Pollution: Free Markets vs. Social Conscience

By James Kwak

Under a common conception of free-market capitalism, firms should do whatever they can - legally - to maximize value for shareholders, which often means maximizing profits. As long as firms do not bear the costs of the externalities they create - like air pollution - they will continue to create them. That’s all taken as a given.

What is a little more sinister, yet still completely legal, is where they will create them. Even in the absence of cash costs per ton of pollution, the effective costs to polluters will vary from place to place; those costs show up in the political difficulty of getting permits to build and operate facilities, the degree of environmental regulation, the likelihood of local muckraking journalists writing unpleasant exposes, the ability of the local populace to bring political pressure to bear, and so on. The net effect is that the low-cost places to put pollution tend to be communities with relatively less political power - in this country, communities of minorities and the poor.

A team of researchers from the University of Massachusetts-Amherst and USC recently released a new report, “Justice in the Air,” that quantifies the disparate environmental impact of toxic air pollution on minorities and the poor, by firm and by facility. Michael Ash and Jim Boyce also have a working paper that describes the data sources and the methodology.

For the study, they merged three data sets: the EPA’s RSEI-GM database, which measures toxic emissions by all industrial facilities, tracks them to 1-square-kilometer cells, and weights them by their impact on human health; census data showing the proportion of minorities and the poor by census block (mapped into the RSEI-GM’s individual cells); and a U-Mass database that tracks the corporate owner of each facility included in the RSEI. From there, for each firm, they calculated the proportion of its toxicity-weighted pollution that affected minorities or the poor.

The results are not surprising. For example, 18.1% of the health impact of air pollution falls on African-Americans, while they make up only 11.8% of the population; 15.3% of impact falls on the poor, who make up 12.9% of the population. (An alternative, discussed in the paper, would be to compare the disparate impact figures not against national population percentages, but against the minority percentages in the local metropolitan area, or in the firm’s workforce.) At the extremes, the disparities can be large; for example, for ExxonMobil (XOM) - the 9th-biggest polluter in the U.S. - 55.1% of its pollution impact is borne by African-Americans, largely because of two Baton Rouge facilities that together generate 60% of its total pollution.

One of the goals of the Justice in the Air project is to raise awareness of these environmental impact disparities to encourage corporations - via socially-conscious investors, or pesky grass-roots organizers - to improve their ways. Another potential avenue is litigation, although in most spheres it is difficult to make a claim based on the equal protection clause (of the Fourteenth Amendment) without evidence of conscious racial discrimination. The report’s authors also recommend new regulations, for example to limit pollution emissions based on the cumulative impact of all facilities on a given community, not simply on a facility-by-facility basis. Ultimately, though, the question comes down to how much our society wants to round off the harsh edges of the free market, which otherwise would shift even more of its negative externalities onto politically less-powerful groups.

Comments

[cyclingscholar:]

What the paper does not seem to address is whether the 'burden on minorities' is due to the 'weaker' regulations/power in those areas, or excessive STRENGTH/power against polluters in hoity toity high income areas.

This is not sophistry. Environmentalism and elitism have always been handmaidens: the Al Gores and Ted Kennedys of the world have always made damn sure to "lets you and him" reduce pollution or develop alternative energy.

In the latter case, the solution is to REDUCE to regulatory power in elitist regions and pressures from elitist groups, rather than increase the burdens (further) on companies that make perfectly justifiable location decisions based on standard profit maximization criteria.

Ha ha ha. REDUCE government power? Reduce the power of the elites? Not in these days of the Anointed One!

cyclingscholar

May 06 11:00 AM

[Suncatcher:]

The chicken or the egg? Did industry move into depressed neighborhoods, or did the poor move next to industry to "afford" the cheapest places to live? Should we create "no occupy" zones around industry which would require the poor move to more desirable areas? If we make further pollution control improvements and mandate clean energy how many poor people will freeze to death because of higher utility costs? There have been studies done to estimate how many fewer alcoholics there would be if we doubled the cost of a six pack- so I'm sure there must be some study to tell us what the negative impact would be of doubling the cost of our energy. I know the social engineers think they can manage where the cost burden goes but I am sure soon enough the law of unintended consequences will kick in and we will be reading about how the poor are suffering from high energy costs. Which will lead to a call to transfer more wealth. I am in favor of producing energy as cleanly as possible but we need balance cost and benefit. It is pretty easy to determine what it costs the consumer at the meter or the pump, but knowing what the hidden costs are is the real devil in the details. How much of the death rate near industry is affected by other problems and habits? Drug and diet issues maybe? We do need to make incremental improvements in how we do things but it would be helpful if we didn't go charging headlong during very bad economic times. Frankly the idea that alternate energy can lift us out of this economic mess is absurd. The best bang for the buck is to reduce consumption and I guess in that sense the current depression is helping with that. Cheers.

