The Tragedy of the Commons

The Cost of Shellfishness

When I was a lad - always a good way to begin a polemic - I worked as an assistant archaeologist in Colchester, the UK’s oldest town. We knew when we were digging near Roman habitation because there was a white layer, about 2 cm thick, of compressed oyster shells. At the time, I didn’t understand how they could afford to eat so much of a luxury food, and thus I missed an important lesson in economics.

I’m a big fan of Adam Smith, and have preached (in
Atomic and in these articles) his doctrine that if each of us acts to our own benefit, then the invisible hand of the market increases the wealth of all. But last week the penny dropped - this doctrine becomes unreliable in times of scarcity.

Last week’s enlightenment came when I found out that populations of all types of large fish – that’s the delicious pelagic species such as tuna and swordfish as well as the wholesome groundfish such as cod, halibut, skate and flounder – are at one-tenth of the levels they were at in 1950 and continue to fall. One-tenth? How could this have been allowed to happen? Why didn’t the market correct it?

The Piece of Cod Which Passeth All Understanding

If your karma had been different, you might have been born a fisherman in Indonesia, or Spain, or Nova Scotia, or perhaps on the Norfolk coast. Your grandfather might well have told you that the fish were so plentiful they were ploughed into the fields as fertiliser, and your father might have said that he could have fed the family with a single cast of the nets, but you know that the fish are running out. You would be taking increasing young fish, perhaps ones that are not yet at breeding age. You would have to know that each of these catches meant that there would be not one less fish next year, but many less fish. But if your children were hungry you would take them anyway.

You would know that the
benefit of exploitation of a resource is personal and immediate, while the cost of exploitation is communal and deferred. The costs to you as an individual are less than the benefits, and so the rational economic decision is to carry on fishing.

It’s now painfully clear to me that if every fisherman makes rational economic decisions, it’s impossible to avoid crashing a fishery. We will run out of cod and tuna, just as we ran out of herring. Adam Smith’s invisible hand leads to increased economic wealth right up to the point that it causes an environmental disaster.

The Tragedy of the Commons

Don’t worry, I haven’t joined Greenpeace, and this is still a business newsletter – in fact, there is a blueprint for a new type of business later on. I’m discussing the price of fish as an example of an economic principle called the Tragedy of the Commons, which can be summed up in the highlighted text above.

As it happens, I do remember fish being ploughed into the fields in the early 1960s, back when it was the cheapest sort of protein you could get. And an average Roman ate thousands of oysters a year not because they were a delicacy but because they were
really cheap. Even in Victorian Britain, oysters were the food of the poor, eaten in pubs the way that we now eat peanuts, but today, a single oyster will cost US $2 or $3 in even a modest restaurant.

Entire economies based on whales (global), herrings (England), caviar (Russia) and cod (Canada) have come to ruin though over-exploitation. We seemingly all have yet to learn the lesson of those oyster shells - we continue to take more fish out of the North Sea than are spawned each year.

You can see the same processes of over-exploitation at work in the burning of the rainforests, the way our goats turned the Middle East from a lush, fertile land into desert, and in the daily extinction or near-extinction of a host of species.

The same principle also applies to pollution (the inevitable consequence of consumption). The cost to me of the proper disposal of a barrel of toxic waste is much higher than the cost to me of simply pouring it in the river – the total cost of cleaning up the ruined ecosystem may be huge, but of course that is borne communally so my share of it is less. So if you’ve ever see a mattress dumped by the side of the road, that’s my beloved invisible hand at work.

I am as guilty as everyone else of thoughtless over-exploitation. I may not dump mattresses by the side of the road but I regularly travel to and from the north-west of England. I know that if I took the train, this journey would produce about 75kg of carbon dioxide. But it’s unreliable and uncomfortable, so I drive and produce 160kg instead – and more on the consequences of that later.

OK, so Adam Smith is sometimes wrong, and over-exploitation of resources has disastrous economic, as well as environmental, consequences. Is there a way of avoiding these?

What Causes the Tragedy of the Commons?

