Commons sense

November 19, 2009

Elinor Ostrom won the Nobel Prize for Economics this year. So who cares? Economists are not exactly the flavour of the season right now. After all it was economists who thought subprime mortgages were a good idea and look what a mess that has got us in. As if running economies on rampant consumerism financed by debt wasn’t bad enough in the first place. It seems the only thing economists are good at is finding new ways of getting people and countries into debt.

Hence it should come as no surprise that Ms. Ostrom is also interested in consumption. But what makes her Nobel prize material is that is she studies how we consume resources that all of us (including future generations) own and manage. Most of us are familiar with Hardin’s ‘tragedy of the commons’ theory that basically says commonly owned resources will be exploited by free-riders who will make the good guys look like morons and eventually result in collapse of the system. Hence, we end up with overgrazing, overfishing, overhunting, etc. This theory has been embraced by governments and private entities to reinforce the idea that the Common Pool Resource (CPR) system is inevitably doomed to failure and we need external intervention (state or private) to manage our natural resources.

Ms. Ostrom has studied a truckload of different CPR systems around the world and believes that they cannot be so casually dismissed as viable alternative to public or private sector management. She has seen that humans, despite all their deficiencies, can cooperate and work something out without killing each other. She also believes that the bad rep of CPR systems is not usually attributable to failure of the system itself. Factors internal to the group such as lack of communication, trust and a sense of stewardship can seriously affect the success of a CPR system. External factors such as interference from central authorities, lack of autonomy and conflicting regulations can undermine the efforts of communities to manage their commons.

The reason why Ms. Ostrom’s work is so important today is that we are faced with the incredible challenge of managing the ultimate commons- Our Atmosphere. We only have one atmosphere which is common to all of us. Like any CPR it is a finite resource in the sense that it only has a limited capacity to absorb greenhouse gases. We are close to this limit or might even have exceeded it. The amount of carbon space in the atmosphere is scarce.  Until now we have paid handsomely for fossil fuels from the ground but nothing for the atmosphere to absorb its combusted waste. Economists Peter Barnes and Marc Breslow put it another way “It is not oil that is in short supply, it’s sky“. In their article titled ‘Pie in the Sky’ they argue that it is possible and necessary to fix the current market flaw that has so far ignored atmospheric scarcity rent.

However, it is in theory not an impossible problem to fix. Like any finite resource, all that needs to be done is determine who owns the atmosphere and charge non-owners for using it. Like Ms. Olstrom, Barnes and Breslow also believe that the atmosphere should belong to citizens in trust. They don’t trust governments as they have a history of favouring the elite and selling natural resources below market value. Unlike traditional scenarios like land grants in exchange for infrastructure, the private sector could not give much to the public in return for control of the atmosphere. They argue for the creation of a Sky Trust financed by emissions permits auctioned to fossil fuel companies for whatever the market could bear. The trust would pay equal dividends to all citizens. To address equity issues they propose that 25% of the revenue from permits be diverted to a transition fund for communities worst affected by climate change and to help those adversely affected by the shift to a low carbon economy.

The Sky Trust is not really a far-fetched idea. It is inspired by the Alaskan model where natural resources of the state belong to its people. The state constitution was amended in 1976 to transfer 25% from oil revenues to a Permanent Fund. Half of this is used to finance schools, highways and public projects while the rest is paid in equal dividends to all Alaskans (this dividend amounted to $1770 in 1999). Whatever the mechanism, consumers must pay for what they use especially for a resource that is limited and whose overuse can have catastrophic consequences. This would help avert Hardin’s ecological tragedy of the commons and also the economic tragedy of loss of commons to commoners.