Mr. (Fred) Smith Goes to Washington

By Michael Fumento

Investor’s Business Daily, November 19, 1992
Copyright 1992 Investor’s Business Daily

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Fred Smith

Fred Smith describes himself as a former "knee-jerk liberal" and Environmental Protection Agency bureaucrat who was mugged by reality.

"I didn’t like what I saw," said the president of the Competititive Enterprise Institute, a Washington-based think tank, and co-editor of the book Environmental Politics: Public Costs, Private Rewards.

"EPA was becoming a vast bureaucracy, and it became increasingly obvious that what was going on at EPA wasn’t doing much to make the the world better," he said. "I was beginning to become aware that the idea of passing laws not compatible with human nature to change the world was not going to work."

In 1984, Smith, now 52, organized CEI to develop free-market policies to protect the environment. The group has Fred Smith grown steadily. It now employs 12 staffers and is recognized by all sides in the environmental debate as a major player.

"Fred is an excellent political fighter," said Jerry Taylor, an analyst at the libertarian Cato Institute in Washington. "He has a good sense for the jugular and better political instincts than most people in Washington. Most groups don’t have the stomach for the fight that he has."

Smith says that the best way to protect something isn’t to put it in the public domain, but to privatize it. That way, it belongs to somebody with a vested interest in protecting it — and not to a faceless bureaucracy, whose interests and environmental protection may not coincide.

Many conventional economists justify government interference in environmental issues, citing pollution as an example of a "market failure" that justifies governmental intervention.

Nevertheless, Smith said this overlooks a crucial point.

"Markets don’t always succeed, but neither do political entities," he said. "It’s not so much that markets fail, but that we fail to have markets."

Smith Seeks New Ways to Protect Nature

"Today, we try to protect the environment in much the same way planned economies (in the former Soviet bloc) tried to produce food," he said. "We set goals, transmit them, and enforce commands. It’s terribly inefficient."

Instead, he says, just as privately owned and operated land produces higher yields than government land, "Each part of planet Earth must have a protector."

He notes, for example, that oil pools are privately managed and owned and operate extremely efficiently. Water aquifers, on the other hand, are publicly managed with such inefficiency that California uses water to grow rice and watermelons in the desert even while its cities suffer water shortages.

Privately Owned Animals

"As (liberal economist) John Kenneth Gailbraith has pointed out," said Smith, "privately owned and protected resources rarely suffer the indignities of politically managed resources and properties."

"Privately owned animals — whether cattle and chicken or parakeets and dachsunds — flourish in the private sector while elephants in Africa, spotted owls in the U.S. and fauna in the Third World disappear under political management."

"To expect that a handful of governments around the world, most of which have a poor record of protecting civilian populations, are likely to protect hundreds of millions of species is foolish," Smith said.

"Only extending private property stewardship to these and allowing five and a half billion people on Earth to have stewardship offers any hope that this rich heritage of ours will survive into the 22nd century."

While most think tanks are content to pontificate on a variety of positions, CEI has involved itself directly in litigation.

Earlier this year, CEI won a suit against the National Highway Traffic Safety Administration. In it, a federal appeals court ruled that the agency that manages the Corporate Average Fuel Economy standards — mandating average mileage of at least 27.5 miles per gallon for U.S.-sold cars — had illegally concealed the fact that CAFE standards increase traffic fatalities by reducing the availability of larger, more crashworthy cars.

"CEI forced the debate from the sterile argument of energy security vs. cost to business to a blood-for-oil tradeoff that the courts were forced to recognize," Smith said.

More Than Financial Costs

Environmental commentators like Taylor say that CEI’s "Death by Regulation" project, which encompasses the CAFE debate, has been influential in demonstrating that improving environmental quality sometimes entails costs that go beyond the merely financial.

"Fred has almost single-handedly taken these regulatory issues out of the hands of lawyers," Taylor said. "He’s not a bean counter. He’s looking at consumer choice, consumer rights — tradeoffs that are not usually part of the regulatory debate."

Smith believes U.S. federal risk management is inherently flawed. He notes that while we expect insurers to mitigate risks, not eliminate them, and expect doctors to cure diseases but not make us immortal, "We have come to expect that the EPA — and for that matter the Food and Drug Administration and other ’social’ regulatory agencies — will eliminate risk."

In part, says Smith, this reflects bureaucratic incentives to expand turf and to err on the side of caution. If the FDA approved a drug that later proved dangerous, there would be headlines and hell to pay.

But when it delays approval of a drug, resulting in tens of thousands of deaths, the media ignore it.

Still, Smith says, Congress must share the blame.

"Statutes such as Superfund, the Clean Air Act and the Clean Water Act incorporate binding commitments to zero risk and an absolutely clean environment," he said.

"Risks associated with policies to bring about a squeaky-clean environment must look at risk vs. risk," Smith said. "There’s a risk associated with technology and economic change but also with technological and economic stagnation, and both theory and empirical observation say the latter is more important."

Environmental Groups Criticized

Smith is critical of the vast majority of environmental groups operating today.

The environmental movement, said Smith, "did good in its early era, largely prior to the last two decades. (Environmentalists) played a critical role of prosecuting and promoting a neglected value in society, and in using their own resources to create refuges and educational programs to promote these values."

But, he said, "with the politicization of policy and the movement, those private virtues became public vices as they moved away from the voluntary persuasive approach of the past to the coercive green utopianism of today."

Smith thinks that American business, for a variety of reasons, has not done nearly enough to influence the environmental debate.

"Many businesses," he said, "have found regulations a useful tool to limit, suppress and manage competition. To them, environmental policy has become another tool for special-interest advancement."

He offers another explanation: "American businessmen grew up in a world where free markets were dominant. They don’t understand the political market under which they’ve been forced to operate."

The alternative to using political power to fight over a shrinking pie, says Smith, is for business to become more savvy at holding off the regulatory pie-shrinkers.

"Business plays the political game like Charlie Brown plays football," he said. "Political regulators keep promising to keep regulatory football stable this time around. But business keeps finding that when it runs for the ball, it moves and business falls flat on its assets."

Threat To Timber, Mining

"The oil industry in America has lost 485,000 jobs," he reckons, "probably half of those associated with regulations and denial of development rights." Now, he says, mining and timber face similar threats.

"Some parts of the business community are beginning to become aware that there is a threat," said Smith.

"Privatization seems to be gaining ground in parts of the world outside of the United States. There are signs of hope around the world. But the problem is that we are the one country in the world able to afford more government."


Read Michael Fumento’s additional work on economics and environmentalism.