Government and the Environment

Laura Castellucci, Laura Castellucci

• Publisher: Routledge
• Year: 2014
• ISBN:
  9781136210846
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

In the today's global "commercial society" an inquiry into the economic role of government is gaining momentum. Many crucial goods for the wellbeing of a society are not "commercial", national security and clean air are great examples. This means that the economic role of government is not limited to cure the so called "market failures" but it has to provide for non-commercial goods. Unfortunately in the last few decades the decline of the political-economic culture of western post-industrial societies has left scope for people to blindly believe in a free, deregulated market.

This book brings the culture of the state in from the cold, by confronting readers at the start with the necessity of recognizing the fundamental difference between private commercial interests, whose provision rests on the culture of profit, and public shared interests, whose provision rests on the culture of the state. This book also explores how much individual wellbeing does depend on both.

The only chance for public shared interests, with their non-profit nature, to successfully keep their ground in the face of the overwhelming power of private commercial/financial interests, lies in regenerating a political-economic state culture whereby governments and policy makers/politicians understand their responsibility and social function to consist primarily in pursuing the satisfaction of the formers and not in acting on behalf of the latter.

1 On the disappearance of the culture of the state from economics and the decline of the political-economic culture of the West

Laura Castellucci and Stefano Gorini

Outline

This chapter investigates the nature of the decline of the political-economic culture of the West, and the need to bring back the culture of the state into economics, using rigorous economic and moral-philosophical reasoning. It is a reflection on the economic role of government, in general and with special reference to the global environmental issues of the twenty-first century. The focus is not on the undisputed usefulness of designing mechanisms (institutions, governance systems, incentives) aimed at improving the working of the commercial and non-commercial areas of the economy, but on the recognition that government enforced collective action is the only – irreplaceable – social behaviour capable of protecting social welfare against the collective damage caused by the under-provision of global public goods and global negative externalities. The argument emphasizes the distinction and potential conflict between private commercial-financial interests, formally translated into the concept of rival private goods, whose pursuit rests on the culture of profit and competition,¹ and public collective (common) interests shared by the citizens of a political community, formally translated into the concept of non-rival public goods and externalities, whose pursuit rests on the non-profit cooperative culture of the liberal state. Today more than ever such shared public interests are primarily – though of course not exclusively – associated with three areas of the economic society: (i) all aspects of the real economy involved in the global process of environmental degradation and resource over-utilization, (ii) the dysfunctional area of global banking and financial markets, and (iii) the related trend of polarization in the distribution of wealth and economic power. In view of the inextricable interconnections between the real and financial fields of the economy, the necessity of government enforced collective action, which holds in the real field, extends to the financial one. With reference to Musgrave’s classic distinction between the stabilization, allocation, and redistribution branches of public policy (1959), and to Stiglitz’s essay on the economic role of the state (1989), this chapter focuses on issues not of instability and stabilization but of allocation. In particular, where reference is made to banking and financial markets the focus is not on their role in initiating economic crises, but on their failures in ensuring an efficient global allocation of capital between private commercial and public non-commercial interests (Friedman 2009).

Although this chapter’s primary reference is the ‘ground floor’ occupied by economic society, its subject cannot be adequately investigated without going upstairs to the ‘first floor’ occupied by politics, and then further up to the ‘second floor’ occupied by moral philosophy. The chapter is organized around a sequence of concepts-propositions logically related to each other: (1) public collective interests, public goods and the non-profit cooperative culture of the liberal state, (2) the idea of a higher political-economic culture, (3) the intrinsic obstacles to the transition from individual to social rationality, (4) the role of public human capital or civic culture, (5) a behavioural code of secular social solidarity, and (6) the special spiritual strength of the belief in universal moral values. Needless to say, no critical rational discussion of concepts of this nature can ever attain the objective cogency of mathematical reasoning.

