Tuesday, November 13, 2007

Environment: A new story?

Talking to the girls this weekend made me remember the things I cared about a few years ago, the things that were thought about and discussed around me. I'm not sure whether I was genuinely interested in them or I was drawn into them out of circumstance, but thinking about them and trying to make sense of them still seems like a valuable effort.

One of my friends will be working on an environmental project, and she told us about the necessity of "a paradigm shift in capitalism," because the system is going to "hit the wall" unless we do something about it. I never thought to label the growing awareness about environmental problems in such a way - communism failed because it did not give people the right incentives to improve their lives, and the ones who had bigger aspirations could not reach them. It was capitalism that prevailed by giving people freedom and choices (that could still be tweaked by regulation and incentives.) So now we realize that capitalism, too, will not last long unless we do something to fix it?

In developed countries (more in Europe than the US), environmental problems almost seem to have given a new story to the urban affluent and the idealist. An area of improvement. As one venture capitalist told me, Europeans are ready to pay the premium for clean technology. They are ready to accept personal responsibility and go out of their ways to recycle, buy efficient bulbs, organise G8 summits and flashy concerts. They are aware of a problem, and they can afford to work towards fixing it.

This attitude is totally respectable and admirable, but idealists should not expect everyone to possess the same awareness and the means to prioritize environment the same way they do. It will take more than idealism and publicity. An effective set of solutions can only be found if the right regulations and incentives are in place to align the interests of those who don't necessarily care about the environment with those who do. All solutions will have to involve some degree of regulation, free markets won't suffice. Even the carbon trading system, which seems like the ingenious capitalist solution, would not be possible without the cap - and that requires public supervision and commitment. It will be very difficult to bring governments and businesses on board.

Environmental problems point to a flaw in the free market economy that needs to be corrected by regulation. Individual choices will not add up to a socially optimum outcome, unless the costs are internalized. Economists, scientists and policy makers will have to work hard to come up with innovative solutions. The awareness, panic and effort, however, are all truly meaningful. It gives our generation a new story to believe in, something to correct, something to fix - but we have to realize that the road to a solution will take a lot of thinking. Not that this should discourage us.

No comments: