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The
Natural Advantage of Nations (Vol. I): Business Opportunities,
Innovation and Governance in the 21st Century
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 This
book is about innovation, solutions, competitiveness
and profitability. It is also about building environmental
integrity and sustainability now and for future generations.
It draws a bold vision for the future and tells us
how to get there by building on the lessons of competitive
advantage theory and the latest in sustainability,
economics, innovation, business and governance theory
and practice. The authors incorporate innovative technical,
structural and social advances, and explore the role
that governance can play in both leading and underpinning
business and communities in the shift towards a sustainable
future. The result is nothing less than the most authoritative
and comprehensive guide to building the new ecologically
sustainable economy. (more...)
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Chapter
11 (Part 2) - The Tragedy of the Commons: 35 years
on
Another
situation where markets fail to distribute resources
efficiently is where it is impossible, or at least
very costly, to deny access to an environmental
asset. In a situation where many have access to
the same limited resource (usually referred to as
a common-pool resource), there is an incentive for
each consumer to acquire as much of that limited
resource as possible, before others do. If all users
restrain themselves then the resource has the best
chance of being sustained. However, if you limit
your extraction of the resource and the others do
not, then the resource will still run out and you
will have been penalized by not getting your fair
share. In these situations there is a tremendous
incentive to overuse natural resources. In this
case the market has failed to signal the real scarcity
of the asset: the invisible hand of the market does
not work to provide for the maximum social good
for present and future generations. This has been
understood for a long time, and was greatly popularized
by Garrett Hardin’s (1968) article entitled,
‘The Tragedy of the Commons’. Hardin
asserted that users of a common resource will ultimately
destroy the resource on which they depend unless
the market failure is addressed.
Hardin’s paper is one of the most cited papers
of the last 40 years.[15]
He described the process of writing the paper as
follows:
With Adam Smith’s work as a model, I had
assumed that the sum of separate egoserving decisions
would be the best possible one for the population
as a whole. But presently I discovered that I agreed
much more with William Forster Lloyd’s conclusions,
as given in his Oxford lectures of 1833. Citing
what happened to pasturelands left open to many
herds of cattle, Lloyd pointed out that, with a
resource available to all, the greediest herdsmen
would gain … for a while. But mutual ruin
was just around the corner. As demand grew in step
with population (while supply remained fixed), a
time would come when the herdsmen, acting as Smithian
individuals, would be trapped by their own competitive
impulses. The unmanaged commons would be ruined
by overgrazing; competitive individualism would
be helpless to prevent the social disaster. So must
it also be, I realised, with growing human populations
when there is a limit to available resources…
I scribbled in the changes, most notably the suggestion
that the way to avoid disaster in our global world
is through a frank policy of ‘mutual coercion’,
[that is] mutually agreed upon. Under conditions
of scarcity, ego-centred impulses naturally impose
costs on the group, and hence on all its members.
Hardin writes about an example closer to home:
think of what is happening to the freedom to
make withdrawals from the oceanic bank of fishes.
In 1625, the Dutch scholar Hugo Grotius said, “The
extent of the ocean is in fact so great that it
suffices for any possible use on the part of all
peoples for drawing water, for fishing, for sailing”.
Now the once unlimited resources of marine fishes
have become scarce and nations are coming to limit
the freedom of their fishers in the commons. From
here onward, complete freedom leads to tragedy.
(And still the shibboleth, “the freedom of
the seas”, interferes with rational judgment.)
... Its [‘The Tragedy of the Commons’]
message is, I think, still true today. Individualism
is cherished because it produces freedom, but the
gift is conditional: the more the population exceeds
the carrying capacity of the environment, the more
freedoms must be given up. As cities grow, the freedom
to park is restricted by the number of parking meters
or fee-charging garages. Traffic is rigidly controlled.
On the global scale, nations are abandoning not
only the freedom of the seas, but also the freedom
of the atmosphere, which acts as a common sink for
aerial garbage. Yet to come are many other restrictions
as the world’s population continues to grow.[16]
The outcome of Hardin’s and others’
work was a deeper understanding that most market
failures with environmental assets can be linked,
in one way or another, to the failure or inability
of institutions to establish well defined property
rights. For example, many people own land and are
able to take action to repair any damage done to
it. However, people generally do not own the rivers,
the oceans, forests or air through which significant
pollution can travel. It is our inability to provide
clear and well defined property rights for clean
air, rivers and oceans that make it difficult for
a market to exist, such that people downstream from
pollution cannot halt the harm that industry does
to them upstream. Hardin’s paper was also
important because it recognized, for the first time,
that nearly all environmental issues have aspects
of the commons in them. The difficulty with the
tragedy of the commons, in assigning property rights
such that a complete set of markets could be created,
is that it provides an excuse for governments to
intervene, for example, by creating new property
rights. The notion that problems of externality
can be simply solved by redefining property rights
is known as Coase’s theorem. Nobel Laureate
Ronald Coase, from the Chicago Law School, argues
that government should simply reapply property rights.
