. A world of traded emissions requires enforcement and political will to push the market quota down and force the participants in the market to be less polluting year on year. For the corporate lapdogs, this is a conflict of interest. Something has to break.
So, unlikely as it might be to create, an effective and honest government is essential to make this particular type of market work. And even then competition (the lifeblood of the marketplace) would undermine this structure. Because governments also compete. For taxes, jobs and skills. They compete to keep companies operating successfully under their national umbrella, and to keep the jobs they provide and the taxes they (and all their employees) pay. If just one government turns a blind eye to become a haven for cheaper, more polluting, manufacturing - then manufacturers in all other nations become uncompetitive. And those uncompetitive companies fold, meaning that jobs go and less tax is collected (or they move their head office to a more favourable country with the same effects). If a powerful and self sustaining nation did this (e.g. the US or China), no sanctions by other nations would matter. Other governments would need to decide whether to follow suit and allow their companies to compete on level terms, or wither and die.
Possession of the atom bomb by the Soviet Union and the USA led to mutual distrust and fear and was a large factor in the cold war. But from a game theory perspective, possession of the weapon by both these superpowers created a static game environment. The safest scenario. Why? Mutually Assured Destruction (MAD.. always seemed a highly appropriate TLA). In other words, if either party initiated an attack, they could guarantee that the opponent would retaliate in the time before they were hit. This knowledge meant that to launch your own weapon was akin to shooting yourself in the foot. The consequences of not having the capability were much more dire: the side with the capability could launch the weapon in the knowledge that nothing bad would happen to them. They were therefore likely to be more trigger happy. This logic tells you that if you're a nation without the bomb, then you want to get it. Fast. In time it is realised that the position is stable if everyone has the bomb OR if noone has the bomb. It is probably preferable for noone to have the bomb, just in case there are any accidents. But this state can never be reached again: lack of trust between opponents will always mean that the only achievable stable state is for everyone to have the bomb.
This analysis is a kind of gaming of the scenario. In a Game Theory sense, in that it assumes that all players play 'rationally' and in their own interest and that all players expect other players to play rationally and in their own interest. Noone wants to die in an atomic blast, so all players assume that their opponents also exhibit self preservation behaviour.
Applied to emissions controls this means that we expect companies to choose the most profitable path, and governments to behave very similarly (they wish to maximise national wealth, services and jobs). This kind of analysis is much like thinking about your next chess move: it does not preclude a sacrifice if it is to achieve a better longer term position. But that position is only measured as 'better' against self interest, not for the global good. There is no global good in the thinking applied by each of the players.
So it's not identical with emissions controls but there are similar themes. Think of the nations that impose emissions controls on their companies as being the guys WITHOUT the atom bomb. The nations who don't have controls are the guys WITH the bomb. In a world where some countries impose controls and some do not, the assured destruction of the uncompetitive companies in the nations with emissions controls is not mutual. Even worse it does not need anyone to launch an attack. The market will be against them from the moment they are put in the uncompetitive position by the local regulations. If that nation then revokes their emissions controls, fair competition in the market is restored. But competition in the market would also be fair if everyone imposed emissions controls. Trust is again the key: as a competitor government, why would I trust your government when you say that you are correctly policing your polluters? If you are lying but I am honest then your companies are at an advantage to mine. If I am dishonest then at worst we are on an even keel. At best you are honest and my companies hold the advantage. So it is better to be dishonest. It is a given that I don't trust you; we are opponents in the game. The only stable 'fair competition' state for the game is one where all nations are not controlling emissions in practice (whether they pretend to or not).
So in the end I thoroughly disagree with the interviewee. The market not only cannot solve the problem by extension of its realm, it threatens democracy. The role of elected government as a slave to the unelected corporation forces nations into competition with other nations to make themselves a more attractive corporate home. More attractive = less regulated. The role of government as regulator and protector diminishes by the day, because of 'the market'. Without a regulator who controls the emissions at all? And what is the point of electing a toothless slave?
