Common Property Rights and Abundance (Diagram)

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Wolfgang Hoeschele has an interesting diagram in his book The Economics of Abundance (p. 149) , of which this is a modified version. The explanation, adapted from his book, are below.

Abundance and common property rights

Wolfgang Hoeschele:

“Many of our current property rights are designed either to allow a small number of people to monopolize those resource (imposing scarcity on everyone else), or to promote their unsustainable use (creating extreme resource scarcity for future generations). If we wish to generate abundance instead, i.e., the condition that all people, both now and in the future, are able to thrive, we need to fundamentally redesign our property rights. The flow chart shown here offers a framework for the kinds of property or resource use rights that would promote abundance, tailoring them to each specific type of resource and how it is used. This framework is explained in detail in my book (The Economics of Abundance: A Political Economy of Freedom, Equity and Sustainability, published by Gower in 2010, pp. 147-166); the following is a summary. Note that the flowchart shown here is slightly modified from the one that appears in the book.

The first question in the flowchart asks “How does this resource use affect the quantity and quality of the resource?” There are three possible answers: negatively, positively, or not at all. In conventional economics, the “positively” and “not at all” answers are usually lumped together to define “non-rivalrous” resources, but I separate them out because they have different consequences. I thus call them “contributory” and “neutral,” respectively, while following conventional usage in calling “rivalrous” those uses that damage a resource.

Contributory resource uses

If a resource use is “contributory,” the resource grows if it is used more. The most prominent example of such a resource is knowledge: if more people learn something, more people know (they don’t make anybody forget), and they are also likely to contribute more new knowledge to the existing knowledge base by applying it in different contexts. As stated in my book, “the most important means to ensure that innovation can proceed is to ensure that everyone seeking knowledge has access to it. Any barriers to the dissemination of knowledge should then be regarded as a kind of knowledge pollution, particularly since they impede any efforts to correct errors, or to criticize others’ use of knowledge on ethical grounds (for example, that it is being used to favor some people over others). Knowledge that helps empower people depends on openness, while knowledge that is used to coerce, to exert power over the disempowered, thrives on secrecy” (p. 150).

Patents represent an attempt to make knowledge artificially scarce in order to ensure that companies which invested in creating that knowledge can reap the profits of their investments. While there is some justification for this policy from the point of view of profit-oriented investors, there are inherent problems with this approach, which trades a scarcity of knowledge against a presumed scarcity of innovation that would occur in the absence of patents. Three problems are especially noteworthy (discussed in more detail earlier in the book, pp. 43-7). First, our patent regime favors patentable innovations over those that are not patentable, even if they are more important for our future (for example, it favors the development of new chemicals over research about the ecological impacts of those chemicals, or the development of low-tech methods that rely on fewer chemicals). Second, the contributions of many people involved in an innovation are often ignored (for example, indigenous peoples in various places may have been instrumental in the development of new medicines, but they rarely get any recompense for their contributions). In these cases, patent rights serve to exploit the people (often including tax-payers) who made that research possible. Third, patents stand in the way of the timely dissemination of new technologies from the most technologically advanced to other countries, and therefore help maintain the division of the world into rich and poor countries.

Instead of relying on patents to promote research and innovation, I suggest we should focus on fostering innovation in ways that do not create knowledge scarcity, and that rely on a variety of motives for innovation, such as “the intellectual joy of discovery, the satisfaction of imparting new knowledge to others and thereby making a positive contribution to society, and the prestige of being recognized for advancing one’s field of study” (p. 151), i.e., motivations that are crucial to academic research. Research grants, for example, stimulate research without creating knowledge scarcity. In fact, an area where innovation is greatly needed is the invention of new ways to stimulate research without fencing in knowledge!

Similar considerations apply to other kinds of intellectual property rights such as copyrights. By the same token, education and learning should be made as broadly accessible as possible, through educational institutions as well as through libraries, the Internet, and other methods to disseminate knowledge and information.

Neutral resource uses

If a resource use has no impact on a resource, there is no need for it to be regulated; in other words, there can be “open access.” This applies, for example, to breathing air, walking on the earth’s surface (wherever this does no damage to a resource such as a farmer’s crops or the habitat of an endangered species), drinking water from a lake or river, utilizing sunshine or the wind, or enjoying scenic beauty. However, such resources need to be protected from those types of resource use that do degrade the resource, for example, pollution of air and water. These fall under the next category of “rivalrous resources uses.”

Rivalrous resource uses

Rivalrous resource uses need to be socially regulated somehow in order to ensure equitable distribution and sustainable use, which means that property in some form is important. We now come to the second question in the flowchart, “Is the resource renewable (through natural regeneration or human effort) or non-renewable?”