Public collective interests, public goods, and the non-profit cooperative culture of the liberal state. Contemporary liberal capitalist societies need to balance the market culture of profit and competition with the nonprofit cooperative culture of the liberal state. Since the word ‘state’ has many meanings we need to sweep away any possible misunderstanding about what we mean by it in the present context. We do not mean actual government institutions, policy-makers and politicians, as such, but the individuals’ awareness of the public collective interests they share with each other as equal members of a political community, and which form the connecting texture of an economic society that does not thrive only on trade and business. In other words, what we mean is – so to speak – a core condition of the liberal mind. Public collective interests are facts of social life, translated by economists into the abstract concept of public goods for the sake of theoretical economic reasoning. To better clarify our meaning we reiterate that in speaking here of public goods we are on a different wavelength from the conventional taxonomy based on different degrees of non-rivalry and/or non-excludability and on different types of groups/communities (Cornes and Sandler 1996). We mean only and precisely the public interests as defined above, conceived as the hallmark of a political community and as such by their very nature fully non-rival and non-excludable. The same holds for the meaning of externalities, but with qualifications to be explained later, because unlike public goods the latter are dependent on the commercial economy for their very existence, and thus are open – at least in principle – to the possibility of absorption (internalization) inside the market via changes in the price system.

The idea of a higher political-economic culture. Government institutions, policy-makers, and politicians are however the visible hand of the state in society, and in practice it is only to them that the sustainment of public collective interests in the face of the overwhelming power of private commercial-financial interests is entrusted. It follows that they must be bearers of a higher political-economic culture whereby they understand their responsibility and social function to consist not in acting on behalf of the latter and mediating between their conflicting pressures, nor simply in regulating and ensuring their contractual relationships, but in defending the former.

The intrinsic obstacles to the transition from individual to social rationality. The non-rival nature of public goods and externalities means that both the provision of the former and the prevention of the latter (when negative and not amenable to market internalization) are fundamentally dependent on productive cooperation, as opposed to competition. It follows that what stands in the way of the transition from individual to social rationality are not the supposed irrationality and/or bounded rationality of individuals, but the conditions hampering productive cooperation: (i) the intrinsic obstacles to voluntary cooperation due to the non-removable incentive to free ride on the provision of non-rival interests, (ii) the overwhelming strength of the incentive of individuals and groups to engage – through the exercise of economic and political rent power – in the distributional struggle endemic in the ‘commercial society’,² an incentive which is directly related to the growing polarization in the distribution of wealth and economic power, and (iii) the consolidation of ruling elites ever more unequal to the task of acting on behalf of the citizens’ public interests (Judt 2010a).

The role of public human capital or civic culture. In order for this higher political-economic culture to find its way into the ruling and managerial elites bred in a liberal society, it needs to have roots in the social consciousness of ordinary people. It requires that ordinary people be sufficiently endowed with what Olson (1996) calls public human capital or civic culture, defined as a natural capacity to recognize the types of policies, rules, institutions, and incentives necessary for promoting and safeguarding their collective interests in the commercial society. A weak endowment of public human capital weakens a person’s capacity to perceive the very existence of his or her shared collective interests, and causes severe distortions in that person’s private and social behaviour.

A behavioural code of secular social solidarity. In order to be compatible with a liberal social order a civic culture needs to rest on a secular, non-transcendent, and non-ideological foundation, which we define as a behavioural code of secular social solidarity, or secular altruism. What is needed is a code of respect and care for the interests of our fellow human beings descending from the recognition that they have, in principle, the same value in society as our own, and identified by an essentially secular nature, in the sense that its imperative is not the principle of direct self-dedication to the neighbour’s needs, however praiseworthy this may be at the individual level, nor the ill-defined and authoritarian-paternalistic principle of the ‘common good’, but the socially far more important and economically more costly principle of uncompromising honesty and sense of the state.

The special spiritual strength of the belief in universal moral values. This secular behavioural code competes in the minds and hearts of people against two powerful adversaries of a liberal social order, the secular non-morality of material greed, self-assertion, and power, and the non-secular morality of religions and ideologies, and if it remains without the support of an alternative non-religious and non-ideological but equally powerful morality, it will always find itself on the losing side. If it is to survive and succeed in exerting its invaluable social role for the preservation of a liberal social order, it needs to rise above the contingent world of the respect and care of human interests as such, to the non-contingent world of universal moral values. It needs to stand on the non-transcendent belief in the only public universal moral value compatible with a liberal social order, the secular value of individual moral freedom-independence as the absolute good in human life (see below, note 10).