Studies on consumption of communal resources date back at least as far as Aristotle, but the most influential thinker in this area has been a biologist named Garrett Hardin, who published an essay called The Tragedy of the Commons in Science in 1968 looking at the cause and solutions to over-exploitation. Hardin’s essay took its name from his example: the overgrazing of common land that led to the English Enclosure Acts of the late eighteenth century.

As Hardin pointed out, consumption of natural resources is not, in moderation, a problem: fish breed, rivers clean themselves up. As long as the consumption and pollution are negligible compared to the ability of the system to replenish itself, the commons avoid tragedy. The odd Inuit with a harpoon did not drive the whales to near-extinction – industrialised fishing, which arose to meet the aspirations for a better standard of living from an ever-increasing population, did that.

When whaling was in its heyday, there would have been a bit less than a billion people on this planet. According to the UN’s statistics, in the year my father was born, the global population was still less than 2 billion people. When I was born it was around 3 billion, and today it is close to 7 billion and growing by almost one billion people every decade.

Since rich countries tend to have flat or negative population growth, that huge increase comes almost entirely from poor countries, which are also (quite reasonably) clamouring for a way out of poverty.

As the pressure on the commons depends on the number of people multiplied by the average level of resources they consume, even with no population growth an end to world poverty would place an unbearable pressure on the environment. Combine that with a further 3 billion people and it becomes clear that all the environmental issues of today – overfishing, species extinction, deforestation, water shortages, pollution, global warming, poverty – are only going to get worse.

All current environmental issues, including global warming, could be resolved by a return to a much smaller population base, say 2-3 billion. This is not a new observation: Hardin’s original essay called for an end to population growth, voluntary or otherwise, but all of the practical measures we could take fill me with a visceral horror .

So how do we stop it?

The first thing to note – and it breaks my heart to say this - is that the invisible hand of the free market is not a solution to the exhaustion of natural resources. Consider the fate of the humble herring: once we start to approach the replenishment limit, the fish become harder to find, which pushes the price up. The scarce fish are increasingly valuable and therefore increasingly hunted.

The kicker is that biological systems don’t behave linearly – below a certain level, the population crashes completely, and all the price increases and technological fixes in the world won’t bring back the plump Passenger Pigeon or the delicious Dodo.

So if the free market isn’t the way out, what is? Hardin pointed out (and I am paraphrasing him somewhat here) three solutions to the problem:

1) Privatisation (i.e. exploitation by a privileged few, but not the masses)

2) Regulation, in other words restriction through popular consent, or

3) Proportional discouragement (‘polluter pays’).

More recently, Elinor Ostrom identified (and won the 2009 Nobel Prize for Economics for) a fourth solution:

4) Co-operation.

Hardin was a fan of privatisation. Under the Enclosure Acts, the land was given by Act of Parliament to a few well-connected individuals and the rest of the population was denied access to the great estates this created. While grossly unfair, this did preserve the broad sweeps of the English landscape we can see today.

Regulation is often used to prevent people taking more than their share of resources that have been left available to all – consider the use of laws to prevent the picking of wild flowers. In democratic societies, however, regulation only works when it doesn’t inconvenience the majority.

Proportional discouragement works well, and is at is simplest when you look at motoring. In most countries (the most prominent exception being America) consumption is actively discouraged by high taxes on fuel. Drivers in London and Singapore will also be familiar with congestion pricing on roads, and drivers everywhere will recognise that parking charges and fines, while they don’t restrict your ability to leave your car anywhere you like, certainly put a price on laziness.

Ostrom’s later work on co-operation was based on studies in the developing world on the management of pasture, irrigation, forests and fisheries. She identified eight ‘design principles’ for effective management of the commons:

  1. Clearly identify who has the right to consume the resources, and exclude outsiders;

  2. Make sure the rules reflect the real state of the resource there and then;

  3. Make sure the most of the people who consume the resources take part in the decision-making process;

  4. Make sure the systems and people who monitor consumption are effective and accountable to the consumers;

  5. Put in place a scale of graduated sanctions for consumers who violate community rules;

  6. Make sure conflict resolution mechanisms are effective and efficient;

  7. Ensure the right of the community to control the resources must be recognised by higher-level authorities; and

  8. In the case of large pools of resources, organise it into multiple layers of organisations, each working like a local community.