May 06 12:07 PM

[Suncatcher:]

A perfect illustration of what you write is the recent blocking of offshore wind generation in the Kennedy "viewshed"


On May 06 11:00 AM cyclingscholar wrote:

> What the paper does not seem to address is whether the 'burden on
> minorities' is due to the 'weaker' regulations/power in those areas,
> or excessive STRENGTH/power against polluters in hoity toity high
> income areas.
>
> This is not sophistry. Environmentalism and elitism have always been
> handmaidens: the Al Gores and Ted Kennedys of the world have always
> made damn sure to "lets you and him" reduce pollution or develop
> alternative energy.
>
> In the latter case, the solution is to REDUCE to regulatory power
> in elitist regions and pressures from elitist groups, rather than
> increase the burdens (further) on companies that make perfectly justifiable
> location decisions based on standard profit maximization criteria.
>
>
> Ha ha ha. REDUCE government power? Reduce the power of the elites?
> Not in these days of the Anointed One!
>
> cyclingscholar

May 06 12:12 PM

[Wisdom vs. ...:]

more regulators, more lawyers, same pollution?! you will note that poor people in US, barring violent death and lifestyle-issues, still live as long as the rest of us. and do not get started on asthma, that was proven to have no correlation to manufacturing long ago.

new large projects everywhere (even here in pollution-friendly west Texas) must prove that effects will not impact low-income disproportionally; when chevron (i think) tried to expand and modernize (more jobs, less pollution per production) its refinery in LA a few years ago, it was shot down by 'grass-roots' lawsuits that won on the basis that, you got it, it would disproportionally effect disadvantaged groups; when vegas was expanding like crazy, highways could only get expanded in prosperous areas because, you got it, disproportionate impact.

the only thing that matters is total consumption/pollution; the idea that increasing total consumption/pollution, through dislocation, in order to decrease pollution effecting certain groups is absolute evil.

the EPA wants control of industrial capital, and lawyers want their cut, period. we all need to fight that, regardless of political affiliation

May 06 12:14 PM

[Hot Richard:]

I was born next to Love Canal and grew up next to 3 Mile Island. With all 3 of my eyes, four arms, and long whipping tail I want to tell everyone that government regulation cures all pollution.

/sarcasm

Running away from the free market into the state's regulatory hand just institutionalizes the pollution and ensures the state gets paid via corporatism. Usually at the cost of severe limits to liability claims that protect polluters and hinders claims by citizens that would otherwise force industry to shape up.

May 06 12:46 PM

[Steve in TN:]

Why don't we just allow/pay for people who can't afford homes in more desirable areas to live there. Give them homes with no down payments, low interest rates, etc.
Oh, I guess we tried that and it brought down the world economies.

May 06 02:37 PM

[Whippet:]

My company just spent several hundred thousand dollars to move dirt to a landfill 20 miles from our site. Our sin? The dirt surrounding our expansion project had a "high cobalt level." It was within the natural range for the area, and there was no evidence of industrial contamination (we would have had no means to do it) but it fell within some state lackey's guidelines. Hot Richard is right on. I'm sure the highest and best use for that capital was to cover garbage with topsoil trucked twenty miles.

May 06 03:02 PM

[Allamad:]

My mom and dad both died from cancer (neither smoked) . All of the dogs they had even died from cancer. They lived 300 feet from an Emhart/Kwikset Lock factory that was one of the worst air-borne polluters in California. They were never told about the toxic pollution coming out from that plant. The developer who put their home and others near the factory in the 1950's and the owners of the factory never had to reveal what was coming out of the place.
Yes, environmental regulations are burdensome, but leaving it up to private businesses to inform the public and clean up their own act is a joke. Just ask the people living near coal mines in West Virginia, old gold mines in Colorado or near factory hog farms in Iowa or North Carolina. I suggest you check the EPA website to see what toxic stew you may be breathing in your neighborhood--you might be surprised. Thousands of people die in the U.S. every year from breathing polluted air (and their not all poor).

