Removing Damages
Once we heal Earth, we not only heal ourselves but also enrich whoever ends up with the fatter rents for healed land.
May 17, 2016
Jeffery J. Smith
Activist

This article is part of a series by Jeffery J. Smith on the surplus—also known as “economic rent”—that exists in the economy. Currently, this surplus is hoarded; yet once shared, this surplus could generate undreamed of possibilities for the entire human population. To see the entire series, visit Progress.org/Counting-Surplus

Land is Sad & Depressed

You’ve heard over and over that the three most important things in real estate are location, location, location. We assume that means good location pushes up the value. Yet the reverse is also true.

A bad location draws down value. A new skyscraper wrecks your view and blocks your sunlight. Windblown GMO pollen contaminate your fertile soil. A clearcut silts up the stream you once fished, even causes a landslide that dislodges your house. A new freeway replaces quiet with noise, clean air with smog. A new nuclear power plant lowers all site values downwind. The list of developments that lower land value is sadly long.

Thus, if all those abuses of land were to disappear, the value of land would rise. Right? This bit of logic links to an astounding conclusion.

History of Limiting Liability

Long ago, it used to be that if a neighbor erected a tall building that blocked your sunlight, you could appeal to the king or local noble. And win. So that’s what limited liability was invented for, to fob off the fine or penalty from the responsible human, onto an abstract corporation.

For a business, especially one that’s a bad neighbor, the more damage that you do, and the more money you make, the more you need a limit on your liability. For those guys, after the deed or land title, the corporate charter might be the second most valuable piece of paper dished out by government. Heck, only a direct handout or bailout—cold cash in the pocket—could be better.

Actually, corporate charters go back further than disputes over sunlight. When a village wanted to do something collectively—say, build a watermill—the group of residents who actually made it happen became a temporary part of the local government. That is, they literally incorporated into the body politic (“corpus” means “body”). When the project was completed, the corporate charter and the limited liability with it expired.

But limited liability for free from government was too good an idea in the view of businessmen who intended to alter nature for profit. Exerting the pressure of their standing in their community, they pushed the evolution of the corporate charter. From covering temporary nonprofit groups acting for the commonweal, it next limited the liability of permanent companies acting in their own self-interest.

What the newly christened corporations—in the US, “limiteds” in the UK—paid for no longer being liable individually was merely a small filing fee. If ever they were fined or found liable, that came out of corporate coffers or ultimately stockholders. The real persons skated.

Coping with Corporations

Thomas Jefferson, a Founding Father very interested in the power in the land and with an insightful opinion about many topics, lamented that the younger generation, lacking the “principles of ’76 now look to a single and splendid government of an Aristocracy, founded on banking institutions and monied in corporations …” Then a few generations later, a railroad lawyer who was a clerk for the Supreme Court wrote in his own hand on the cover an unrelated ruling that corporations were persons and the Justices and everyone else accepted it even up until today. Critics of money in politics rail against the more recent ruling, Citizens United. But they’re barking up the wrong tree. There’s a simpler, more fundamental solution.

In our suit-happy society, limiting the liability of business people may be a good idea. However, that does not mean it must be a near freebie from the state. Government could charge full market value for corporate charters. The businesses imposing risks on others would pay more, those not endangering consumer, worker, or nature would pay less. 

Or let’s stop giving them away at all. That’ll send firms to insurance companies (the industry that contributes the “I” in “FIRE” along with Finance and Real Estate). Furthermore, firms could sign pledges to distributors and stores and win “green” certification, etc.

What Insurers Would Charge

In order to sell limited liability to polluters, depleters, and wasters, insurance companies would have to charge premiums of staggering amounts:

* Costs per kilowatt hour of generating electricity is 10 cents for coal, 7 cents for natural gas, 13 cents for solar, and 8 for wind. However, when you add in environmental and health damages, costs rise to 17 cents per kilowatt hour for natural gas and 42 cents for coal.

* If the “true costs” of emissions—increased rates of premature death, illness, increased loads on the healthcare system, lowered crop yields, missed work days, higher insurance damages from extreme weather events linked to climate change, etc—are factored in, a gallon of gasoline would cost you roughly $3.80 more at the pump than it currently does,

To cover the cost of an insurance premium, some businesses would raise their prices. Those companies would lose customers, market share, stockholders, and share value. Conversely, safe, clean enterprises would grow their market share. They’d spare the environment and improve the health of residents. For those two attributes, people would be willing to pay more to live there. In a healthy world—no longer polluted or depleted—you would pay more for land but you also pay one heck of a lot less for medicines and doctoring.

