Economics. On The Rocks

Economics. On The Rocks

Sauvik Chakraverti
Indian Express, 1 Oct 2002


The socialist Supreme Court of India is playing to the galleries as usual on environmental issues. The action taken regarding the 'rape of the rocks' is symptomatic of the vast amount of ignorance the socialist state suffers from.

All environmental problems result from what economists call 'tragedies of the commons'. It is a common resource that gets extinct or polluted. Rivers are polluted because no one owns them. The air is polluted likewise. Tigers get extinct because they belong to society in general. In the case of the glacial rocks, the first question the law should ask is: Who owns the rocks? If no one owns the rocks, then these rocks should be auctioned off to the highest bidder, who should be free to decide what he wants to do with them. If city-bred environmentalists value the rocks more than soft drink companies, they can buy them and preserve them.

The critical component of the law that saves us from tragedies of the commons is the right to property. It becomes fairly obvious if we observe life around us that whatever belongs to somebody gets looked after, and whatever belongs to no one gets destroyed. We keep our homes clean but spit paan-juice on the commonly owned street. The Hindi proverb on the washerman's dog tells us a great deal about species extinction. Property rights work like a special kind of magic in the market economy. When any resource is governed by property rights, it is well looked after and available in plenty. When property rights do not exist, the resource is scarce, polluted or destroyed. Let us proceed by example.

Take rental housing. Because of rent control laws,property owners find their rights violated. This destroys the incentive to invest in rental housing.Thus, poor people who need rental housing - since they cannot afford to buy - end up going to slumlords. An economic evil creates a political evil. It is noteworthy that there are no slums in Kathmandu, Nepal, although the per capita income there is much lower than in Delhi, simply because there is no rent control and landlords have an incentive to invest in housing. These landlords rent out their properties happily to poor people simply because they are secure in the knowledge that the law will not side with the tenant and deprive them of their properties some day. It is also noteworthy that there are no high-rise apartments in Kathmandu, because there is no apartment ownership law: you can own a building, but you cannot own a part of a building. Because property rights on apartments do not exist, the market is unable to supply the good. "

Similarly with species extinction: chickens face no extinction threat. Why do tigers? Should Salman Khan go to jail for hunting blackbuck or would deer ranching and commercial, recreational hunting not save the endangered species? Why are there more blackbucks in Texas, USA than in the whole of India?

Some resources cannot be privatised and governed by property rights - as with air. The solution, then, is to price pollution. Two-stroke motorcycles should pay more pollution tax than four-stroke motorcycles and Euro2 compliant cars should pay no taxes at all. This creates the incentives for people to shift to cleaner technologies and fuels. Note that the socialist Supreme Court of India did not take this approach to cleaning up Delhi's air. It mandated CNG instead. This is not a judicial function. To keep Delhi's air clean, the SC has recently ordered that trucks cannot pass through Delhi. Would not a bypass solve the problem better?

Property rights are an essential pillar of a rule of law society. We did not choose such a society when we chose socialism. Socialism believes that the law and the state must serve the purpose of taking away the properties of some class and bestowing the same on some other class: land redistribution,nationalisation, rent control. All these are forms of legal plunder. But the socialist SC does not want to change tack even after 10 years of 'liberalisation'. It is taking a 'command and control' approach to environmental issues because it is ideologically opposed to property rights. We need liberal judges.