by Filip Palda
Sometimes property is impossible to assign and the consequences of that may be the devastation of some natural resource. As H. Scott Gordon writes, “Significantly, land tenure is found to be ‘common’ only in those cases where the hunting resource is migratory over such large areas that it cannot be regarded as husbandable by the society” (page 134). In 19th century America, close to a hundred million buffalo roamed the Plains. Much of the Plains was unclaimed, and even the parts that were claimed could not contain the buffalo. Property rights were impossible to assign. Railroads reached the plains in the 1870s and brought with them hunters who would kill as many buffalo as possible and ship their hides back east by rail, and farmers who used the new invention of barbed wire to block the buffalo from their lands. By 1876, the buffalo were nearly extinct. The loss of nearly a hundred million buffalo in a few years was clearly not to the advantage of hunters. Rather than slaughtering hundreds of head a day, the hunter might have preferred to keep the buffalo in captivity where he could exploit them at his or her leisure, not just the skin, but also the meat and bones and the potential to generate offspring. This is the strategy of cultivation that modern farmers seeking to revive the buffalo have adopted, and in so doing they have multiplied the buffalo to levels unimagined by Theodore Roosevelt, the first American president to take nature conservation seriously. Yet without the property rights that would allow them to take a long-term view of the buffalo, hunters had no choice but to slaughter the entire herd.
The buffalo were victims of the pernicious logic of the prisoner’s dilemma, which, as we have seen, allows collective insanity to percolate out of the rational behaviour of individuals. Any show of restraint by one hunter might not have been matched by other hunters. Hunters who might have cared about the future of the buffalo were pushed to behave like out-of-control predators for fear that others might profit from their restraint. All hunters might have wanted to preserve the herd, but none could afford to act in a way that would do so. As H. Scott Gordon wrote
The blade of grass that the manorial cowherd leaves behind is valueless to him, for tomorrow it may be eaten by another’s animal; the oil left under the earth is valueless to the driller, for another may legally take it; the fish in the sea are valueless to the fisherman, because there is no assurance that they will be there for him tomorrow if they are left behind today” (page 135).
Without some mechanism to bind the separate strands of their interests into a common strategy, the unregulated pursuit of individual self-interest leads to a devastation of the common property resource that no one would have wished for. Such is the essence of the prisoner’s dilemma. Garret Hardin called this senseless squandering of resources that arises from the prisoner’s dilemma “the tragedy of the commons” and laid down a challenge to researchers: figure out a practical means by which to avert this tragedy. A group of thinkers mixing mathematics, economics, sociology, and jurisprudence took up the challenge. They included political scientist Elinor Ostrom, who won a Nobel Prize in economics for her efforts. Inspired by Gordon and Hardin, they compiled a large number of case studies showing how small groups of people learned to cooperate to avoid the tragedy of the commons. They discovered that in small groups, community censure, local mores, intermarriage, clan loyalty, and friendship are all reasonably successful attempts to conquer the prisoner’s dilemma and its manifestation in the despoliation of nature. The trick in all these cases is to devise some means by which people can take into account the long-term consequences of their actions on others—and vice versa.
Despite their initial enthusiasm, the researchers found that these informal solutions quickly break down as the size of the group increases and people lose touch with each other. In small groups your peers hold you to account. In large groups there are few peers. In large societies laws governing the protection and exchange of property are what hold people to account. Private property eliminates the tragedy of the commons by its permanence, the very thing that was lacking in relations between hunters of the buffalo. Property rights carry with them a guarantee that the terms of some agreement, such as a lease, will not change even if the identity of the lessor or lessee changes. Nor will the terms change if the lessor decides to threaten the lessee. Contracts and the impartial protection of the law give stability to relations between people moderated by property. Such stability was absent from relations between buffalo hunters because of the transient and lawless nature of their venture.
Taming the tragedy of the commons was the first great challenge governments faced on the road to modernity. The commons in question were to some extent forests and lakes, but far more importantly, the land that peasants tilled, and the income that city dwellers earned. In his fascinating book, Violence in Early Modern Europe 1500-1800, Julius Ruff describes how brigands and soldiers preyed on these riches almost without restraint, as would hunters exploiting a common property resource. Much of the devastation of property was due not to foreign invaders, but to one’s own military. Until the late 17th century, governments had difficulty feeding and housing their armies. A military campaign did most of its damage off the battlefield by the disorganized and destructive manner in which soldiers foraged for their food, either in foreign lands or while tearing out a vegetable garden while billeted in a private home.
