Environmental problems loom large in Bulgaria. However, it is difficult to know just which reform measures to suggest because the centrally planned economy of the past exacerbated the environmental difficulties.

There are three reasons why the old system led to substantial ecological problems. The lack of free press meant that information was difficult to come by and government officials were not held accountable for their actions. The absence of private property rights made it easier for pollution to occur because no one had an enforceable claim when resources were despoiled. Finally, the subsidization of certain heavy industries furthered pollution. As each of these problems is remedied, Bulgaria should see an improvement in the environment.

However, not all environmental problems will be solved by the proposed economic reforms, so a structure is needed for dealing with remaining difficulties. Seeing pollution as a property rights problem is a necessary first step. Common property is always overused; ecological difficulties arise because of the absence of private property rights. Therefore, reform measures should be directed at better defining and enforcing property rights. People need to be held accountable for their actions and private property rights do that.

Where property rights are absent, as is often the case with air and water, government needs to take steps to allow rights to be created within those resources. These rights need to be transferable so markets can develop and the optimal amount of pollution can be determined through the interaction of producers and consumers.

Statement of the Problem

Bulgaria faces immense environmental problems. By one estimate, 85 percent of river water is polluted with industrial waste and 70 percent of farmland has been damaged by industrial emissions. There is a significant amount of air pollution, and in some areas the emissions from factories are significant enough to cause both short-term and long-term health problems. Environmental problems in Bulgaria have been exacerbated by the rapid move to industrialization over the last several decades, particularly through the use of large-scale smelters, refineries, and factories.

However, some of the pollution problems are not because of internal production conditions; in one instance, a Romanian factory on the Bulgarian border is responsible for significant pollution in Bulgaria. Also, irresponsible actions in other countries have contributed to danger from nuclear radiation. For instance, the Chernobyl incident in the Soviet Union created potentially significant health problems in Bulgaria. The high level of pollution and other environmental problems in Bulgaria have created a significant outcry by the Bulgarian citizens and have been an important impetus for economic and political reform.

The Necessity of Reform

Despite the massive environmental problems facing Bulgaria, there is considerable hope for improvement in the future. Bulgaria, like other Eastern European countries, faces far worse pollution problems than other industrialized countries in Western Europe and North America. Because the Eastern European societies are changing rather rapidly and are looking more like the democratic, market societies of Western Europe, the U.S., and Canada, there is a good chance that a significant proportion of the pollution problem will be ameliorated in the process.

Therefore, it is somewhat difficult to know how many environmental reforms should be put in place immediately and how many should wait until the economy has undergone the transformation foreseen over the next year or two. Although the Bulgarian people have good reason to be deeply concerned about the level of pollution that they face, some patience may be necessary as economic and political reforms will change some of the environmental conditions rather dramatically.

There are three basic reasons why a centrally planned economy, as Bulgaria was for the last forty-five years, is likely to face significant environmental problems. First, such economies rarely have a freely functioning press that provides good information to the population about environmental problems and also brings pressure to bear upon governmental officials. Also, in the Eastern European economies, governmental officials have been reluctant to release information about existing environmental difficulties and, in fact, have repeatedly lied about pollution and health problems. The recent move to democracy in Bulgaria will make government bureaucrats much more accountable to the population, and the development of a free press has been and will continue to be an important contributor to the process of understanding and dealing with pollution.

Second, Bulgaria has chosen to subsidize some of the most polluting forms of industrial production and, in fact, its heaviest subsidies have gone into some areas where the most significant environmental difficulties have occurred. Mining and nonferrous metals are the source of some of the worst environmental problems in Bulgaria, and these have had some of the largest subsidies from the government. If Bulgaria moves to a truly free market economy where production is not subsidized and prices reflect economic reality, many of the worst environmental offenders will be eliminated by market forces.

Third, the fact that Bulgaria has been governed by an ideology that has denied the importance of private property has significantly exacerbated environmental difficulties. Private property rights are at the heart of a solution to the environmental crisis and are important mechanisms for holding people accountable for their actions and for offering rewards for sound environmental stewardship. For instance, under a regime of private property the owners of mines and oil wells recognize that the resale value of their property declines as they deplete their resources. This is especially the case in a world where future resource prices are expected to increase. In such a situation the too-rapid use of resources faces property owners with a significant decrease in their wealth, and they are much less likely to waste those resources when not under a system where their wealth is not connected to the rate of use.

The disposing of waste is also much easier in a world where no one owns resources since there is nobody that can claim harm under the legal system. It is true that in the centrally planned economies government officials were charged with protecting the national interest, which supposedly included environmental quality. However, bureaucratic incentives are such that more often than not the government officials maximized their job security and income by producing as much as possible and by ignoring environmental problems. Again, as Bulgaria privatizes the ownership of resources, a means of securing environmental protection will be in place.

