1. The assumption is that each individual and each company is working to further their own interests. There is no altruism put forward to rationalize a decision in capitalism.
2. Flexibility is the key. The power of the free market is flexibility. As socio-economic realities change there are a multitude of entrepreneurs and small businesses thinking of ways to best service new needs.
3. The cost of providing a product or service must be borne by the consumers of that product or service. Products may be priced according to demand, but should never be priced artificially low. If a product is extremely expensive to produce, but artificially priced at a low point, then consumers will buy more of that product and less of competing products. This breaks the ability of the free market economy to respond to the current needs of society in the most efficient way possible. Artificially low prices disrupt the supply and demand relationship that keeps capitalism flexible and responsive to needs.
In economics the environment is what is called a “public good”. It does not belong to any one individual or company. Thus it is not in the best interests of any individual or company to be respectful of the environment. Their job is to make money. This does not mean that a public good has no value. It means that the value is generalized across the population.
Pollution damages a public good. It removes wealth from society. Pollution exacts a cost. In order for the laws of supply and demand to effectively direct resources, the cost of providing a product or service must be borne by the producers and ultimately the consumers of that product or service. Otherwise those consumers will purchase more of that product than they would if it were priced appropriately. When coal mines dump toxic waste into streams, a portion of the cost of the coal is distributed in an economically random way across the population downstream, regardless of whether or not they purchase the coal or any energy produced with that coal. The people living downstream are effectively subsidizing the coal mine and therefore all the coal consumers and consumers of energy from that coal.
Production costs go up with environmental regulations. This is appropriate. Let’s say I setup a business next to your house, and dump my trash in your yard. This saves me the cost of trash hauling and I can sell my goods for less than other similar businesses. But I have not provided a lower cost option. In the absence of laws to stop my behavior I am simply making you pay the cleanup cost. If I had come up with some creative process that truly allowed me to produce my product at a lower cost I would be able to price the product lower, and claim a larger share of the market. Soon other creative people would figure out my method, or even a better method, and the price would drop further.
The point here is that allowing businesses to pollute the environment does not lower the cost of producing those products or services to society. It simply allows particular businesses to effectively dump their trash on someone else’s lawn. They have not earned their market share through any particular creativity or hard work. By allowing them to pollute the environment we give them an unfair advantage over businesses that produce their goods in an environmentally friendly way. When consumers purchase a product they look at the price. The price of the goods produced in an environmentally friendly way will likely be higher. The goods produced without environmental regulations will likely cost less. Consumers will choose the item with the lower price tag at the store, but it may well be the higher cost item. By allowing the producer to freely pollute the environment during production we have artificially lowered the price of that product. The laws of supply and demand are circumvented when pollution costs are not included in the price of goods.
The EPA is the organization that makes and enforces the laws to prevent my business from dumping trash on your property. As the business owner, I’m likely to find them unreasonable. My goals are to make money. Yes, there will be some business owners who would not dump refuse on someone else’s property even if it were legal to do so. There will be plenty more businesses that will use every tool legally available to them to lower the cost to their consumers. With no law to prevent the behavior, capitalism rewards the businesses that dump their trash on your lawn. Environmental protection laws force businesses to assume all the costs of production, so that the price of their goods will reflect the true cost, and consumers will then make appropriate decisions based on the real costs.
The true flexibility of capitalism is from small and medium businesses. Large businesses are no more flexible than large government institutions. An example is the energy industry. There are a myriad of innovative small firms coming up with renewable and clean energy solutions. These businesses are showcasing the power of capitalism to develop needed products and services. Yet we are finding ways to subsidize the oil, gas and coal industries, large firms who lack the flexibility to respond like smaller firms. Yes, the energy giants have diversified, but they are clinging to a dated technology, and asking us to subsidize them by allowing pollution so they can offer an artificially low price to consumers and score a larger market share. If they are truly dinosaurs, let them go extinct. The new generation of energy companies is here: small; creative; flexible; and ready to take us forward.