Friday, July 31, 2009


Excerpted from Practical Anarchy, by Stefan Molyneux.
It presupposes some knowledge of Dispute Resolution Organizations, or DROs.
Emphasis added by me.


This is perhaps the greatest problem faced by free market theorists. It is worth spending a little time on outlining the worst possible scenario, to see how a voluntary system could solve it. However, it is important to first dispel the notion that the State currently deals effectively with pollution. Firstly, the most polluted land on the planet is State-owned, because States do not profit from retaining the value of their property. Secondly, the distribution of mineral, lumber and drilling rights is directly skewed towards bribery and corruption, because States never sell the land, but rather just the resource rights. A lumber company cannot buy woodlands from the State, just harvesting rights. Thus the State gets a renewable source of income, and can further coerce lumber companies by enforcing re-seeding. This, of course, tends to promote bribery, corruption and the creation of "fly-by-night" lumber companies which strip the land bare, but vanish when it comes time to re-seed. Selling State land to a private company easily solves this problem, because a company that was willing to re-seed would reap the greatest long-term profits from the woodland, and therefore would be able to bid the most for the land.

Also, it should be remembered that, in the realm of air pollution, States created the problem in the first place. In England, when industrial smokestacks first began belching fumes into the orchards of apple farmers, the farmers took the factory-owners to court, citing the common-law tradition of restitution for property damage. Sadly, however, the capitalists had gotten to the State courts first, and had more money to bribe with, employed more voting workers, and contributed more tax revenue than the farmers - and so the farmer's cases were thrown out of court. The judge argued that the "common good" of the factories trumped the "private need" of the farmers. The free market did not fail to solve the problem of air pollution - it was forcibly prevented from doing so because the State was corrupted.

However, it is a sticking point, so it is worth examining in detail how the free market might solve the problem of air pollution. One egregious example often cited is a group of houses downwind from a new factory which is busy night and day coating them in soot.

Now, when a man buys a new house, isn't it important to him to ensure that he will not be coated with someone else's refuse? The need for a clean and safe environment is so strong that it is a clear invitation for enterprising entrepreneurs to sweat bullets figuring out how to provide it.

If a group of homeowners is afraid of pollution, the first thing they will do is buy pollution insurance, which is a natural response to a situation where costs cannot be predicted but consequences are dire.

Let us say that a homeowner named John buys pollution insurance which pays him two million dollars if the air in or around his house becomes polluted. In other words, as long as John's air remains clean, his insurance company makes money.

One day, a plot of land up-wind of John's house comes up for sale. Naturally, his insurance company would be very interested in this, and would monitor the sale. If the purchaser is some private school, all is well (assuming John has not bought noise pollution insurance). If, however, the insurance company discovers that Sally's House of Polluting Paint Production is interested in purchasing the plot of land, it will likely spring into action, taking one of the following courses:
  • Buying the land itself, then selling it to a non-polluting buyer;
  • Getting assurances from Sally that her company will not pollute;
  • Paying Sally to enter into a non-polluting contract.
If, however, someone at the insurance company is asleep at the wheel, and Sally buys the land and puts up her polluting factory, what happens then?

Well, then the insurance company is on the hook for $2M to John (assuming for the moment that only John bought pollution insurance). Thus, it can afford to pay Sally up to $2M to reduce her pollution and still be cash-positive. This payment could take many forms, from the installation of pollution-control equipment to a buy-out to a subsidy for under-production and so on.

If the $2M is not enough to solve the problem, then the insurance company pays John the $2M and he goes and buys a new house in an unpolluted neighbourhood. However, this scenario is highly unlikely, since the insurance company would be unlikely to insure only one single person in a neighbourhood against air pollution.

So, that is the view from John's air-pollution insurance company. What about the view from Sally's House of Polluting Paint Production? She, also, must be covered by a DRO in order to buy land, borrow money and hire employees. How does that DRO view her tendency to pollute?

