Marc Gunther

Free Market Environmentalism

What does free market environmentalism mean? It means applying market solutions to environmental problems.

Case in point: Charging higher admission fees to get into the national parks.

Before we get to that, let me introduce you to Terry Anderson, the executive director of a group called PERC and author of a book called Free Market Environmentalism, who got me thinking about this idea. He’s not your typical environmentalist–-a bow-hunter, he killed a lion with a bow and arrow last spring in South Africa–-but he is committed to finding practical ways to preserve the character of the west, where he grew up.

Anderson may be an iconoclast, but other environmentalists are moving his way. No, the Sierra Club is not about to promote bow-hunting. But markets, once seen only as a cause of pollution, are increasingly being embraced as a way to make the world more green.

The evidence for this is everywhere–the so-called cap-and-trade regulatory schemes being proposed to curb global warming, individual fishing quotas that limit depletion of global fisheries, the rise of organic farming, GE’s Ecomagination initiative, the greening of Wal-Mart, and so forth. The climate (pun intended) has changed dramatically since 1991 when Anderson and his co-author Donald Leal published the first edition of Free Market Environmentalism. Back then, Anderson recalls, a book reviewer wrote that “free market environmentalism” was an oxymoron and that the authors of this book were the morons.

I met Anderson at Stanford, where he teaches a class on environmental entrepreneurs in the business school, and we spent some time together last weekend at a conference in Big Sky, Montana, sponsored by PERC, the Property and Environmental Research Center, a nonprofit he leads. (Disclosure: PERC paid my expenses, as well as those of other reporters at the event.) Anderson, I was pleased to learn, is not an ideologue; he says, for example, that we need government regulation of carbon to curb global warming. Instead, he’s a pragmatist who has thought a lot about how best to address the big environmental issues facing the west, from water rights to the energy boom to wildlife restoration to the decline of our national parks.

He and his PERC colleague, Holly Fretwell, and most everyone else who has looked closely at the parks, including NPS managers, agree as currently operated, the parks are in trouble. Infrastructure is crumbling, services are declining and museum collections are gathering dust, as the National Park Conservation Assn. points out. More tax dollars would be nice, but how realistic is it to expect Congress to devote money to the parks during a time of war, rising budget deficits, a national health care crisis, etc.?

Anderson’s recommendent would use markets: Charge people more money to get into the parks, he says. Right now, it costs $25 per car per week to visit Yellowstone–less than a family of four spends to go to movie and a whole lot less than the $200 (minimum) that it costs to take four people to Disney World. This is nutty when you think about it. Consider: Only about 8% of National Park Service revenues are covered by fees. What this means is that the average American taxpayer is subsidizing the Yellowstone vacations of people who are almost surely better off, if only because they can afford to fly or drive to Montana or Wyoming for an extended vacation. That’s not even to consider the British, German and Japanese tourists we are subsidizing. Meanwhile, the parks are deteriorating.

The obvious objection to charging higher fees is that they would keep poor people out of the parks. OK, says Anderson—let’s let anyone who earns less than $30,000 a year get in free. Or give people who can’t afford the higher fees tax credits to offset their costs. Either way, it’s hard to believe that higher fees would keep many people away.

PERC’s Fretwell calculated what it would cost, per person per day, to cover all the operating expenses of a number of parks. Here are her numbers:

Mt Rushmore $1.31
Zion $2.45
Grand Canyon $4.61
Yosemite $6.84
Yellowstone $9.24
Steamtown national historic site $42.39
Gates of the artic national reserve $415

You can see this isn’t a simple problem—some parks don’t get enough visitors, for whatever reason (remoteness, lack of appeal) to cover their costs with reasonable fees. But most do.

Putting the national parks on a pay-their-own-way basis would accomplish something else, too: It would align the interests of park managers and visitors. (I was going to say “customers.”) So as parks serve visitors better, more people will come, more money will come in, permitting more investment. This is known as capitalism. Right now, Congress and its notorious earmarks have too much control over park spending. One result is the infamous $1 million outhouse in Glacier National Park.

The parks will need and very much deserve government support for capital improvements and the like. They provide a public good, arguably even to those who never set foot in them—like the museum you never visit, but it’s nice to know it’s there. The bottom line, though, is that we need to think in more creative ways about environmental problems, particularly when the alternative is business as usual.

