A valuable lesson from fish and forests

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Some economists argue that establishing clear property rights to resources is a key to economic success. But the Indonesian state’s attempt to reform ownership of the country’s forests has led to environmental catastrophe.

In 1997, the smog from Indonesia’s forest fires not only engulfed the country itself but also spread over large areas of South-East Asia. There is an economic theory that attempts to explain environmental disasters of this kind. It goes by the graphic title of ‘the tragedy of the commons’. The supposed problem is that assets to which there is no clear title are insufficiently protected. Private owners, by contrast, take care of their property.

The notion that Indonesian forests are suffering from the absence of secure ownership rights surfaced again in this newspaper on August 8th. But the truth is the opposite. Indonesia’s forests are not in danger because nobody owns them. They are in danger because people do.

The beginnings of the current problem go back to 1967 and President Suharto’s New Order economic policy. The objects of the policy were to promote economic development and to enrich the military dictator and his family and friends, not necessarily in that order. The policy enjoyed some success in the first of these objectives and great success in the second.

One element of New Order policy was the abolition of the traditional adat system of land tenure in rural areas. Adat allowed smallholders to cultivate land for their own use, with the agreement of the local community, but not to own it or transfer it to others. Sometimes this led to population pressures and the loss of forested land, but in the main it protected the local environment. This is not because these communities hugged their trees. The subsistence farmers of Kalimantan were as devoted to the welfare of their families as President Suharto to the welfare of his. But the requirement that you could clear no more forest than you could yourself cultivate kept depredations in check.

After 1967, forest land was transferred in increasing amounts to large landowners and logging companies. It is possible that felling timber, burning what remains, and converting land to agricultural use is the highest value use of much of Indonesia’s forest land. After all, this is what has happened to most of the forests that once covered western Europe.

But the environmental consequences of rapid deforestation in an equatorial climate seem to be much more serious. These include the conspicuous smog that choked Malaysia as well as Indonesia itself. In addition the cleared ground allows fires to spread rapidly, and the longer term effects on the ecosystems of Kalimantan are unknowable. When these costs are taken into account, it is equally possible that the best outcome would be to leave the forests alone. The one certainty is that no-one has done that calculation.

The problems of Indonesia are aggravated by the endemic corruption in that country. In Transparency International’s 1998 survey, only five countries were more corrupt than Indonesia, and only five countries more honest than Canada. Yet the tragedy of Indonesia’s forests is more or less exactly paralleled by the tragedy of Canada’s cod.

Fish stocks off Canada’s Eastern seaboard were once as plentiful as the trees of Kalimantan. In modern times, self-reliant fishing communities operated a system remarkably similar to Indonesian adat. The sociology of these towns is well described in Anthony Davis’ study of Port Lamerton. Each fishermen was restricted to meeting the needs of his boat and his crew. Expansion could take place, or newcomers enter only with the tacit consent of the local fishermen.

In 1976, the Canadian government imposed their ‘New Order’ fisheries policy. The government extended territorial waters to 200 miles – necessary to prevent the incursion of foreign boats. And it also tried to create a modern fishing industry. Much influenced by the ‘tragedy of the commons’, the policymakers in Ottawa declared that self-regulation was no longer adequate, and needed to be replaced with quotas and licenses. The industry rationalised and consolidated, prospered and grew – until, in the early 1990’s, there were no more cod to be found. Catches fell by more than 90% and have still not recovered.

The thesis that all government need do is create the institutions of private property and markets will take care of the rest is one of the most pernicious doctrines of our times. It is a theory that has destroyed not only the Indonesian forests and the West Atlantic fisheries, but the social structure of Russia and its prospects of economic recovery. The relationship between institutions and development is much more complex – and much more interesting.

This is because the thesis that capitalism is necessarily the enemy of the environment is wrong too. Developing and preserving resources in order to sell them to future generations may not be as morally admirable as recycling glass bottles and old newspapers, but it is far more important. The stability of institutions is vital too. One of the motives of Indonesian loggers was to get the money into Swiss banks before the revolution came, as it inevitably did.

The notion of the noble primitive in tune with the environment – the Borneo farmer or the Canadian fisherman – is a romantic fantasy. But it is not complete nonsense. Where such communities have operated in stable conditions for generations – as was true in both Indonesia and Canada– this is almost certainly because they have successfully developed mechanisms for regulating the relationship between them and their environment. Often, these mechanisms will not be fully understood by the communities themselves, far less by outside observers. Sometimes, disruption of these mechanisms by technological or institutional change is unavoidable. But to impose such disruption deliberately, in pursuit of a theory of economic development, will usually do more harm than good. And that is why the cod have gone and the trees are burning.

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