By Matheus Fialho Vieira*
Last week, news of forest fires in South America received widespread media coverage. Sizable portions of the Amazon rainforest have burnt down and smoke has taken over the skies of large cities in Brazil, such as São Paulo and Belém. Although the fires started between Brazil, Bolivia, and Paraguay, a cold front coming from the North guided the smoke into a much larger area.
Numerous celebrities and media personalities have shared their indignation with the — mostly overstated — situation on social media. And political opponents did not hesitate to blame Brazilian president Jair Bolsonaro and his looser environmental restrictions. French president Emmanuel Macron even threatened to give up on the historical EU-Mercosur trade deal.
As of yet, there is no definitive information on whom — or what — started the fires. The dry climate, deforestation, farmers, neoliberalism, and even NGOs have been blamed. But “none of those hypotheses are conclusive,” according to meteorologist Marcelo Schneider. Fires have increased — to be exact, an increase of 82% compared to the same period in 2018 and the worst result since 2010 (although it’s within the average of the last 15 yeas) — and, if the trend continues, the worst might be yet to come.
What can we do? The importance of the Amazon rainforest, with its sprawling biodiversity, begs us to take serious measures toward its preservation. Does more state investments in oversight and surveillance help? And what about more environmental regulation? I want to argue, to the contrary, that the state cannot help — neither in preserving green areas, nor in repairing the damage done by environmental crimes. It is only with a legal environment that respects private property — not something currently found in Brazil — that we can begin to avoid these problems.
The Problem with Government-Owned and Government-Managed Forests
Economic theory can inform us on how to utilize natural resources in the most optimal way. It shows us there are two principal problems with state administration of resources: the incentives problem and the economic calculation problem.
The incentives problem is often called the tragedy of the commons and the Amazon is one of the utmost examples of it. This problem was, for a long time, considered to be the number one obstacle to a socialist economy — and, to an extent, to an interventionist economy as well. The name comes from an article by Garrett Hardin, but the problem was described by Ludwig von Mises almost 30 years before. Mises explains to us what he called the problem of external costs: if the consequences of an action can be shared with a third party, the actor will not consider all the effects his action might have. Writes Mises:
If land is not owned by anybody, although legal formalism may call it public property, it is utilized without any regard to the disadvantages resulting. Those who are in a position to appropriate to themselves the returns–lumber and game of the forests, fish of the water areas, and mineral deposits of the subsoil — do not bother about the later effects of their mode of exploitation.
By contrast, if a piece of land has a proprietor, he is completely responsible for the outcome of his actions, regarding that land. He must consider all expected results from his actions and will take into account all potential benefits and drawbacks. So, for example, a forest landowner will prefer more sustainable ways of dealing with his resources, to just some predatory and wasteful method, like the fires. This would encourage reforestation and activities less thought of, like biological research and ecotourism. Furthermore, it would create a whole market around eco-solutions to “forest problems” and specialized insurance and protection.
But what ends should those lands serve? This question reveals the importance of the calculation problem. It was firstly formulated also by Mises, in his 1920 article Economic Calculation in the Socialist Commonwealth, and stands, to this day, as the most powerful critique to a socialist economy — and, what other economists like Salerno and Huerta de Soto have pointed out, can also be applied to our modern social-democratic system.
Mises noticed that capitalism relies on the price system. For it is only through prices that entrepreneurs can calculate their profits or losses, the fundamental mechanism of social coordination. If an enterprise succeeds, that means consumers see value in its products and want to buy them at a price higher than the cost of production. But if said enterprise fails, that means it doesn’t have enough value for consumers in general, and that capital, land, and labor employed must be freed to more urgent needs. And since socialism abolishes money — the unit of account — it can’t possibly redirect the productive efforts toward the most serious needs, like feeding its population. That’s why the Soviets had some men in space while millions were living in grinding poverty.
This means that in a private law society, various landowners would have different methods of managing their land. Naturally, only the ones with a sustainable business would thrive and the ones with destructive policies would see losses and be forced to adjust to a model compatible with sustainable growth. Even more now, that being green is fashionable and lots of organizations press companies into adopting eco-friendly practices. Huerta de Soto sums it up very well:
How can we know, for example, what type and composition of babies’ diapers are the most suitable from an environmentalist viewpoint? Given that the collection and treatment of garbage is a government responsibility financed through taxes, there is no way in which the consumers can internalize the costs of processing the different types of rubbish, meaning that diaper manufacturers do not have any incentive to consider the environmental aspects of their product. The same thing occurs in all the fields where the State intervenes, although in most cases we do not realize it.
Moreover, having a profit and loss system induces the urge in entrepreneurs to innovate in their business model and in technological advancements to make their product or service more enjoyable, cheap, and efficient, which saves resources.
Assigning property rights to forests is fundamental to their preservation. Within a free market framework, entrepreneurs would evermore want to profit from their forest lands and would work their best to conserve them. Many would fail. Perfection is illusory, but what is sure is a tendency toward solving problems like deforestation and fires.
Usually fires in Brazil are an instrument for clearing land for cattle (aside from those natural fires). Were property clearly defined in the Brazilian institutional framework, farmers and owners of the lands would think of less destructive ways of carrying out their business — forced both by losses in their bad usage of land and by legal threats due to the giant amounts of smoke passing through others properties.
Since the 1850s, the Land Law dictated that every unoccupied piece of land in Brazil was declared as “public land.” Among other interventionist madness, like subsidizing farmers, it’s safe to say that Brazilian environmental policy is the guide to what not to do. The news can confirm that. If we, as a community, want to preserve our natural resources, our biodiversity and all the possibilities nature can give us, we need to start thinking about taking government and its destructive controls out of our forests. Fortunately, there is still time.
*About the author: Matheus Fialho Vieira is a Brazilian electronic engineering student and currently works for the metals industry, in Belo Horizonte.
Source: This article was published by the MISES Institute