Alternative Economic Review No. 3: The tragedy of the so-called ‘commons’
The global economic crisis
from a non-neoclassical viewpoint
The tragedy of the so-called “commons”
There is no such phenomenon as the “tragedy of the commons”. The phenomenon that is usually called by that name arises because the so-called “commons” are treated not as belonging to all, but as belonging to no one — in other words, because they are not commons at all.
Consider an area of pasture (the so-called “common”) surrounded by a number of small farms. Each farmer may grow crops only on his own farm, but may graze his cattle on the “common” free of charge. The total yield from grazing is maximized by a certain total number of cattle, hence by a certain number of cattle per farmer. But if one farmer grazes more than the optimum number per farmer, the increase in his yield due to the larger number of cattle belonging to him outweighs the decrease in his yield due to the reduced yield per head of cattle. If every farmer thinks that way, they all lose due to overgrazing.
Contrary to the standard terminology, this situation is not a tragedy of the “common”, because there is no common to speak of. If the grazing land were really treated as common property, each farmer who grazed cattle on that land would be required to compensate the other farmers (co-owners) for the reduction in their grazing opportunities. In the absence of such compensation, the pasture is treated not as common land (terra communis) but as no man's land (terra nullius). Therein lies the real cause of the tragedy.
True common ownership of the pasture could be arranged as follows. The farmers form an association which charges a rent for the right to graze each animal on the common, and distributes the rent among the members. Those farmers who exercise grazing rights pay the rents and get the yield. Those who don't exercise their rights receive the value of those rights in the form of rent shares, with which they may purchase products from those who do exercise grazing rights. The only judgment that the association needs to make is how much rent to charge in order to produce optimal use of the common.
The modern privatization movement refuses to acknowledge this option, and instead recommends that the common be handed over to some private entity, which shall have the exclusive right to graze cattle or to charge others for doing so. The dispossession of the farmers is deemed not to matter, because the initial distribution of grazing rights does not affect the incentive to use those rights efficiently. This is an illustration of the celebrated Coase theorem, whose discover was awarded the Nobel Prize in Economics for showing that justice, although inconveniently compatible with efficiency, is not a necessary condition for efficiency. Coase's theorem is the retrospective justification for the British enclosure movement, by which grazing rights were transferred from the peasantry to the gentry with only token compensation — except that, according to the theorem, there was no need for the token compensation.
The privatization movement — that is, the modern enclosure movement — pretends that the only alternative to privatization of the “commons” is government ownership or control. This too is incompatible with common ownership or common rights, and is more correctly called collectivization. When a right is common, anyone may exercise it, subject only to the protection of everyone else's equal rights. When a right is collective, the government exercises it or determines who may exercise it.
When freedom of speech is a common right, anyone may say anything subject only to the protection of other people's equal rights (including, but not limited to, freedom of speech). When freedom of speech is a collective right, the government determines what may be said and who may say it. When freedom of speech is a private right, private entities determine what may be said and who may say it.
When access to land is a common right, anyone may use any piece of land subject to compensation for the encroachment on other people's equal rights; the compensation is by payment of the rental value of the land into a common fund which is distributed through a citizens' dividend and/or public services. When access to land is a collective right, the government determines who, if anyone, may use each piece of land and for what purpose and at what price. When access to land is a private right, some private entity determines who, if anyone, may use each piece of land and for what purpose and at what price.
In each case, notice that collective rights and private rights are more similar to each other than to common rights. By collectivizing a sufficient range of rights and calling them common rights, one can establish a Stalinist state with a name like “Democratic People's Republic of Korea”. And by pretending that the only alternative to collectivization is privatization, one can establish a similar degree of despotism under the guise of property rights.
If access to land were treated as a common right, the benefits of public infrastructure, which are manifested as uplifts in the rental values of land, would be paid into a common pool and consequently made available to amortize the cost of the infrastructure. If access to land were partly treated as a common right, there would be a partial pooling of uplifts in rent, which would still be sufficient to finance a wide variety of infrastructure projects, while the uncollected portion of the uplifts would be windfall gains to the land owners — who, if they were at all rational, would enthusiastically support such an arrangement. But because land is almost completely privatized, the collection of uplifts in rental values is minimal, with the result that infrastructure is under-funded and under-provided. Thus, while there is no such thing as a tragedy of the commons, there is certainly such a thing as a tragedy of privatization. And the private owners are the losers.