Public wealth, the culture of the liberal state, and the need for a higher political-economic culture

It is a fact of economic society, known to public economics ever since its beginning, that in the commercial society of our day, half of social wealth is commercial, but the other half is non-commercial. In the conventional usage commercial wealth consists of private tradable goods, priced in the market, while public wealth consists of public non-tradable goods, not priced in the market. Commercial wealth generates profits, and thus profit and competition are the (legitimate) engine for its creation. Public wealth does not generate profits, at least not directly, so that the engine for its creation cannot be profit and competition, but only collective productive cooperation. Intuitive reasoning suggests that when a group-community is small the individual incentive to voluntarily cooperate, i.e. to share in the cost-effort for the provision of its shared collective interests, dominates the individual incentive to free ride on that provision. As the group-community becomes larger the incentive to cooperate shrinks and the incentive to free ride increases, until the former vanishes and only the latter remains (Olson 1965, 1988). It follows that in large political communities the satisfaction of common public interests requires government implemented and enforced collective action, under pain of complete commercialization of society, and social and environmental collapse. This insight, gained through intuition and non-formalized reasoning, can be converted into rigorous propositions using game theoretic tools. It can be shown not only that Nash equilibria entail under-provision of public goods relative to the efficient provision of Lindahl equilibria, but also that when the size of the group-community becomes very large the provision of public goods under free cooperation collapses to zero (see Chapter 2 of this book, on the failures of collective action).

Thus our chief proposition here is that, while there is no way in which shared public interests in large political communities can be sustained through market mechanisms and the related profit culture, there are also intrinsic non-removable obstacles to their pursuit through free voluntary cooperation. In order to be sustained they need a substantial amount of collective enforced cooperation, implemented by government through direct action and the design of appropriate policies, rules, institutions, and incentives. A corollary to this proposition is that if politically enforced cooperation is to efficiently serve its social purpose the mere fact of the political power of enforcement is clearly far from enough. The truly central point is that the culture that supports it must be the higher political-economic culture that we defined in the opening section as the non-profit culture of the liberal state. There is a wealth of ‘technical’ knowledge, from economics as well as from the other social and hard sciences, providing high-quality information for the design of government policies in any area of the economy, and particularly in the vital area of environmental protection and resource use (see Chapters 5–8 of this book, each offering an example of expert pro-environment advice on waste disposal, water conservation, technological lock-in, and forest governance). But if the ruling elites are not sustained by such higher political-economic culture, they cease to represent the state, becoming instead its negation; collective interests will be systemically displaced by commercial-financial ones, and the wealth of available ‘technical’ knowledge for their protection is wasted.

The need for substantial government enforced collective action for the protection of collective interests has always been disputed by social scientists and public opinion of conservative bent, particularly on the ground that an extended government increases rent, and stifles commercial wealth creation, innovation, and economic dynamism. Apart from the potential conflicts between commercial wealth creation and collective non-commercial interests, which are denied only by those who refuse to see them, our answer to this criticism is that the fault does not lie with government, but with the deficient and fast declining political-economic culture of the ruling elites, which are on a course of increasing identification with society’s commercial-financial interests.³

Public goods and externalities

A large part of the economics literature dealing with public goods and externalities is implicitly flawed by a misconception: public goods are all too frequently conceived as one among the many cases of market failures, albeit an extreme one, and consequently the relationship between externalities and public goods is all too frequently viewed as one of degree instead of one of essence, with public goods being an extreme type of externality. But the fact is that public goods, unlike externalities, rent and market power, and informational asymmetries, are not market failures because they belong by nature to a non-market world. As already stated, we emphatically restrict the word to mean the stylized representation of shared public interests, which unlike rival interests cannot by definition form the object of market transactions, because if they did they would no longer be shared. This is more than an abstract point of logic. Since public goods are the negation of the market there is no way in which their provision can be implemented through profit-based market incentives. Their provision requires productive cooperation and the needed incentives are those encouraging collective productive cooperation.

Externalities are instead the true market failure par excellence (in consumption, production, common resource use, etc.). Though extern...