In the case of non-renewable resources such as petroleum and mineral ores, property rights can address the potential problems of monopolizing the resource (where a small group of people gains all the benefits, charging high prices from everyone else), and of depleting the resource (creating scarcity for future generations). Question 3 asks “Does the resource provide large rents relative to the regional economy (based on its scarcity and evenness of distribution?” Rents here refer to unearned income (nobody has created those natural resources!) which is greatest if the resource is in high demand but is found only in a few localities. “I would argue that ownership of non-renewable resources should be widely shared – for example, among the citizens of a nation in the case of scarce and patchily distributed resources that yield the largest rents, or among residents of a county or district in the case of more abundant and evenly distributed resources, which nonetheless generate large rents relative to the local economy” (p. 160). While I consider it most desirable that the most commercially valuable mineral resources be owned in common by the residents of a nation independently of the state, state ownership may also be acceptable as long as there is a high degree of democratic accountability. In the case of non-renewable resources that generate rather low rents, such as common types of rock from quarries, private ownership can be perfectly acceptable.

Turning to renewable resources, question 4 asks “Can the resource be effectively managed by dividing it into parcels?” Some resources, such as air, flowing water (surface as well as groundwater), and oceanic fisheries, simply cannot be subdivided, and so we have no choice but to treat them as common property if we are to protect them from degrading uses (the only other alternative is “open access,” i.e., nobody’s property). The challenge is to devise institutional mechanisms to enforce the rights of all residents to resources such as clean air and water, so that polluters and users must pay for their use and are prevented from over-exploiting a resource; pages 166-175 of my book are devoted to this issue, as is a wide range of literature on the commons (some of which is cited among the references below).

Concerning renewable resources that can be divided into parcels, question 5 asks “If the resource is to be managed efficiently, can it be divided into many units?” There are some kinds of (man-made) resources or services that can really only be divided into relatively few units, that are best divided on a territorial basis, with only one service provider in a given territory. These are called “natural monopolies” and include such things as electric utilities, water supply, sewage treatment, and garbage disposal. “Regardless of whether these facilities are owned by the public or private entities, there is a great danger of the monopolistic creation of scarcity, either through charging excessively high rates or not delivering adequate quality. In such cases, a third alternative would consist of ownership by the customers. The customers would have an interest in efficient service delivery but not in maximizing profits; their ownership would thus offer the opportunity to obtain the best of both worlds, of private and public ownership” (p. 163). Some customer-owned electric utilities do exist, but in general the concept of customer-ownership of natural monopolies remains underexplored, and a lot of institutional innovation is needed in this area.

The final question in the flowchart addresses renewable resources that can be divided into many units: “Can the smallest efficient management units be equitably managed if they are controlled as private property?” In some cases, this question has to be answered in the negative, particularly in the case of local natural resource commons – such things as grazing lands, freshwater or coastal fisheries, forests, irrigation facilities serving a large number of farmers, local or regional groundwater sources shared by a large number of users. If a small number of users get to control these resources as private property, the others are left with nothing, which is inequitable; if no-one has property rights, there may be a scramble for resources where the one who uses them up fastest “wins” – for a very short time. The equivalent of customer-owned utilities in this context is common property of all the users (a commons in the traditional sense of that term), and in many cases commons of this type have sustainably managed their resources for centuries. It is important to strengthen such commons so that they can again, or sometimes for the first time ever, do their job of sustainably and equitably managing local resources. A similar strategy to make businesses more equitable is to make all or most of the workers co-owners of the business, i.e., to create worker cooperatives, in order to overcome the contradiction between employers and workers.

Finally, some renewable resources may be equitably owned under private property – for example, agricultural land may be owned by a multitude of small farmers each owning their own parcel of land. As long as land-ownership does not get concentrated in the hands of a few people, such an arrangement can be equitable. Small private businesses can also be under private ownership with little danger for social equity. Large businesses pose greater challenges, but if workers are able to effectively defend their interests through unions or other mechanisms (including the option of forming worker coops of their own or taking over the company if it fails), then private ownership of large companies can still be compatible with social equity. Personal property such as a house to live in and personal belongings also fit into this last category where private property is appropriate.

In combination, a reform of property rights along the lines suggested here would lead to more effective conservation of natural resources, while also ensuring greater social equity through various forms of shared ownership that distribute the benefits of the property among a larger number of people. The example of a factory might illustrate the results: “Factory owners or a workers’ cooperative would own a factory and the land it occupies, as well as the profits it generates. They would: respect everybody’s common property in clean air and water and ecosystems (and pay adequately for any pollution the factory causes); abide by the rules of common or state property institutions governing transportation and communication infrastructures (for example, by paying taxes or fees for their maintenance); acknowledge local or national-level common property in natural resources (and thus pay adequately for their extraction or use); recognize workers’ rights to a livelihood (paying adequate wages and attending to workplace safety); and refrain from claiming exclusive property rights in the knowledge required to produce the factory’s products” (p. 180).

As a final note, while reformed property rights are in my view an important and indeed essential part of an economy of abundance that assures environmental sustainability and social equity, they are not in themselves sufficient. Other chapters in my book discuss other changes that are needed in order to build up such an economy. “