Ted Turner's Montana Adventure

The highlight of my trip to Montana last weekend was a visit to the Flying D, Ted Turner's ranch. It's a breathtakingly beautiful place, and an interesting one, too, because Turner is raising American bison, protecting the environment and trying (and mostly succeeding) at making money. (Not that he needs it.) Probably having more fun, too, than he did in the last few years at Time Warner. Below is a picture of Russ Miller, who manages Turner's ranches, and a few bison. Yes, he looks a little like Ted. I wrote about Turner's ranch today in my CNNMoney column. Here's how the column began:

Bozeman, Montana --"I don't want to own every ranch," Ted Turner once said. "I just want to own the ranch next door."

This is the kind of thinking that has made Turner, the restless 67-year-old cable television billionaire, the largest private landowner in America. Turner, the former vice chairman of Time Warner, who left the company's board in May, owns 15 ranches in seven states, covering 1.9 million acres. That's 3,000 square miles - bigger than Delaware or Rhode Island.

A visit to one of those ranches - the 113,000-acre Flying D ranch in southwestern Montana - demonstrates that the Turner ranches stand out not only because of their size, but because of the values that drive them.

You can read the the column here.

The 'Story' of Wheat Montana

When Dean Folkvord finished high school in 1978, his father Dale bought a wheat farm near Three Forks, Montana. Their only plan was to sell wheat. Since then, they have built a company Wheat Montana,, that sells wheat, mills flour, bakes bread and operates eight casual restaurants. Their story illustrates how farmers can make a direct connection to consumers, and thereby create an alternative to conventional, commodity agriculture—which isn’t working well in much of the rural west.

The conventional agricultural model still dominates, of course. It’s based on feeding the most people, at the least cost, with commodity products, grown with lots of chemical inputs. It drives down prices paid to farmers, and it’s one reason why Montana is a poor state—45th in the nation in household income.

Folkvord, 46, has blazed a different trail. Wheat Montana, as he explains it, does more than sell wheat, flour and bread—it tells a story, and helps to forge a link between the consumer and the family farm. (A picture of his family adorns Montana Wheat’s bread and flour packages.) Most farmers, when business is good, expand “horizontally” by buying more land. By contrast, Folkvord has expanded “vertically” up the value chain, capturing a bigger share of the prices people pay for food. As a result, his company today employs about 190 people, and provides work for another 100 or so through suppliers and partners.

This past weekend, I’ve been learning a little about agriculture, mining, land use and conservation issues in the west at a conference in beautiful Big Sky, Montana, sponsored by PERC (The Property and Environment Research Center), an NGO that promotes market-based solutions to enviromental problems. Disclosure: PERC paid the expense of reporters who attended the event. More about PERC in a posting later this week.

Folkvord came upon his business model by necessity. He wasn’t making enough money as a wheat farmer in the early 1990s, and so built a bakery. “We really didn’t want to get into the bread business, but we felt it was something we had to do,” he says. The same goes for his first bakery and deli, which he opened, with trepidation, right by the farm; he and his dad figured they’d sell sandwiches to local farmers and ranchers, as well as a few travelers driving by on nearby I-90. “People showed up from Seattle and Minneapolis and they wanted expresso,” he says. “All I knew about expresso was that I didn’t like it,” he says. He ordered expresso machines from Bozeman and learned how to make lattes. “We realized, wow, there’s something going on here and all of a sudden we were in the food business,” he says.

Today, Wheat Montana has eight retail outlets—bakeries and delis—around the state, and Folkvord’s looking to expand to Washington state and eventually California. “It plugs into a trend out there in America where we might be getting tired of fast, fried food and people want foods that’s fresh and good for you,” he says. (Although the popular cinnamon rolls aren’t exactly slimming.) He sells fresh bread in five states, with wheat varieties being his big seller. Wal-Mart’s the biggest seller of his flour. And he ships wheat kernels to specialty bakeries around America, including Spring Mill Bakery near my home in Bethesda, Md.

Interestingly, Folkvord’s products are not organic. His farm gets only about 12 inches of rainfall a year, the growing season is short and it’s at an altitude of more than 5,000 feet. Half his land lays idle each year to replenish the soil, he’s got weed problems and he says it wouildn’t be practical to go organic (although other Montana farmers grow lots of organic wheat). Instead, he has his flour and bread tested by a third-party to make sure they contain no artificial chemical. and markets them as “chemical free,” GMO free and “better than organic.” Yes, there’s some pressure to go organic, but he stands behind the healthfulness of his break and says, “We’re Norwegian and bull-headed and we’re not going to change.”