Costs of Damaging Land

To figure out how much overall land value is depressed, and how much land value could rise in a region, we’d have to figure out the cost of limited liability. Not the tiny filing fee but the downwind and downstream costs of harm to the environment and to human health. Let’s find a ballpark figure for the value of limited liability, which would be the costs imposed on nature and humans by pollutants, contaminants, and toxins.

Two decades ago, I read that Ralph Estes in his book Tyranny of the Bottom Line factored in workplace injuries, medical care required by the failure of unsafe products, health costs from pollution, and many others. He figured that external costs to US taxpayers totaled $3.5 trillion in 1995—four times higher than the profits of US corporations that year ($822 billion).

For up-to-date data, let’s google combinations of “limited liability” and “corporate charters” and “corporate damages” and “negative externalities” and “environmental harm” and “environmental illnesses” and “pollution” and “imposed costs” and “true cost” and “total costs” and “percentage of profits due to limited liability”.

In 2008, eLawForum estimated the total cost of litigation to be $210 billion, equivalent to one-third of the after-tax profit of the Fortune 500. Not all those suits were filed because a business harmed a customer, worker, or nature, but some were. OTOH, not everybody harmed filed suit. For sure, however, all the settlements were not paid by anyone in management; the the funds came solely from corporate holdings.

In 2010, a group called TruCost tallied up the cost for damaging the whole planet and arrived at $2.2 trillion, about a third of corporate profit of the biggest corporations. The US share then would be about $440 billion, probably $500 billion now.

In 2011, researchers calculated that our altered environment (with smog and toxins) sickened children and cost adults $76.6 billion in 2008, equal to 3.5% of total illness costs. That figure leaves out adults and is old and is only one part of the overall cost from harming land. Other researchers looking at illness and mortality found coal alone costing up to $500 billion.

In 2013 Obama’s OMB said carbon damage alone is $200 billion.

In 2013, TruCost added in agri-business (not normally publicly traded and so left out before) and upped their estimate of a global cost to $7.3 trillion, meaning the US share would be like a trillion and a half.

In 2014, the American Lung Association cited a figure for the cost of lung disease, caused in large part by breathing air-borne pollutants, of at least $130 billion annually.

In 2015, the total environmental costs of producing electricity in the US totaled $330–970 billion a year.

You can see why Harvard economic historian David Landes said the key to fortune is to "socialize" your private costs—like pollution—while you privatize everyone's social gains—like the value of locations.

Lose Losses, Gain Greater Rents

Just as the estimates for total land value were not easy to come by and were all over the place, same with the estimates of land damage. Another caveat: Once humans stop fouling their nest, they’d not use every saved dollar on bidding up the value of the location they want for themselves. But some of those saved dollars would go to that purpose.

Aiming for a tally midway between Estes’s staggering $3.5 trillion and eLaw’s low-end $210 billion for litigation alone, let’s go with the TruCost calculation of $1.5 trillion. If Americans got to save that much money, they might use a trillion of it on acquiring healthier land. That’d push the overall value of land (and environment) in America to about $5.5 trillion—a bit of good news. (A bit of bad news is $5.5 t is the new record for all central banks’ bonds that no longer pay interest but charge it against bondholders.)

Eco-losses are not the only human activity (or depravity?) depressing land values. Among others, there is taxation. Plus, corporate charters and land titles are not the only little pieces of paper granted by government that turn out to be worth trillions. There are others that—if granted at full-market value—could swell public treasuries. Depending on the political winds, those fees could make life for national stakeholders far more comfortable.

This article is part of a series by Jeffery J. Smith on the surplus—also known as “economic rent”—that exists in the economy. Currently, this surplus is hoarded; yet once shared, this surplus could generate undreamed of possibilities for the entire human population. To see the entire series, visit Progress.org/Counting-Surplus

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Inside information on economics, society, nature, and technology.
Jeffery J. Smith
Activist

JEFFERY J. SMITH published The Geonomist, which won a California GreenLight Award, has appeared in both the popular press (e.g.,TruthOut) and academic journals (e.g., USC's “Planning and Markets”), been interviewed on radio and TV, lobbied officials, testified before the Russian Duma, conducted research (e.g., for Portland's mass transit agency), and recruited activists and academics to Progress.org. A member of the International Society for Ecological Economics and of Mensa, he lives in Mexico. Jeffery formerly was Chief Editor at Progress.org.