Pollution brings damage claims against Sally, because pollution is by definition damage to persons or property. Thus Sally's DRO would take a dim view of her pollution, since it would be on the hook for any damage her factory causes. In fact, it would be most unlikely that Sally's DRO would insure her against damages unless she were able to prove that she would be able to operate her factory without harming the property of those around her. And without a DRO, of course, she would be unable to start her factory, borrow money, hire employees etc.

It is important to remember that DROs, much like cell phone companies, only prosper if they cooperate. Sally's DRO only makes money if Sally does not pollute. John's insurer also only makes money if Sally does not pollute. Thus the two companies share a common goal, which fosters cooperation.

Finally, even if John is not insured against air pollution, he can use his and/or Sally's DRO to gain restitution for the damage her pollution is causing to his property. Both Sally and John's DROs would have reciprocity agreements, since John wants to be protected against Sally's actions, and Sally wants to be protected against John's actions. Because of this desire for mutual protection, they would choose DROs which had the widest reciprocity agreements.

Thus, in a truly free market, there are many levels and agencies actively working against pollution. John's insurer will be actively scanning the surroundings looking for polluters it can forestall. Sally will be unable to build her paint factory without proving that she will not pollute. Mutual or independent DROs will resolve any disputes regarding property damage caused by Sally's pollution.

There are other benefits as well, which are almost unsolvable in the current system. Imagine that Sally's smokestacks are so high that her air pollution sails over John's house and lands on Reginald's house, a hundred miles away. Reginald then complains to his DRO/insurer that his property is being damaged. His DRO will examine the air contents and wind currents, then trace the pollution back to its source and resolve the dispute with Sally's DRO. If the air pollution is particularly complicated, then Reginald's DRO will place non-volatile compounds into Sally's smokestacks and follow them to where they land. This can be used in a situation where a number of different factories may be contributing pollutants.

The problem of inter-country air pollution may seem to be a sticky one, but it is easily solvable - even if we accept that countries will still exist. Obviously, a Canadian living along the Canada/US border, for instance, will not choose a DRO which refuses to cover air pollution emanating from the US. Thus the DRO will have to have reciprocity agreements with the DROs across the border. If the US DROs refuse to have reciprocity agreements with the Canadian DROs - inconceivable, since the pollution can go both ways - then the Canadian DRO will simply start a US branch and compete.

The difference is that international DROs actually profit from cooperation, in a way that governments do not. For instance, a State government on the Canada/US border has little motivation to impose pollution costs on local factories, as long as the pollution generally goes north. For DRO's, quite the opposite would be true.

There are so many benefits to the concept of State-less DRO's that they could easily fill volumes. A few can be touched on here, to further highlight the value of the idea.

In a condominium building, ownership is conditional upon certain rules. Even though a man "owns" the property, he cannot throw all-night parties, or keep five large dogs, or operate a brothel. Without the coercive blanket of a central State, the opportunities for a wide variety of communities arise, which will largely eliminate the current social conflicts about the direction of society as a whole.

For instance, some people like guns to be available, while others prefer them to be unavailable. Currently, a battle rages for control of the State so that one group can enforce its will on the other. That's unnecessary. With DRO's, communities can be formed in which guns are either permitted, or not permitted. Marijuana can be approved or forbidden. Half your income can be deducted for various social schemes, or you can keep it all for yourself. Sunday shopping can be allowed, or disallowed. It is completely up to the individual to choose what kind of society he or she wants to live in. The ownership of property in such communities is conditional on following certain rules, and if those rules prove onerous or unpleasant, the owner can sell and move at any time. Another plus is that all these "societies" exist as little laboratories, and can prove or disprove various theories about gun ownership, drug legalization and so on, thus contributing to people's knowledge about the best rules for communities.

One or two problems exist, however, which cannot be spirited away. A person who decides to live "off the grid" - or exist without any DRO representation - can theoretically get away with a lot. However, that is also true in the existing statist system. If a man currently decides to become homeless, he can more or less commit crimes at will - but he also gives up all beneficial and enforceable forms of social cooperation. Thus although DROs may not solve the problem of utter lawlessness, neither does the current system, so all is equal.

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