The U.S. subprime debacle received much attention from this month's contributors. Stewart Hsu apparently takes comfort because, as his headline puts it, “Sam Zell says Subprime Crisis ‘Manageable’”. More precisely, Sam Zell says it is “very, very unlikely” that the crisis will spread as long as unemployment remains below 5.5%. But a graph reproduced in the same article shows that unemployment exceeded that rate after the NASDAQ meltdown. Numerian at The Agonist complains that debt has been confused with liquidity, and that the U.S. Federal Reserve is lending to other banks on increasingly dubious collateral, thereby damaging its own credit-worthiness as other banks have damaged theirs. In “Ben Stein vs. Goldman Sachs: Market-Makers, Brokers, and Trusted Advisors”, Charles H. Green at Trust Matters debates the ethics of hedging the same products that one is selling (and defines the terms in his title). Kurt Brouwer at Fundmastery Blog notes that enforcement actions against Bear Stearns were recommended as early as 2005, but not pursued, and asks “Could The Subprime Lending Crunch Have Been Averted?” If earlier performances of regulators are any guide, the answer seems to be negative.
The U.S. dollar's status as the de facto international currency led to overvaluation, hence a trade deficit, hence an oversupply of dollars held by foreign central banks (the dollar glut), hence falling confidence in the dollar. Given that the value of the dollar must fall and that no country wants to be left holding worthless dollars, we might expect a rush for the exits. To the contrary, those countries whose export markets depend on a high dollar will want to keep the dollar as high as possible for as long as possible, and may already have accepted the devaluation of their dollar reserves as the price of modernizing their export industries, in which case the “rush for the exits” will be limited and the dollar's decline and fall will be more gradual. Doug Boggs of Boggs Development Group LLC expects a gradual devaluation and accepts it as the price of rebalancing U.S. trade, as he explains in “The Dollar vs. the Euro?” But even a gradual devaluation would have long-term implications for the U.S. standard of living, and the extent of the devaluation will depend on whether key commodities, notably including oil, continue to be traded for dollars. These observations may or may not explain why Mr. Bogg introduces his argument with the words “Without going into any conspiracy theories and such...”
Stirling Newberry doesn't need conspiracy theories either; but his view is less sanguine. For about three years in the late 1990s, the U.S. economy enjoyed a period of low inflation and low volatility of inflation. As there has been no such period since then, the next recession will be more severe than the last — as Newberry explains in “Dancing On a Volcano” at The Agonist. “Think of this as the 1975 recession,” he warns: ”bad, but only the opening act for the destabilization of a massive dollar glut.”
This month's Contributor Who Just Doesn't Get It is Timothy Moreland at timmorelandonline, who calls himself a “Libertarian” and offers an article headed “Protecting the Environment: The Answer is Freedom”, in which he concludes that the coercive power of the State should be used to expropriate pollution rights from the general population and sell them to businesses, and likewise to expropriate fishing rights from the general population and divide fisheries into zones, each of which is assigned to a private owner. Needless to say, these measures would have to be enforced by criminalizing anyone who pollutes or fishes without having or purchasing the appropriate rights. But all this coercion is apparently perfectly Libertarian because it creates free markets in pollution rights and fishing rights. “Instead of determining a set level for pollution,” Moreland writes, “governments can utilize tradable pollution rights. A certain amount of permits are created...” Never mind that the creation of the permits involves determining a set level for pollution. “Unfortunately, regulations require too much guesswork as to the appropriate amount of pollution and the cost of reducing pollution to businesses,” he adds. Never mind that the establishment of a pollution-rights-trading scheme requires exactly the same guesswork in deciding the total quantity of rights to be issued. In explaining overfishing as a “tragedy of the commons”, Moreland complains that “No one owns the fish,” thus implying that they are not “commons” at all. And among all the regulatory methods by which governments have allegedly tried and failed to control pollution and overfishing, Moreland never mentions pollution taxes, which truly treat the environment as a common, or fishing royalties, which truly treat fisheries as commons; the regulations that he attacks are all assertions of collective rights, not common rights. Such are the absurdities that follow when non-property is misrepresented as common property.
Articles for the next edition of Alternative Economic Review (published January 30, 2008) may be submitted via the carnival submission form. Information on future editions can be found on the index page for this carnival. For further submission guidelines, see the carnival homepage.
[First published at gavonomics.blogspot.com. Edited Dec.27, 2007. Relocated Nov.13, 2009.]