This is limited in its applicability, and it won’t work as long as people choose to compete rather than co-operate. It certainly won’t work for the great fisheries of the world. As long as the invisible hand drives us to fish and while we retain the principle that the high seas are free to anyone, fisheries will continue to be wiped out.

So now we understand the problem and its four solutions, can we fix global warming?

In a word, no.

There is now no doubt whatsoever that the climate is getting warmer – by about 1 Celsius in the last 50 years. It’s likely to rise by another 2 or 3 Celsius by the end of the century. The climate is a chaotic system and we can’t predict the exact consequences, but if you remember that the difference between a major ice age and today’s climate is only 6 Celsius, you can see that this is a rapid and potentially damaging change.

Everyone agrees that there is a clear link between living standards (measured by per capita income) and CO2 emissions from burning fossil fuels – pretty much all of the man-made CO2 in the atmosphere came from the developed world – so global warming is a clear example of the tragedy of the commons.

Let’s therefore try out the four solutions w
e identified earlier. Sadly, three of them are dead ducks. Privatisation of the world’s fuel supplies by the current owners is impractical unless we want a global war [NB: a nuclear winter would solve global warming, both quickly and (by means of a sharp reduction in the global population) permanently, but can hardly be seen as an optimal solution].

Regulation isn’t going to work unless we have a world government and a tyrannical one at that. Co-operation is impractical – we can’t run the entire economy like a series of village fisheries, and anyway large proportions of the world (particularly the English-speaking world) aren’t politically or culturally designed for co-operation. That leaves one mechanism: Polluter Pays. A global cap-and-trade system for carbon emissions provides a mechanism which is (at least in theory) workable but it will only work if we give radically reduce the amount of pollution that we grant permits for. Bodies such as the Intergovenmental Panel on Climate Change and UN conferences like those in Kyoto and Copenhagen are the best chance we have at agreeing these reductions, but they will continue to fail.

Why? The developed world, which caused the problem, is largely composed of democracies who aren’t going to vote for a vast decrease in their standard of living as the price of cleaning the problem up. China and India (and next up is Africa) have huge and desperately poor populations who feel they deserve a regular food supply and a refrigerator to store it in, and don’t see why they should be denied when, to date, global warming is not a problem of their making.

In short, energy consumption is expected to increase by about 50% between now and 2030 rather than fall by the 50% that the science indicates is necessary. It looks like we aren’t going to limit our fossil fuel consumption until it runs out, but that’s too late for the climate, and as I indicated here it could be too late for the capitalist system.

But while we are in this handbasket, can we at least make a quid?

Let’s end on a bit more of a positive note, shall we? I promised you all a blueprint for a new type of business, and here it is.

Let’s go back to Olstom’s ideas: research in the developing world has shown that they represent a practical model for management of communal resources (fisheries, forests, rivers etc). However, the ability to scale them depends in part on the degree of organisation you can apply, and so I predict a new type of atom: ‘Commons Management’ companies.

These sound like an extension of shared services or facilities management organisations, but they are not, as we can see if we look at their activities. A commons management company would police the consumption of resources by preventing access by outsiders (design principle 1); by issuing permits at a level that maintain the long term viability of the resources (design principle 2); by policing consumption (design principle 5); and by providing dispute resolution processes (design principle 6).

They would be funded by a mark-up on the resources consumed – the consumers would be happy to do this to maintain the continuity of future supply, just as we today pay a surplus on pharmaceuticals to fund the stream of future drugs. The Commons Management companies would enjoy a degree of legislative protection (design principle 7) , be accountable to the consumers (design principles 3 and 4), and might operate as franchises (design principle 8).

That’s all for now , but I am at least party comforted that even if the environment continues to go to hell, the shrewd businessman can at least make a quid out of slowing its progress.

Further reading

Hardin, Garrett (1968). "The Tragedy of the Commons". Science 162, 1243-1248.
Ostrom, Elinor (1990).
Governing the Commons: The Evolution of Institutions for Collective Action. Cambridge University Press. ISBN 0-521-40599-8.