But anyway democracy's great flaw is also exposed here. It is short termist. Even if the slave were not toothless, the people who will really be affected by climate change are kids. Maybe not even ours, but theirs. And they cannot vote today when it counts. And even if they could maybe the politicians are too bothered about looking good short term to get reelected, rather than doing good long term. We need to fix these problems too, but I digress.
In the end the dollar is king, the only way to influence is not to buy their wares. Only the consumer can defeat the corporation. We are all consumers. Corporations have no morality, their goal enshrined in law is to put profit above all other. But we consumers have morals. We do not have to put self interest above all else.
Next time you shop for the cheapest product, press pause and think.
Read more:
1. The Corporation by Joel Bakan
2. Summary of The Kyoto Protocol published on the EU's website
3. Game Theory:
A tutorial in game theory
Emissions Trading: From Theory To Practice. Very readable and interesting paper published by AT Kearney (global consulting firm). Section 4.2 confirms my fears that lobbying government is seen as a key strategy for companies affected by emissions controls.
A paper analysing the effect of the entry of China into the emissions trading framework on the dominant player, Russia.
4. The here and now
BBC News: Is the world running out of oil?
The German Institute for International and Security affairs comments on the current situation and makes reference to Blair's stated commitment to push environmental policy during the UK leadership of the G8 in 2005.
Analysis of likely competitiveness effects of European Emissions Trading on European firms. Section 4 (page 59) outlines the extent to which companies would relocate polluting operations overseas as a response to the decrease in competitiveness described in section 3.
Not for the first time, I stopped and thought for a while. Was he right? Could extending the reach of 'the market' to everything really be the answer to the problems that 'the market' creates today?
This happened as I was talking to Andy outside the Shooting Star. It was a sunny evening; over a pint or two a few of us chatted. I can't remember how, but we ended up talking about the car. I remember opining that the car is the great symbol of doom. That it is has enhanced people's freedom too much for them to ever give it up, yet every day an unimaginably vast quantity of cars pump out an even more unimaginable amount of poison that we expect the planet to soak up, like it is some infinitely extensive rubbish dump.
Some people claim that if they don't wash their hair, it washes itself. Guess what, it isn't true. And the earth doesn't clean itself either: the poison stays around.
Anyway Andy argued that the market would solve the problem. The oil would start to run out, so the price of oil would go up. Under threat, oil companies would be forced to develop new energy avenues. The air would become polluted to the point that public opinion forced taxes on polluters. In short, not to become greener would become unprofitable.
The need would be driven, as always, by profit. And driven by this need, technology would always find a way out of the hole. It was a rosy picture. A beautiful symmetry: the very rules that seem to cause doom will themselves find the solution. And I frowned.
One of the great flaws in this argument is that for it to work, things have to get pretty bad before the market reacts. The oil has to nearly run out. Public opinion has to turn sufficiently until governments actually do something (this takes a long time...and might even need a revolt or two...). But there is logic to the argument, so it should never be dismissed out of hand. And so it was on that sunny evening over a pint, I stared into space just to think about it for a while.
The next time I did that was tonight, as I watched the documentary 'The Corporation'. An interviewee voiced the opinion that everything should be owned. Air, water, trees, oceans, space, maybe even people. Everything should have a price. Only then, he said, could the market fully take account of everyone's needs. The costs which are currently externalised by companies (meaning those negative effects caused to third parties for which they are not compensated) such as pollution, could be valued by the market and traded. Those who were affected would be compensated; if the negative effect became too great, the higher price of compensation would become an inhibitor to these negative actions. It would become unprofitable to pollute, or deforest. In many ways this was a similar argument to Andy's, but with a different slant: that the market cannot currently tread a path through all interests because some interests are not represented in the market. That companies pollute with abandon because there is no penalty for doing so. That this skewing is a product of not taking the market far enough.
This was a new slant. I paused the video.