He argues that if property rights are well designed
then the market will take care of externalities
on its own.
Take the example of fishing. Modern efficient vessels
trawl the sea catching significant loads of fish.
These highly efficient boats, combined with modern
commercial fishing methods, allow trawlers to rapidly
catch large numbers of fish. The free market wards
companies for the efficiency with which they can
catch large volumes of fish. In addition, every
trawler knows that the more fish other fishermen
catch the less there is for them. Hence, there are
real incentives to overfish sites so as to not allow
competitors to gain an advantage. However, this
can easily go too far, to the point where the fish
stocks cannot replace themselves. If the government
were to re-design property rights and grant those
rights to a single independent body responsible
for managing the public commons, such a body could
then have every incentive to ensure fishing did
not irreversibly damage the ecology for future generations.
Such a body could coordinate with other government
bodies’ research to monitor the health of
the ecosystem, and provide licences to respective
fishing companies with limits on the amount and
types of fish that could be caught. In principle
this could be designed to eliminate the externality
and to ensure that the long-term health of the marine
and ocean ecosystems were looked after as well as
the short-term profits of fishing companies. What
matters is having well defined property rights.
Simply redesigning property rights, whilst appealing
in terms of minimal government intervention, is,
in practice, very hard to do; the costs of reaching
an agreement can be high, particularly when large
numbers of individuals are involved. Consequently,
the major policy innovation in many countries, particularly
developing ones, has been legislation, more specifically
that transferred forests, pasture land, in-shore
fisheries, and other natural resources from their
previous property rights regimes to government ownership.[17]
Extensive research and experience since 1968 shows
that these transfers of property rights were sometimes
disastrous for the resources they were intended
to protect. Instead of creating a single owner with
a long term interest in the resource, as a result
of corruption in particular, nationalizing common
pool resources sometimes led to:
• the poor treatment of indigenous tribes,
and even making illegal the actions of these traditional
stewards to sustain their resources;
• poor monitoring of resource boundaries and
harvesting practices; and
• de facto open access and a race to use the
resource.
Thus, in practice, many governments failed to do
better than the market.
By the mid 1980s, questions were increasingly being
asked. Scholars familiar with the quantitative case
study literature in Africa, Latin America, Asia
and the US were beginning to point out that the
policy reforms that transformed natural resources
from governance, as a common property by local communities,
into state governance were actually making things
worse for the resource, as well as the users. The
governments that took these actions frequently did
not have enough trained personnel on the ground
to monitor the resources. Thus, what had been a
de facto common property, with some limitations
on access and use patterns because of de jure government
property frequently became de facto open access,
due to lack of enforcement. Corrupt police officials
also turned a blind eye to greed and finite resources.
It is often said that in understanding the problem
we are half way to solving it. However, in the case
of the tragedy of the commons that has not been
the case. In practice, in the real world, the problem
of externality it is still a very difficult and
complex problem to solve.
Having
said that, leading writers in the field, such as
Elinor Ostrom, are optimistic that after 35 years
we do have solutions and answers.[18]
Experts are cautiously hopeful, pointing to examples
where individuals and groups of Common Pool Resource
(CPR) users have come together to forge their own
solutions, rather than waiting for governments or
other institutions to impose rules and regulations.
The authors emphasize that one of the most important
lessons learned from empirical studies of sustainable
resources is that more solutions exist than those
proposed by Hardin. Ostrom stated recently that,
‘Hardin’s work was originally understood
to say that unless you have private ownership of
resources, or government control of them, environmental
tragedy is inevitable. That was an overstatement.
There are situations where that does apply, but
it is limited. It applies to situations where there
is so much distrust, and communication is so costly,
and people see so little benefit to solving environmental
problems that they are, effectively, trapped.’
Government ownership and privatization are themselves,
however, subject to failure in some situations.
For instance, experts cite satellite images of northern
China, southern Siberia and Mongolia that reveal
the effects of different approaches to management
of grazing lands. In contrast to the state-owned
strategies of Russia and China (the latter having
more recently also tried privatization), Mongolia’s
traditional group-property system has resulted in
much less degradation of grasslands. While no single
property rights system will be successful in managing
every type of common pool resource, the authors
agree that it is possible to identify certain ‘design
principles’ that have been employed in the
efficient governance of CPRs. Some of the factors
that come into play include:
• the variety and proportion of behavioural
types among the users of a CPR;
• how well these users are able to communicate
with one another;
• the perceived value of the resource and
the benefits of preserving it; and
• the extent to which the users are able to
monitor the quality of the resource and enforce
rules and sanctions.