Recently the Folkvord family sold a big stake in Wheat Montana to outside investors. They are looking for capital and expertise to get national distribution for their products and for the chain of deli. “The Big Sky’s the limit,” says Folkvord. Does this mean they are no longer a family farm? We could argue about the family farm but you can drive to Three Forks and see the wheat fields for yourself. Just try to find the ‘farm’ where Pepperidge Farm grows its wheat.

Kleenex--Wiping Out Forests?

In my CNNMoney.com column today, I look at the battle being waged by Greenpeace and the Natural Resources Defense Council against consumer products giant Kimberly-Clark. The environmentalists charge that K-C has failed to follow best practices in its sourcing of wood, and in particular uses wood pulp from ancient Canadian forests to make throwaway products like Kleenex and toilet tissue. The company's bigger problem may be that it misled the public and its shareholders about its practices. Here's how the column begins:

NEW YORK -- Question: When you wipe your nose with a Kleenex, are you helping wipe out ancient forests?

Answer: That depends entirely on who you ask.

The environmental groups Greenpeace and the Natural Resources Defense Council say that Kimberly-Clark, the world's largest tissue manufacturer, has failed to keep its promises to protect ancient forests in Canada. Kimberly-Clark calls itself an environmental leader. Be warned: digging through the competing claims in this controversy is not easy.

But one thing's evident: Kimberly-Clark's credibility has taken a hit, and that's a problem for the $16 billion a year consumer products firm whose brands include Kleenex, Huggies, Scott, Pull-Ups, Cottonelle, Viva, Kotex and Depend.

You can read the column here.

Small Mart Revolution II

I recently wrote about Michael Shuman's thought-provoking new book, The Small Mart Revolution. He's asked me to post this reply. I will respond in a comment soon. Thanks so much, Michael...Here goes:

I’m grateful to Marc Gunther for sharing with all you some of the arguments I make in The Small-Mart Revolution. When we recently met for breakfast, we agreed that it might be interesting, constructive, and fun if we continued the discussion a bit on this blog.

So, my challenge to Marc is this: When price, quality, and convenience are roughly equal, why would you ever want to buy nonlocal? Here are ten reasons that persuade me – and a growing number of Americans – to localize spending.

(1) Higher Standards – The most fundamental difference between local and nonlocal businesses is that the former stick around while the latter entertain plans for moving to Mexico or Malaysia. Consequently, any community seeking sustainability through nonlocal businesses cannot, in the final analysis, possibly do so, because those businesses are continually fighting off tougher environmental standards. A good example of this is in my backyard, Maryland. Regulation of the chicken industry has been virtually impossible because the producers, Tyson and Perdue, and continually threatening to move to environmentally “loose” jurisdictions like Arkansas and Mississippi. This same problem also afflicts economic development that seeks higher wages through nonlocal industry. Yes, they often pay better, but they often leave and take those jobs with them.

(2) Greater Wealth – Because nonlocal businesses come and go while local businesses stick around for years, often for many generations, they are much more reliable generators of wealth, income, and jobs. Around the country, economic developers have been snookered into offering millions of dollars of incentives to attract or retain nonlocal business, and by and large these deals have been huge losers. Not because these industries didn’t have great performance on paper, including the promise of high wages. But because they stayed for a couple of years, took the incentives, and then vanished. There are some 300 empty Wal-Marts for example across the country – each continuing to cause nasty environmental problems – that stand as testaments to the short-sightedness of economic developers who thought they could lure the box stores for more than a heartbeat. The comings and goings of the supposedly high quality jobs turn out to be a very poor bargain for public expenditures on economic development. According to an investigative report about the cost effectiveness of tax abatements in Lane County, Oregon, the cost to the community in lost taxes was about $23,800 per job for nonlocal firms and $2,100 per job for the local firms. The nonlocal jobs were more than ten times more expensive, because the absentee-owned firms were so unreliable. On a net jobs basis (after the big departures), nonlocal jobs were 33 times more expensive.

(3) Greater Stability – The comings and goings of large, nonlocal business create enormous stresses, especially on small community’s economy. In the Katahdin Region of Maine, where I’ve been working over the past few years, the shutdown of a paper mill, so that it could move operations to a lower-wage area, created a regional unemployment rate of 40% over the next year. That kind of economic catastrophe is far less likely in a community economy built primarily around local businesses.

