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The diesel scandal is the latest own goal for dirigisme

This is a longer version of an article I published in the Mail on Sunday:


The Volkswagen testing scandal exposes rotten corruption at the core of regulation. Far from ushering in a brave new world of cleaner air, the technologies adopted by European car makers, driven by policy makers in Brussels, have been killing thousands of people a year through an obsession with lowering emissions of harmless carbon dioxide, at the expense of creating higher emissions of harmful nitrogen oxides.


There is a lesson here that goes much wider than the car industry, the clean-air debate and even the regulation of business. The scandal is a symptom of the political world’s obsession with directing and commanding change, rather than encouraging it to evolve.


The great European switch to diesel engines was a top-down decision as a direct result of exaggerated fears about climate change. Convinced that the climate was about to warm rapidly, and extreme weather was about to get much worse, European governments signed the Kyoto protocol in 1997 and committed to reducing emissions of carbon dioxide in the hope that this would help. In the event, the global temperature stopped rising for 18 years, while droughts, floods and storms also showed no increase.


But in 1998, urged on by EU transport commissioner Neil Kinnock, welcomed by environment secretary John Prescott and acted on by chancellor Gordon Brown, Britain happily signed up to an EU agreement with car makers that they would cut carbon dioxide emissions by 25% over ten years. This suited German car makers, specialists in Rudolf Diesel’s engine design, because diesel engines have 15% lower CO2 emissions than petrol engines.


The EU agreement was “practically an order to switch to diesel”, says one clean-air campaigner. As subjects of Brussels, Britain obediently lowered tax on diesel cars, despite knowing that they produce four times as much nitrogen oxides as petrol, and 20 times as many particulates, both bad for human lungs.


The story is almost a textbook case of why top-down regulation can be so dangerous. It lets single-issue pressure groups set targets with no thought to collateral damage, and imposes regulation that inevitably gets captured by those with a vested interest. Regulation also often stifles innovation. We may never know just how much innovation in cleaner petrol engines was prevented.


What is more, this is becoming a repetitive story. Almost every policy adopted to fight climate change has been a disaster, doing more harm than good.


Diverting agricultural crops into making ethanol or diesel to feed motor cars rather than people forces up the price of food, kills approximate 200,000 extra people a year and increases pressure on the rain forest.


Burning wood instead of coal in power stations has devastated forests and actually increased CO2 emissions: wood emits more CO2 per unit of energy generated even than coal and the argument that this does not matter because trees eventually regrow is unpersuasive.


Subsidising windmills has raised the price of energy, rewarded the rich, killed eagles and gannets, polluted Chinese waterways with effluent from rare-earth refining, and increased energy poverty – all without making a significant difference to emissions.


And now we know that giving tax breaks to diesel cars has made urban air quality worse than it would otherwise have been, killing possibly 5,000 people a year in this country alone. These were all mistakes made by people who thought they knew best.


In my new book The Evolution of Everything, I explore and expose the pervasive myth that the human world always requires top-down planning and centralized command and control. To say there is too much dirigisme in the world is not the same as saying there should be none. But we are too ready to reach for top-down solutions, which often have perverse consequences, rather than trusting and encouraging people to evolve solutions among themselves.


Vital and sophisticated aspects of human society work beautifully without anybody being in charge. The English language has no director-general. The internet is a wholly unplanned thing, with nobody in charge. The world economy has emerged through trade and innovation, with no central committee. Planned economic systems have been unmitigated catastrophes for ordinary people (though nice for elites) wherever they have been tried.


As Frederic Bastiat put it in his 1850 book Economic Harmonies, how would one even contemplate setting out a plan to feed Paris, a city with hordes of people with myriad tastes? It is impossible. Yet it happens, without fail, every day (and Paris has a still vaster population today, with more eclectic taste in food).


There is a close parallel with evolution here. The feeding of Paris, the ecosystem of a rain forest and the working of the human eye are equally complex manifestations of order. But in no case is there a central commanding intelligence. The knowledge of how to make it work is dispersed among millions of people, organisms or genes. It is decentralised. Just as creationists insist that the structure of the human eye reveals the intentions of a deity, so many of us are economic and social creationists who think governments run countries.


As so often, Adam Smith got there first, saying in The Wealth of Nations, in 1776: ‘The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.’


In Parliament, I regularly see how colleagues in all parties think almost without exception that the purpose of legislation is to command not just the outcome but the means of social and economic change, rather than to create the conditions under which people work out their preferred solutions for themselves.


Dirigisme often does real harm. Telling people to eat less fat, based on a few dodgy studies in the 1950s that purported to find a link to heart disease, has probably worsened obesity by encouraging high-carbohydrate food. Discouraging electronic cigarettes, in the demonstrably wrong belief that they increased rather the decreased smoking, is slowing progress in the fight against smoking. Deliberately mandating that banks and government-sponsored enterprises (Fannie Mae and Freddie Mac) make or purchase sub-prime loans, as Bill Clinton and George Bush both did as a way of trying to raise home ownership among ethnic minorities, was a major contributor to the crash of 2008.


Equating order with control retains a powerful intuitive appeal, as the American social theorist Brink Lindsey has pointed out: ‘Despite the obvious successes of unplanned markets, despite the spectacular rise of the Internet’s decentralized order, and despite the well-publicized new science of “complexity” and its study of self-organizing systems, it is still widely assumed that the only alternative to central authority is chaos.’


The Paris conference on climate this December will be a perfect example of dirigisme at its worst. Instead of trying to impose on the world a set of top-down targets for reducing emissions, when those targets cannot possibly be achieved with today’s technologies without badly hurting poor people, and when those targets will create perverse incentives that will make the Volkswagen scandal look like a picnic, governments should be supporting bottom-up research into new energy technologies with open minds about what might emerge.


By Matt Ridley | Tagged:  rational-optimist