‘There is a huge body of literature that documents
where people have overcome these CPR problems,’
Ostrom says. ‘In the end, building from the
lessons of past successes will require forms of
communication, information and trust that are broad
and deep beyond precedent, but not beyond possibility’.[19]
Some of the most important recent case studies of
community involvement with the development of regulation
are the Florida Everglades,[20]
The New York Water crisis[21]
and Canada’s Coastal Action Program.[22]
Also, in Australia recently, significant progress
has been made on addressing water rights and trading
schemes. This will be discussed in detail in Section
4. In 2002, Ostrom and colleagues completed a major
online book, published by the National Academy of
Sciences, US, that provides a lay summary of the
lessons of the last 35 years of work on the tragedy
of the commons.[23]
Given that Science magazine has also published
Tragedy of the Commons; A Special Issue,
on 12 December 2003, we highly recommend these for
those looking for greater detail. Essentially, there
is now general agreement that most externalities,
such as those concerning the environment, require
a wide range of approaches, partnerships and government
mechanisms to be employed. As David Roodham wrote
in Natural Wealth of Nations, ‘Achieving
a truly sustainable economy involves a variety of
approaches.’[24]
Roodham
continues to say that ‘To achieve a transition
to a genuinely environmentally sustainable economy
(dramatically reduce these negative externalities)
will take nothing less than an eco-industrial revolution,
a sweeping and complex process that defies government
planning. Unlike today’s essentially throwaway
economy, a sustainable economy will recycle materials
the way a healthy ecosystem does, draw energy from
renewable sources, and use all its resources much
more efficiently. Bringing resource usage down to
environmentally sustainable levels and sharing the
quota among a global community of 10 billion affluent
people calls for resource productivity improvements
of an order of magnitude or more. Averting climate
change will require the industrial countries to
cut carbon emissions by 90 per cent (A Factor of
10). Environmental progress depends on accelerating
the development of new, clean technologies, a process
of discovery that is intrinsically unpredictable.
No agency can plan it. Markets on the other hand,
excel at engineering systemic change. Markets made
the industrial and digital revolutions possible.
Properly harnessed, they can also guide the next
industrial revolution towards environmental sustainability.’
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References
15.
Whilst Hardin's paper (Hardin, G. (1968) 'The Tragedy
of the Commons', Science, vol 162, issue
3859, 13 December, pp1243-1248) provides the catalyst
for recent work in this area, for centuries philosophers
have commented on it. Even Aristotle wrote that 'What
is common to the greatest number has the least care
bestowed upon it. Everyone thinks chiefly of their
own interest'. (Back)
16.
Hardin G. (1998) 'Extensions of 'The Tragedy of the
Commons', Science, vol 280, issue 5364, 1
May, pp682-683. (Back)
17.
Arnold, J. and Campbell, J. (1986) Collective
Management of Hill Forests in Nepal: The Community
Forestry Development Project, National Research
Council, Proceedings in the Conference on Common Property
Resource Management, National Academy Press, Washington
, DC. (Back)
18.
Becker, C. and Ostrom, E. (1995) 'Human Ecology and
Resource Sustainability: The Importance of Institutional
Diversity', Annual Review of Ecology and Systematics,
vol 26, pp113-133; Ostrom, E. (1986) 'How Inexorable
is the "Tragedy of the Commons?" Institutional Arrangements
for Changing the Social Structure of Social Dilemmas',
presented at a Faculty Research Lecture, Office of
Research and Graduate Development, Indiana University
, 3 April. (Back)
19.
Ostrom, E., Burger, J., Field, C., Norgaard, R. and
Policansky, D. (2003) 'Revisiting the Commons: Local
Lessons, Global Challenges', Science, 9 April.
(Back)
20.
Milton, J., Kiker, C. and Lee, D. (1997) 'Adaptive
Ecosystem Management and the Florida Everglades: More
than Trial-and-Error?', Journal of Agriculture
and Applied Economics, vol 29, July, pp99-107.
(Back)
21.
Gandy, M. (1997) 'The Making of a Regulatory Crisis,
Restructuring New York's Water Supply', Transactions
of the Institute of British Geographers , New
Series vol 22, no 2, pp338-358. (Back)
22.
Ellsworth, J., Hildebrand, L. and Glover, E. (1997)
'Canada Atlantic Coastal Action Program: A Community
Based Approach to Collective Governance', Oceans
and Coastal Management, vol 36, nos 1-3, pp121-142.
(Back)
23.
Ostrom, E., Dietz, T., Dol_ak, N., Stern, P., Stonich,
S. and Weber, E. (eds) (2002) The Drama of the
Commons, Committee on the Human Dimensions of Global
Change, Division of Behavioural and Social Sciences
and Education, National Research Council, National
Academy Press, Washington, DC. (Back)
24.
Roodman, D. (1999) The Natural Wealth of Nations:
Harnessing the Market and the Environment, Worldwatch
Environment Alert Series, WW Norton, New York/Earthscan,
London.
(Back)
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