(4) Greater Multipliers – There’s a growing body of evidence that local businesses contribute more to local multipliers – the most fundamental basis for community income, wealth, and jobs. A Civic Economics study in Austin, Texas, for example, found that for every $100 spent at a Borders bookstore, $13 remained in the local economy. For every $100 spent at a local bookstore, $45 remained. Roughly speaking, then, the local expenditure contributed to three times the economic benefits as the nonlocal expenditure. A dozen similar studies have been done worldwide, and they all point in the same direction.

(5) Less Vulnerability – A local economy that is more self-reliant will be more immune to global surprises totally outside its control. The obvious example right now is importation of oil, which most observers link with terrorism and economic instability and which could be eliminated through smart, cost effective development of local energy efficiency and renewable resources over the next generation. Importing food leaves you vulnerable to imported pollution, micro-organisms, and pests from less responsible farmers elsewhere in the world.

(6) Smart Growth – Local small business is a natural promoter of “smart growth” or anti-sprawl policies. Smart growth means redesigning a community so that residents can walk or ride bikes from home to school, from work to the grocery store. It means scrapping old zoning laws and promoting multiple uses—residential, commercial, clean industrial, educational, civic—in existing spaces, because it’s better to fully use the town center than to build subdivisions on green spaces on the periphery. Because local businesses tend to be small, they can fit more easily inside homes or on the ground floor of residences. Because they focus primarily on local markets, local businesses place a high premium on being easily accessible by local residents.

(7) Greater Identity – Part of what makes any community great is how well it preserves its unique culture, foods, ecology, architecture, history, music, and art. Local businesses celebrate these features, while nonlocals steamroll them with retail monocultures. Austin’s small business network employs the slogan “Keep Austin Weird.” Outsider-owned firms take what they can from local assets and move on. It’s the homegrown entrepreneurs whose time horizon extends even beyond their grandchildren and who truly care about preserving these assets. And it’s the local firms who are most inclined to serve local tastes with specific microbrews and clothing lines. “Weirdness” is what attracts tourists, engages locals in their culture, draws talented newcomers, and keeps young people hanging around.

(8) Greater Creativity – Richard Florida’s arguments about the importance of a “creative class” for economic success also tend to support locally owned businesses. Florida argues that among the key inducements for a creative class to move to and stay in a community are its civic culture, its intellectual bent, its diversity, and its sense of self—all attributes that are clearly enhanced in a local-business economy. A local-business economy seeks to celebrate its own culture, not import mass culture through boring chain restaurants and Cineplexes. It seeks to have more residents engaged as entrepreneurs and fewer as worker bees for a Honda plant. Myriad ideas and elements of a culture can best emerge through myriad homegrown enterprises.

(9) Greater Social Well Being – In 1946 two noted social scientists, C. Wright Mills and Melville Ulmer, compared communities dominated by at least one large manufacturer versus those with many small businesses. They found that small business communities “provided for their residents a considerably more balanced economic life than did big business cities” and that “the general level of civic welfare was appreciably higher.” Thomas Lyson, a professor of rural sociology at Cornell University, updated this study by looking at 226 manufacturing-dependent counties in the United States. He concluded that these communities are “vulnerable to greater inequality, lower levels of welfare, and increased rates of social disruption than localities where the economy is more diversified.”

(10) Greater Political Participation – Studies of voting behavior suggest that the longer residents live in a community, the more likely they are to vote, and that economically diverse communities have higher participation rates in local politics. Moreover, Harvard political scientist Robert Putnam has identified the long-term relationships in stable communities as facilitating the kinds of civic institutions—schools, churches, charities, fraternal leagues, business clubs—that are essential for economic success. As one group of scholars recently concluded after reviewing the social science literature: “[T]he degree to which the economic underpinnings of local communities can be stabilized—or not—will be inextricably linked with the quality of American democracy in the coming century.” An economy with many long-term homegrown businesses is more likely to contribute to such stability than the boom-and-bust economy created by place-hopping corporations.

Of course, things like price, quality, and convenience are not always equal. That’s why I embrace a philosophy of “local first,” not local at all costs. Sure, we’ll all still buy some things from chain stores – I too am drinking a Starbucks coffee right now at the Portland, Maine, airport (because of the absence of an equal local alternative here). But the experience of more than 60 communities that now have “local first” campaigns is striking. More information, more questions, more thinking almost always leads consumers to localize more of their spending. Nearly all the information we have about the supposedly great bargains of chain businesses is from their advertising, and better information about what’s available locally tends to highlight cost-effective ways to save money and go local.