Reforms to Date

A considerable part of the original pressure for political change in Bulgaria was due to concern for environmental problems. The environmental movement has been responsible for slowing down or stopping certain government policies that promised significant environmental damage. The government has also promised to close some of the worse polluting plants in the next year or two. However, much more needs to be done to secure environmental quality for all Bulgarian citizens.

Options for Reform

Because of the dramatic political and economic changes taking place in Bulgaria at the present time, it is difficult to also institute major new environmental policies. As suggested above, the development of a free press, the removal of subsidies for certain types of production, and the privatization of the ownership of resources are all things that will lead to greater environmental quality. Nevertheless, one needs a framework for thinking about the pollution problems that will continue to exist. The economic reforms that are being proposed in other sections of this report will not solve all environmental problems, so additional measures will be necessary.

Pollution is most appropriately viewed as a cost imposed upon others without their willing consent. Many actions entail costs, but what distinguishes polluting actions from others is that the people who bear the cost do so without giving their permission. For instance, if a factory purchases iron ore for use in its production process, it is imposing a cost upon society in that those materials are not available for alternative uses. However, under a regime of private property those materials will only flow to the factory if the factory owners adequately compensate the resource owners. The cost is not imposed unwillingly on those that own the resources. In contrast, however, the factory can put effluent out of its smokestack, and this is deposited in the air or on the soil downwind. Using the air as a waste disposal medium imposes a cost save on people in the way that using a resource in production does. However, these costs are not willingly born by the people downwind; they did not give their consent to having the pollutant in their air or on their soil.

It is because of the differences in the property rights structure that the using of iron ore is not defined as pollution while using the air is. It is the lack of well-defined and enforced property rights that allows the factory to pour its waste products into the air without securing consent of those downwind. In contrast, because property rights are defined, enforced, and transferable, the factory adequately compensates the owners of the iron ore. It is in this sense that it can be said that all pollution problems are property rights problems.

Sometimes the term “common property” is used to refer to the resources that are owned in common, meaning by a large group or by the society as a whole. The seminal treatment of the common property problem is Garrett Hardin’s 1968 article in Science, “The Tragedy of the Commons.”¹ Since then, a large literature has developed on the problem of “the tragedy of the commons,” but they all lead inexorably to the same conclusion that if property rights are not well established, overexploitation of the resources will occur. In a very real sense the severe pollution problems of the Soviet Union and Eastern European countries are a prime example of this phenomenon.²

The statement of the problem in this way is also very helpful because it focuses on the appropriate types of reforms that are necessary to secure environmental quality. Since pollution occurs when property rights are not well-defined and enforced, reform efforts should focus on defining rights when they do not exist, on enforcing those rights where they are presently poorly enforced, and on allowing for the transferability of those rights so that resources can flow to their highest valued use. The present efforts to privatize the productive resources in the Bulgarian economy are a move in the right direction. However, some innovative reforms will be necessary to solve some environmental problems because in several areas property rights are not traditionally defined or the cost of definition or enforcement can be quite high.

Air and water are the two resources that face the most significant environmental problems because both have traditionally been a part of the commons. However, in both cases there are ways of moving closer to a system of private property rights that hold decision makers accountable. If property rights were established for current users of water, then they would have a basis for action against a polluter. Two examples would be for municipalities to have property rights in their drinking water and farmers in their irrigation water.

Even in the case of fishing, rights can be established. For instance, in Great Britain many fishing clubs have property rights in streams and reservoirs.³ Because the members of the clubs care about quality fishing, they also care about pollution. The legal system allows people to sue when damages can be proven and has proved to be a ready defense against pollution. In fact, the quality of the fishing streams in England and Scotland is superior to that of many other Western economies where the water is owned by the government.

It is also important in cases like this to have the property rights to water transferable so that if the higher valued use is as a carrier of some pollution, such a transaction can occur. If a factory wishes to pollute a stream that is owned by a fishing club or another recreational entity, it can purchase the rights to put a certain amount of effluent in the water. However, under a regime of well-defined and enforced property rights no costs are imposed upon people without their willing consent; therefore pollution does not exist. Just as the owner of iron ore can sell that product to a factory, the owners of water can sell the right to use that water as a waste disposal facility.

The above scenario has several distinct advantages over other public policies alternatives. In policy discussions it is usually assumed that only either/or solutions are possible. Either the polluters get their way and can foul the air and water to the extent that they want, or the environmentalists get their way and zero pollution is allowed. Reasonable people find both solutions unacceptable since pollution is a significant problem, but a world of zero pollution is unthinkable in modern, industrial economies. A system of well-defined and enforced property rights allows one to escape the dilemma. If water in the above example is of more value in a highly pristine, completely pure state, then the factory will not be allowed to pollute at all. In that case the consumers have spoken; the river is truly in its highest and best use with zero pollution in it. In many cases, however, such a solution is not likely to occur.