May 07 12:36 AM

[donzelion:]

Wisdom v Information - please check your data. Infant mortality and life expectancy correlate closely with income level in America, and life expectancy among poor is several years shorter than among rich.

Hot Richard - the problem with the free market arises when you can make someone else pay for something that you've done, while not having to pay the full price yourself. Economists generally call that "market failure" or the tragedy of the commons. The first refuge of those who are shifting costs onto other people is to claim that there's no cost, and that everything is proper, and that the only alternative is socialism. That sort of reactionary thinking poisons the air and bars solutions, ultimately worsening market failures when they arise (ask any Oklahomans who recall the Dust Bowl).

As for the original post - measuring relative power among American communities suggests a modest correlation, but the weakest political units in America have greater influence over corporate policy than the strongest middle class communities in many countries. Once one looks beyond U.S. shores, the correlation increases massively.

Granted, folks who haven't lived in emerging markets may not appreciate exactly how much they gain from comparably clean air. Spend a few weeks working in Cairo, Mumbai, Beijing, or Jakarta and tell me if you still prefer "free market" solutions.

May 07 04:48 AM

[petervankan:]

The simple truth is: morally humanity is not ready for a free marktet system.
BTW The only scale on which to look at pollution that makes sense, is global. We're all in it together.

May 07 09:29 AM

[john s. gordon:]

you remind me of the pile of uranium ore-beneficiation tailings in colorado that were behind a chain link fence but people took them anyway & used them as fill in a public school construction site.

corporations will cut corners in the interest of short-term profit unless there are enforced regulations preventing certain acts. over the longer term society pays the costs in terms of degraded human (& animal) health & welfare.
> jack

May 07 10:16 AM

[Hot Richard:]

allamed and others:
All your regulations are belong to us (for some campaign contribution).

I am an entrepreneur. I know lawyers, physicists, and biologists. My business is in direct competition with the US government. What is my business? I eagerly search out polluters with money and sue them for the damages they cause to their neighbors. All I need is a respect for liability by the laws and my pursuit for profit makes the equation for dangerous polluters real simple. I encourage my fleet of entrepreneurs to be as aggressive as possible in finding opportunities.

At every step of the way I am beaten down the the US government. They pass laws limiting settlements. They give permits for dangerous levels of pollution and then step away from responsibility when people start dying. When damage is done, industry hides behind permits and regulatory compliance to escape liability. Judges back them up.

Now, my business never existed. I never funded it because there was no ROI while the government "says" they provide their protection service and while they buddy up to industry with legislation in exchange for cash, ass, and grass.

Please, educate yourself on free markets and capitalism as the arguments you put forth are not learned critiques. Just saying...that's the problem with anti-capitalists.

PS: Kwikset never had to reveal what was coming out of the factory and you blame the free market for that and run to the government to solve the problem? Wanted to make sure I got that right.

May 07 10:54 AM

[Whippet:]

Who actually drinks this bromide-laden Kool Aid? Your basis must be that the proletariat is a bunch of helpless children, that they need Daddy BHO to protect them, and Mommy Pelosi to provide for each according to his need. Which moral code should we all ascribe to, that we can be "ready" for a free market system? Do yourself a favor and pick up "The Road to Serfdom" or "Atlas Shrugged." There's even a cartoon version of TRtS for those with short attention spans.

NO- free market systems WORK because they assume that man is only self-interested. Individuals seek out arbitrage; they find ways to make the most with the littlest exertion possible. On the individual level, this is fractal, ugly, and unpredictable. On the aggregate, it is beautiful, innovative, and elegant. Hot Richard could make a killing by suing polluters in a free market system. Companies that make superior, safer, cleaner products would thrive in a free market system. Especially in the age of the internet and socially conscious consumers- polluters would be unilatterally rejected if there were an alternative (there usually is).

<<The simple truth is: morally humanity is not ready for a free marktet system.
BTW The only scale on which to look at pollution that makes sense, is global. We're all in it together.>>

May 07 01:26 PM