A Dutch painting from this period entitled Peasant Sorrow by David Vinckboons shows soldiers glutting themselves at the expense of peasants looking on in shock. A second painting entitled Peasant Joy shows these same villagers armed with axes and bug-eyed with rage driving the military moochers from their homes. When predation by armies intensified, peasants became disheartened with tending fields that had essentially become common property. The logic of the prisoner’s dilemma drove entire communities to join bands of brigands, which in turn compounded the common property problem. During the Thirty Years’ War, large parts of Germany and central Europe became, in essence, a vast common property resource in which everything was for everyone’s taking. Tales from these times speak of famine and plagues that spread amongst populations debilitated by starvation.
Historian William McNeill suggested in his book Plagues and Peoples, and its sequel, The Pursuit of Power, that through most of history, armies resembled an endemic disease, perpetually weakening and slowing the progress of their own societies. Governments began to control this disease by diverting the predatory tendencies of their armies away from their own people. Durable foods that could be carried on the march, such as smoked meats and compact high-calorie meals, kept the military “disease-parasite” from feeding on local populations. So did the military invention of canned food. Financial innovations allowed government to contract with private suppliers who could meet an army at regular points on its route. Administrative advances allowed quartermasters to organize long baggage trains that carried tents and fuel so that armies could maintain their soldiers in the field rather than billeting them in private houses. Between wars, governments learned that housing soldiers in barracks was less expensive in the long run than the destruction and ill will wrought by traditional systems of billeting. By being open to advances in learning that allowed them literally to remove their armies from the fields, governments of the 18th century created vast zones of stable private property for perhaps the first time since the Roman Empire. The enhanced protection of property allowed entrepreneurs to exploit advances in both production and agricultural technology and eventually helped the industrial revolution.
The benefits of inefficient government
In almost every instance where government stepped in to avert the tragedy of the commons, it did so because of technological advances in administration and measurement. Any government that was acting coherently and was not itself in the grips of the prisoner’s dilemma sought to tame whatever tragedy of the commons it could whenever the means arose, simply because of the money amounts involved. Initially governments tried to become proprietors, making forests and some cities royal preserves, but as techniques of taxation evo
lved it made more sense to leave newly defined and protected properties in the hands of private individuals. The private sector specialized in developing the former common property whilst government specialized in its coercive function of collecting taxes. Direct money profits, rather than the diffuse and hard-to-measure benefits of public goods drove governments to tame the commons.
The search for enhanced tax revenues, which led to the closing of the commons, meshed the interests of despotic governments quite nicely with the interests of citizens. This confluence of interests revealed why it makes sense for governments to divest themselves of the management and financing of resources whenever possible. The reason for wishing government to convert the commons to private property, when technology allows, rests on the principle of the division of labour. The division of labour is an insight often attributed to Adam Smith, but is of much older intellectual lineage. It states that identical workers in some cooperative venture can increase their efficiency in ways mutually profitable to both if they are allowed to specialize in circumscribed tasks.
Smith gave the example of pin makers, some of whom focused on making the head of the pin while others focused on the body. By limiting themselves to narrow tasks and becoming good at them, a cooperative of workers could produce far more than if each worker had to produce the entire pin by himself. The gains in efficiency from dividing labour would be even greater if each worker was born with some innate, focused ability which exceeded that of others. Smith’s insights are general enough for our purposes to be applied beyond the factory floor. The most obvious implication is that there are gains to society from allowing government and the private sector to specialize in different activities. What distinguishes government from the private sector is that government can dictate how people must act, whereas the people in the private sector must rely on persuasion, perhaps by means of an institution such as property. Smith would say, allow government to specialize in the manipulation of coercive power while allowing the private sector to specialize in persuasion.
A government whose objective was Pareto efficiency would specialize in finding coercive methods that best allow people to pursue their own interests while not harming others. The private sector could then specialize in the search for innovative ways to use property. While Smith spoke of efficiency, his idea implies that everyone must also be relatively inefficient at tasks for which they are neither suited nor specialized. We want government to be inefficient at some things so that it will be more efficient at others. This is how society exploits the division of labour between government and the private sector.
There are, of course, some commons that cannot be converted to private property. As yet we have no way of determining whom the air belongs to, or who can claim fish in the ocean, except in the crudest of senses. These types of common property can be protected by government limits on pollution and quotas on fishing. Here the question of what level of quota to set might be inferred from market data on how much people are willing to pay for the resource in question. Remember that Pareto efficiency relies on exploiting resources in such a way that their cost does not exceed how much people are willing to pay for them. If costs go beyond benefit, there is no “surplus” to be divided in a Pareto-improving way in society. In principle, government could decide the level of the quota by studying the demand for the fish in question and learning about the costs of harvesting the fish. Demand and cost are the raw data a market uses to generate a Pareto-efficient level of output, so it is conceivable that government could simulate Pareto efficiency with the help of these data, but that is not a task for which it is suited. Government in this case should think of itself as a steward waiting impatiently for its ward to grow up. While the natural commons are an important and ongoing challenge to developing countries, in developed countries, with the prominent exceptions of fisheries and air pollution, the challenge is self-imposed. It lies in protecting the “fiscal commons.”