Removing some pollutants from the discharge of the factory is usually not terribly expensive and, when faced with the alternative of buying the rights to pollute downstream, the owners of the factory will choose instead to clean up. However, getting rid of every last bit of pollutant can be quite expensive, and at that point the factory might choose to purchase some pollution rights from downstream owners. In such cases the mutually agreed upon solution is satisfactory to both the factory owners and the people that have the rights to the water. The solution is also optimal for society. The other development that occurs under such a situation is that some streams may maintain an absolutely pure level of water quality and others may gradually accept more effluents. Again, if property rights are well defined and enforced, such an occurrence does not represent a problem to society.

It is also important to note that under a system of well-defined and enforced property rights, liability laws must be in place. These allow property owners to use the courts to seek redress when their property rights are violated. Thus, those people that face significant health problems from a polluting factory would have a claim in the courts for either monetary compensation or having the polluting stopped. Since compensating for major health damages is very expensive, it is likely that in most cases the business or person that is the source of pollution would choose to stop rather than to pay damages.

Because of its transitory nature, air is one of the more difficult resources in which to establish property rights.⁴ A well-functioning liability law solves some of the problems. However, when the source of pollution cannot be proven beyond a reasonable doubt or when there are numerous polluters, such a solution may not prove satisfactory. In such cases, using the property rights paradigm can be very helpful in ameliorating these problems. A government entity, perhaps a local municipality or some other form of local government, can establish transferable pollution rights which represent the right to discharge a certain amount or type of air pollution. Through the democratic process the degree of pollution that an area is willing to accept is agreed upon. Again, this is unlikely to be zero, since the process of pollution accompanies many economic activities that have positive benefits.

Once the acceptable degree of air pollution is agreed upon, these rights should be made transferable and can be sold or granted to existing factories. Then, if a factory can reduce its pollution below the level for which it has a permit, it has a salable right. If a new factory wants to enter the area it must purchase the right from existing owners. By making these rights to pollute transferable, new development is not prevented, and yet the level of air pollution is stabilized.

It is important to contrast the concept of transferable property rights with the command and control techniques often used in industrialized economies. These techniques usually specify the actual type of pollution control technology that should exist. However, technology is not static and therefore efforts to determine the best pollution control methods by law are likely to lock a society into technologically outmoded techniques. Also, such command and control methods leave little room for entrepreneurial innovations and little incentive for producers to do more than simply install the mandated technology. It is far better to recognize that it is the pollution itself that one wants to control and to do that through establishing property rights rather than by mandating particular technological fixes.

The water and air case studies are but two examples of how the property rights paradigm can work. It is important in all of this to remember that what one wants is a set of rules that hold people accountable for their actions. Such rules allow people to capture benefits when they make decisions that advantage others in society, and also hold people accountable when they impose costs on others. A legal framework that defines, enforces, and makes transferable property rights accomplishes these goals. Therefore, as Bulgaria moves to a regime of private property rights, it must think seriously about extending those rights into areas where environmental problems exist. Some patience is in order because until the private property market economy is in place, it will be difficult to know exactly which pollution problems that have come into existence in the past will continue in the future.

Despite the need to wait for a restructuring of the economy, it may be necessary to institute some immediate measures dealing with pollution problems. In some cases the air and water pollution represent such a danger that it is probably not appropriate to wait for all economic reforms to take place. It may also be important to institute some reforms to indicate to the population that the government views pollution as a significant issue that will be dealt with effectively. In the short term it might be wise to simply deal with a certain number of the most pressing sources of pollution immediately. For instance, Parliament could establish a commission to determine the five most significant sources of pollution in Bulgaria and then close them. Since there is an excellent chance that these will be subsidized forms of production, such a closing may actually also advantage the economy.

In the privatization process these factories could be sold with the understanding that they could only be reopened with a specified level of emission. In other words, some of the air pollution rights that are created could be attached to these factories, but they would not be allowed to return to their previous level of pollution.

Finally it is important to remember that with regard to the environment as with all other aspects of life, trade-offs exist. Neither maximum production without attention to pollution problems, nor maximum safety or complete environmental purity, is possible. Instead, a mechanism must be put into place that allows the Bulgarian citizens to effectively choose both environmental quality and the appropriate level of goods and services. Extending property rights to all resources including air and water, and then allowing the market process to move those resources to their highest valued use, accomplishes this goal.

Notes

1. Garrett Hardin. 1968. The Tragedy of the Commons. Science, 162: 1243–1248.
   
   
2. Marshall I. Goldman. 1973. Growth and Environmental Problems of Noncapitalist Nations. Challenge, July–August.
   
   
3. Jane S. Shaw and Richard L. Stroup. 1988. Gone Fishin’. Reason, August–September.
   
   
4. However, this depends on whether the pollution is from point or nonpoint sources. If it is from point sources then the problem is much more tractable. Technology makes it possible to require each polluter to identify their effluent with a particular inert chemical tracer. Then it is possible to estimate the amount of damage from each source.