As I argue in “The Small-Mart Revolution,” this is not an academic exercise. It goes to heart of preserving the communities we care about.

Best, Michael Shuman
[email protected]
www.smallmart.org

What Disclosure Won't Do

The Carbon Disclosure Project yesterday released its 4th annual mega-report at a well-attended event at Merrill Lynch's HQ in downtown Manhatta. Lots & lots of data, about more than 900 companies' carbon emissions, energy usage and practices regarding climate change. Al Gore gave a good talk and Sir Adair Turner, a British environmentalist, delivered a long speech that won't inspire a feature documentary.

But all the talk and the reams of information don't add up to much in the way of real change, as I wrote in my column at CNN Money.

Transparency at Timberland

Last winter, I wrote a column about Timberland's plan to attach "nutritional labels" to its shoes. The company says that all of its shoeboxes now carry the label, "so you know exactly what went into making the shoes you put on your feet." The labels aren't perfect--it's hard, for example, to know how much energy should go into making a pair of shoes, but they are a laudable effort by the company to be more open about its business.

Can fast food be 'good' food?

I've always enjoyed eating at Chipotle, but only after hearing a radio ad mentioning "sustainable agriculture" did I learn that this was a different kind of fast food chain. Turns out that founder and CEO Steve Ells is a classically-trained chef with big ambitions, not just for his business but for a revolution in American agriculture. So I wrote about Chipotle today in my CNNMoney column.

NEW YORK (Fortune) -- People have integrity. Good companies operate with integrity. But can food possess integrity?

Absolutely, says Steve Ells, the founder and chief executive of Chipotle Mexican Grill, the rapidly expanding fast-food chain.

"Food with integrity," Ells says, "is driving our growth and profitability."

What we can learn from the Danes

Wind power, solar power, ethanol and renewables are sexy. They're fun to write about. But it's easy to overlook the potential of energy conservation, an old fashioned solution (remember Jimmy Carter in his cardigan?) to today's problems of global warming and our dependence on imported oil. That was the topic of my column today at CNNMoney.com, after I visited a company called Danfoss.

NEW YORK (Fortune) -- Here's some good news about energy conservation: Americans are a lot more efficient than we used to be.

Here's the bad news: We're still a lot more wasteful than we need to be.

You can read the rest here.

A Tipping Point on Global Warming

There’s reason to think we’ve reached a tipping point on global warming. Not, thank goodness, when it comes to rising earth temperatures. I’m talking about the political will to tackle climate change.

Three names to think about: Arnold Schwarzenegger, chief executive Peter Darbee of PG&E and MIT professor Peter Senge.

Who would have thought that the California Gubernator, who lives large with his private plane and seven (!) Hummers, would have pushed through the most aggressive legislation to date in the U.S. to curb greenhouse gas emissions? Schwarzenegger’s not alone among Republican governors, either. New York’s Pataki and Massachusetts’ Romney are backing a seven-state plan to control carbon emissions from power plants.

Darbee, a former investment banker who became CEO of San Francisco-based PG&E last year, has declared that “climate change is a problem.” [NY Times, registration required] His support for the California law, and for federal controls on greenhouse gases, helped blunt the opposition from old-school oil and manufacturing businesses. The fact that PG&E doesn’t currently operate coal-powered plants made it easier for him to support regulation, but so be it.

Senge, meanwhile, has likened the shift in thinking about climate change to the consensus that formed over the years about the harm of tobacco or the need to act against apartheid in South Africa. The author of The Fifth Discipline and founding chair of the Society of Organizational Learning says,

Thirty years ago, no one would have foreseen that smoking in most public spaces would become socially unacceptable. And in 1985, who would have thought that ten years later, South Africa would have a multi-racial democracy, with no violent revolution? Once mental models begin to shift, changes can come far quicker than anyone expects.

It was, you may recall, a coalition of activists, religious leaders, social investors and corporate interests who drove the divestment debate over South Africa. Two decades later, you have Al Gore, evangelical Christians, social investors, Wal-Mart, GE and Republican governors saying that we need to curb global warming. Can federal action be far away?

P.S. Sonal Pandya of Conservation International, an environmental activist who worked for the California law, reminds me that the governor drives a hydrogen-powered Hummer, as Amanda Griscom reported.