Recently the EU ratified an emissions trading scheme designed to help the trading bloc members meet their obligations to the Kyoto treaty. Many people (and I am one) believe that this is the best choice going that the market will stomach, research shows that even in worst case scenarios such a framework should increase the rate of emissions reduction by a factor of 2. In any case, this is perhaps the first example of introducing the negative effect of pollution into a marketplace. Companies have to pay market price for their pollution. Maybe the market argument was correct? Could this work?
Let's ignore the fact that unless the marketplace is truly global and all polluters are held equally accountable under a common set of laws and penalties, then it cannot work long term. In fact let's imagine that this global marketplace exists today. Now let's say I am Luxemburg. I have the right to pollute to the tune of 20 shits a day (hey, I needed a unit of pollution, alright? :) ). But I don't really have much polluting industry. I might only use up 5 shits out of my quota per day. I have 15 shits in hand (yuk!). So I sell them daily in the marketplace, and I have a revenue stream. Self interest says that I will always sell; I never consider that I might not sell and thereby force the world to be a less polluted place that day. For I am a government and I have a duty to my taxpayers to provide them with better services and for that I need all the money I can get.
So the first thing to realise is that the capacity of the emissions marketplace will always be reached on any particular day. All pollution will be sold that day. Who sets the capacity? Governments. That this is a problem will become clear.
Second problem: lack of enforcement. A market in potatoes is self enforcing; after all if noone has any potatoes to sell then I, the buyer, cannot magic them out of thin air. I just cannot buy potatoes that day. A market in emissions is not like this. If I cannot buy my quota of pollution that day, I have a choice. Do I telephone my factory and tell them to shut it all down (=$$$) and go home early? Or do I take a chance that the local pollution police are not in my district that day? What if the pollution police had their budget cut by my favourite politician I just donated $30m to? Would they have less patrols and be less likely to spot that I had just exceeded my pollution quota... ? more than likely.
So we're back at governments. The market quota is set by government and the enforcement is done by governmental agencies. The same governments that are lobbied extensively by those corporations who 'donated' over $500m on both sides of the last US presidential election. Does anyone believe they do this out of the goodness of their hearts?
The point should be clear, but in case it is not: governments depend on corporations for jobs and tax. The political parties depend on corporate finance for their campaigns. In all senses, governments are becoming (have become?) lapdogs to their corporate masters. A world of traded emissions requires enforcement and political will to push the market quota down and force the participants in the market to be less polluting year on year. For the corporate lapdogs, this is a conflict of interest. Something has to break.
So, unlikely as it might be to create, an effective and honest government is essential to make this particular type of market work. And even then competition (the lifeblood of the marketplace) would undermine this structure. Because governments also compete. For taxes, jobs and skills. They compete to keep companies operating successfully under their national umbrella, and to keep the jobs they provide and the taxes they (and all their employees) pay. If just one government turns a blind eye to become a haven for cheaper, more polluting, manufacturing - then manufacturers in all other nations become uncompetitive. And those uncompetitive companies fold, meaning that jobs go and less tax is collected (or they move their head office to a more favourable country with the same effects). If a powerful and self sustaining nation did this (e.g. the US or China), no sanctions by other nations would matter. Other governments would need to decide whether to follow suit and allow their companies to compete on level terms, or wither and die.
Possession of the atom bomb by the Soviet Union and the USA led to mutual distrust and fear and was a large factor in the cold war. But from a game theory perspective, possession of the weapon by both these superpowers created a static game environment. The safest scenario. Why? Mutually Assured Destruction (MAD.. always seemed a highly appropriate TLA). In other words, if either party initiated an attack, they could guarantee that the opponent would retaliate in the time before they were hit. This knowledge meant that to launch your own weapon was akin to shooting yourself in the foot. The consequences of not having the capability were much more dire: the side with the capability could launch the weapon in the knowledge that nothing bad would happen to them. They were therefore likely to be more trigger happy. This logic tells you that if you're a nation without the bomb, then you want to get it. Fast. In time it is realised that the position is stable if everyone has the bomb OR if noone has the bomb. It is probably preferable for noone to have the bomb, just in case there are any accidents. But this state can never be reached again: lack of trust between opponents will always mean that the only achievable stable state is for everyone to have the bomb.