The fiscal commons
In developed countries, the public has shown an aversion to direct fees for chargeable services in education, health, and the use of highways. Without fees, governments must find some way of limiting access to public services because free access always produces excess demand. Excess in the sense that people are incited to consume the service to a level where what they are willing to pay for it is far less than the cost of providing it. This sort of excess puts society’s social accounts into the red, which is not a prescription for sustained prosperity or stability. The alternative to charging for a publicly provided good has generally been to impose a quota on consumption. Politicians interested in keeping their jobs deny that they impose quotas on these services. It is unwise to arouse the public’s annoyance by upsetting its belief in open and boundless access, but the unpleasant logic of common property forces governments to “shape” demand by limiting access. The resulting congestion and long waiting lines for publicly provided services follow from government’s attempts to protect the fiscal commons by imposing quotas. The fiscal commons is a challenge to Pareto efficiency because consumption quotas prevent people from realizing their potential in three ways.
The first inefficiency of consumption quotas arises if we do not allow them to be traded. A patient with a torn knee ligament who must wait nine months for knee surgery may lose his or her job. A retired patient with the same injury at the front of the queue might be able to wait nine months without much bother. Both could gain if the employed patient paid the retired patient to change places in the queue. Tradable “queue” quotas would be a remedy for the arbitrary way in which waiting lists order their subjects. Tradable quotas already exist for some fisheries, and even for pollution. In the case of fisheries, inefficient ships that damage too much of their catch cannot make much profitable use of the quota, so they sell it to the efficient ships that cause less wastage.
In the case of pollution, government issues permissible emission levels to firms, which they can then trade. An inefficient firm is one that pollutes heavily for each unit of output it produces. It would rapidly use up its quota and produce only a small amount. Instead of going this route, it would prefer to sell the quota to firms that produce less pollution per unit produced. In this way, tradable emissions quotas allow an industry to produce the greatest amount of product for the fixed level of pollution that government has deemed acceptable. So far, governments have been too timid or unimaginative to apply their experience of issuing tradable pollution and fishing quotas to other areas, such as health care queues or other services.
The second problem with consumption quotas for freely provided goods is that of insufficient information about what people are willing to pay. By not testing the market with different levels of fees, government deprives itself of information about what different individuals are willing to pay for a variety of services. Socialist economist Oscar Lange argued that a centrally planned economy could get all the information it needed about satisfying demand by looking at how inventories were behaving. If inventories for clothes were falling, then it was time to make more clothes. At a very crude level, this is true, if we are talking perhaps about grey Mao Zedong uniforms once worn by millions of Chinese. But what about the clothes that have not yet been designed and that exist only in the imaginations of their potential creators? Without a market to test a wide variety of designs and to determine by survival of the fittest which design is to be produced by whom, those who live under consumption quotas are deprived of goods and services customized to their tastes and needs.
As in the case of public goods, it is not sufficient simply to ask people how much they are willing to pay and what kinds of services they want. In opinion surveys, talk is cheap. The best evidence for what people will pay arises when money actually changes hands. Without such credible market feedback on consumer preferences, government has little choice but to provide a standardized service. The shortage of information may be as acute for those services that are freely provided as it is for public goods where we saw there wer
e no private market examples to go by.
Freely provided services, such as health care in mildly socialist countries such as Canada and the Czech Republic, can be complex. It does not help the government to look at how the private sector in other countries is balancing needs against means, simply because such information cannot be culled at long distances. The lack of information about customer needs is why when one enters a public hospital or school, one is struck by the uniformity and blandness of the settings as well as by the almost complete lack of a consumer service ethic. People who work in these institutions are not incompetent, nor indifferent. They simply have few signals that reliably indicate how the needs of their clients vary.
The third problem with divisible, publicly-provided rivalrous goods such as health care is likely the most vexing. Unlike true public goods, which are non-rivalrous, by their very nature public health care, public pensions, and similar products generate conflict in society. Think of what the words mean. Can publicly-provided rivalrous goods be anything but a source of rivalry? These are resources up for grabs, idling in a government preserve like antelope grazing before the excited gaze of predators. Government by definition is an organization that holds a monopoly on coercion. Whatever stands in its pasture becomes the prize gained in the struggle for control of government. Governments that socialize private, rivalrous goods find themselves in a vortex of social antagonisms.