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Pollution and Government Failure in China

06/15/2010Mises Institute

Upon arriving in Shanghai recently, the author was immediately struck by two inescapable observations: the massive sprawl of real-estate construction and the rotten, ubiquitous smog. While Chinese growth has been bolstered by other factors, both of these phenomena are results of the Chinese state's socialist intervention in environmental law.

The Chinese state's arrogation of all pollution litigation to its own courts is a clear collectivization of environmental property rights — most notably rights to air and property surfaces, most of which are covered in soot after a few years of operation.

The state's subsequent, systematic refusal to enforce property owners' claims against pollution damages to the serviceability of their air and the appearances of their structures' outward surfaces, then, constitutes a redistribution of these collectivized rights to "dirty" industries and other heavy polluters.

What Can and Cannot Be Said

Some may argue that the speedy growth in Chinese output statistics and employment opportunities outweigh the costs of environmental socialism. Indeed, it is theoretically indisputable that the recent decades of environmental cost externalization have contributed to the attractiveness of China for foreign investors in high-polluting markets.

However, such a claim is economically indefensible. There is simply no such thing as "total utility," and thus no quantity of "optimal" social utility. Rather, utility is merely the economist's term to represent the comparison of expected serviceability that guides the economic actions of individuals, and is inherently unquantifiable.

It is impossible to know whether the utility gained by Chinese people who enjoy employment in dirty industry or by the consumers of products these workers produce somehow outweighs the utility lost by those whose property or person is damaged. Those speaking of what is "best" for entire nations or regions of individual actors do not practice economics, but statist intellectual vandalism.

Furthermore, while envirosocialism has certainly helped to make China a leading haven for polluters, it also has likely had inhibitive effects on investment in less-emissive and more-eco-reliant industries. For example, China's polluted water and constant smog overcast are hardly productive inputs for organic agriculture or quality food production.

It is also impossible to calculate the employment and productive increases that might have occurred with a free market in environmental litigation, and of course it would still be impossible to quantify a total shift in utility if such a market were allowed to emerge.

What can be said with certainty, however, is that firms and individuals acting in free markets will enter into cooperative legal relationships that one can expect to produce the best-possible results, given the constraint of the demands of opposing parties.

It is easy to recognize that such consensual relationships will tend to produce greater social peace and genuine economic progress compared to the antagonistic relationships produced by corrupt rent-seeking, which is encouraged by collectivized environmental property. Indeed, conflict minimization is the very impetus for the enforcement of private-property rights, and it is the reason that private-property societies have always and everywhere become more highly developed than similarly endowed socialist societies.

The Libertarian Perspective

For such relationships to develop in the most practical and legitimate manner, the standard libertarian paradigm of property rights simply needs to be extended to environmental rights.

First-use homesteading must be the basis of the environmental rights to air, water, soil, and other currently socialized property. Technical details, such as the height of a homeowner's air parcel, should be determined by private and competing courts and enforcement agents.

In the majority of cases, current titleholders will inherit the first user's environmental rights by virtue of their being the most legitimate heir. Even where the enforcement of their inherited rights may contradict the state's collective environmental laws, these owners' rights are to be enforced. This is because the legal standards were illegitimate from the beginning, having been imposed by the aggressive violence of the state rather than by mutual consent.

A revocation of environmental collectivism will indeed tend to sterilize previous investment outlays in dirty industries, and thus it will initially have negative effects on industrial growth.

However, as libertarian property ownership of a scarce good must include the right to transfer and lease the good, firms and individuals will choose to sell or lease part or all of their environmental rights where the price is right. Thus, where the benefits of pollution to a company outweigh its cost to affected individuals, as demonstrated by their willingness to buy or lease the necessary rights at market prices or simply continue to violate property and pay ongoing damages, such pollution will occur. Where such pollution is not mutually beneficial, firms will be forced to cease to pollute.

The resulting dynamic will balance the demands of consumers and the emissive realities of production engineering with the preferences of property owners. Justice systems guided by profits will clearly tend toward decisions much more just than will monopolized state courts and law enforcers.

Indeed, where environmental law is produced and enforced by compulsory monopoly — which is, by definition, the state — the monopolist will not need or even seek such dual consensus, as there exists no alternative for nonconsenting parties.

To avoid violent revolution, and to profit from rent seeking, the highest managers of such legal monopolies — heads of state — collude with the economically superior class. Together they serially violate the rights of the weaker class, who lack the legal redress provided by a free society.

That this has been the observed history of environmental socialism is beyond argument. The Chinese courts, predictably, have consistently redistributed air property from poor, nonpolluting firms and individuals to rich industrialists. The industrialists, in turn, provide the political class with a global reputation for promoting economic growth — as well as higher tax income, bribes, and campaign donations.

Western nations have also acted according to the perverse incentives of monopoly. As property owners in Western nations are much richer, they are much more able to provide fat campaign donations and make for more attractive collusion partners.

Dirty industry also constitutes a far-smaller share of national output in Western markets, and thus it is less well equipped to provide bribes, tax revenues, and donations. This fact helps explain the tendency of Western politicians to provide constant public flagellation of even light polluters.


The Chinese government, far from being too passive in environmental policy, has been one of the world's most active environmental enforcers in the world, as proven by China's vast skylines of soot and smog. Rather than furthering state control of property and environmental law, the only sensible policy for the future is the liberalizing of the market for property-rights enforcement and arbitration.


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The Mises Institute works to advance the Austrian school of economics and the Misesian tradition, and defends the market economy, private property, sound money, and peaceful international relations, while opposing state intervention.

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