This analysis is a kind of gaming of the scenario. In a Game Theory sense, in that it assumes that all players play 'rationally' and in their own interest and that all players expect other players to play rationally and in their own interest. Noone wants to die in an atomic blast, so all players assume that their opponents also exhibit self preservation behaviour.
Applied to emissions controls this means that we expect companies to choose the most profitable path, and governments to behave very similarly (they wish to maximise national wealth, services and jobs). This kind of analysis is much like thinking about your next chess move: it does not preclude a sacrifice if it is to achieve a better longer term position. But that position is only measured as 'better' against self interest, not for the global good. There is no global good in the thinking applied by each of the players.
So it's not identical with emissions controls but there are similar themes. Think of the nations that impose emissions controls on their companies as being the guys WITHOUT the atom bomb. The nations who don't have controls are the guys WITH the bomb. In a world where some countries impose controls and some do not, the assured destruction of the uncompetitive companies in the nations with emissions controls is not mutual. Even worse it does not need anyone to launch an attack. The market will be against them from the moment they are put in the uncompetitive position by the local regulations. If that nation then revokes their emissions controls, fair competition in the market is restored. But competition in the market would also be fair if everyone imposed emissions controls. Trust is again the key: as a competitor government, why would I trust your government when you say that you are correctly policing your polluters? If you are lying but I am honest then your companies are at an advantage to mine. If I am dishonest then at worst we are on an even keel. At best you are honest and my companies hold the advantage. So it is better to be dishonest. It is a given that I don't trust you; we are opponents in the game. The only stable 'fair competition' state for the game is one where all nations are not controlling emissions in practice (whether they pretend to or not).
So in the end I thoroughly disagree with the interviewee. The market not only cannot solve the problem by extension of its realm, it threatens democracy. The role of elected government as a slave to the unelected corporation forces nations into competition with other nations to make themselves a more attractive corporate home. More attractive = less regulated. The role of government as regulator and protector diminishes by the day, because of 'the market'. Without a regulator who controls the emissions at all? And what is the point of electing a toothless slave?
But anyway democracy's great flaw is also exposed here. It is short termist. Even if the slave were not toothless, the people who will really be affected by climate change are kids. Maybe not even ours, but theirs. And they cannot vote today when it counts. And even if they could maybe the politicians are too bothered about looking good short term to get reelected, rather than doing good long term. We need to fix these problems too, but I digress.
In the end the dollar is king, the only way to influence is not to buy their wares. Only the consumer can defeat the corporation. We are all consumers. Corporations have no morality, their goal enshrined in law is to put profit above all other. But we consumers have morals. We do not have to put self interest above all else.
Next time you shop for the cheapest product, press pause and think.
Read more:
1. The Corporation by Joel Bakan
2. Summary of The Kyoto Protocol published on the EU's website
3. Game Theory:
A tutorial in game theory
Emissions Trading: From Theory To Practice. Very readable and interesting paper published by AT Kearney (global consulting firm). Section 4.2 confirms my fears that lobbying government is seen as a key strategy for companies affected by emissions controls.
A paper analysing the effect of the entry of China into the emissions trading framework on the dominant player, Russia.
4. The here and now
BBC News: Is the world running out of oil?
The German Institute for International and Security affairs comments on the current situation and makes reference to Blair's stated commitment to push environmental policy during the UK leadership of the G8 in 2005.
Analysis of likely competitiveness effects of European Emissions Trading on European firms. Section 4 (page 59) outlines the extent to which companies would relocate polluting operations overseas as a response to the decrease in competitiveness described in section 3.
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