Chapter 3: Markets, Chapter 3: Markets, Governments, and Forest Governments, and Forest

ResourcesResources

Text: Cubbage et al., 1992Text: Cubbage et al., 1992

QuestionsQuestions: :

Should forests be under public/gov’t Should forests be under public/gov’t control/ownership? control/ownership?

WhoWho can best determine the allocation & can best determine the allocation & distribution of natural resources: distribution of natural resources: government government or private sectoror private sector??

• Should forests be under public/gov’t control/ownership?

• If gov’t intervenes, to what extent should it intervene?

Revisiting an old issue: Revisiting an old issue: Privatization of forest resourcesPrivatization of forest resources

Advantages of private control of resources:Advantages of private control of resources:

Advantages of private control of resources:Advantages of private control of resources:

• Private will produce & supply goods if $ is made• Healthy property rights system needed for

market system to function• Market place - people vote with their $ and are

more responsive; Government - no continuity, officials have service terms, admin changes

• Private allocates resources more efficiently than government

Advantages of public control of resources:Advantages of public control of resources:

Advantages of public control of resources:Advantages of public control of resources:

• Regardless of economic shape, public still concerned with environment

• Management separated from ownership – private management can easily “cook” books to show efficiency (examples?)

• Public/political process more accountability, transparency

• Political process checks on operations of bureaucrats

So what is best?So what is best?

• Private ownership?

• Public ownership?

• Any other form?

Advantages for mixed control of resources:Advantages for mixed control of resources:

• Shortcomings of the markets – limited

• Political incentives to adopt public programs

• Above reasons will lead to extensive government involvement in forest resource allocation

A Mixed Forest EconomyA Mixed Forest Economy

Scarce Resources

Public means Private means

Budget Market

Political process Pricing process

Public wants Private wants

Human wants (wood, water, wildlife, recreation, range,wilderness, aesthetics, minerals, etc.)

Figure 3-1. Mixed forest economy

Approaches to allocating and distributing Approaches to allocating and distributing forest resources:forest resources:

1. unregulated markets

2. gov’t educ./assistance for landowners to promote public goals,

3. gov’t regulation of resource mgmt on private lands;

4. public ownership & gov’t mgmt of forest lands

Forests and American ValuesForests and American Values

American values influence forest policy. But values vary through time & among groups.

1. Individualism and Property Rights

2. Community, and Equity and Democracy

3. Integration (individualism & community/equity)

Market and Non-Market GoodsMarket and Non-Market Goods 1. Market Goods

• with exclusive rights; traded in market • Principle of exclusion can be applied

2. Non-Market Goods• One’s consumption doesn’t exclude others from

enjoying same

Joint consumption – use of good by > 1 person

Market and Non-Market GoodsMarket and Non-Market Goods : :Other classifications – 4 typesOther classifications – 4 types

1. Private goods – timber, forage2. Toll goods – air, fish in open sea3. Common-pool goods – national parks, movies4. Collective goods – air/water pollution control, police protection

Gov’t: intervention –decision-making/enforcement (collective or

common-pool goods) works with private sector (provision & distribution of collective

goods/services)

Forest Outputs & IssuesForest Outputs & Issues

• Variety of forest goods & services

• Problems arising from varying degrees of:

– joint production (MU)

– exclusivity vs jointness of consumption,

– marketability

• Commodity-noncommodity nature

• Result: Issues!

• Timber

• Wildlife

• Range

• Water

• Recreation

• Wilderness

• Others – Minerals, gas, and oil lie underneath forest lands; residences and vacation homes in forest lands

Forest Resource Outputs – Issue/s?

• basic assumption: free-market economy

• Adam Smith: Supply & demand determine price

• Alfred Marshall: free-market economy generated by the price system

– implies individuals’ wants should govern resource use;

– efficiency is sole criterion for allocation of goods & serv.

• Values not always consistent with American commitments to equity, equality, community.

Markets & Forest Resources: The Neoclassical Economic Theory

1. establish property rights to resources

2. buyers & sellers have perfect knowledge

3. atomistic competition

4. transaction costs = 0

• Gov’t role limited to deciding income distribution Q’s; defining/enforcing rules of property & exchange

• Voluntary market exchange; efficiency criterion

Efficient Market Requirements: Four conditions to achieve efficiency

1. property rights not adequately defined

2. non-market costs & benefits (externalities or secondary effects) not reflected in market;

3. imperfect knowledge (in forestry applies more in production side!

4. imperfect competition – some sellers/buyers can affect price!

Causes of Market Failures

• Equity – who benefits? who pays?

• Difficult to determine esp. when non-market benefits & costs are associated

• Distribution of Benefits – problems

• Equity considerations justify gov’t involvement in producing & allocating forest, wildlife, & recreation res.

• It is a major justification for public parks, wildlife reserves, and associated public resource mgmt agencies!

The Equity Problem

• Economic Systems – capitalistic vs. communism pros & cons– Cowboy Economy vs. Spaceman Economy

• Conservation and the Land Ethic -- – Aldo Leopold & A Sand County Almanac (Land Ethic) – EF Schumacher – “Small Is Beautiful” – rejected economic

efficiency as sole relevant criterion for decisions.• Decision Guidelines – social, political, economic, environ.• Illustration: Historic Forestry Debates

– Market Proponents – lumber industry; Wilson Compton, in 1919 national debate on federal regulations on private timber cutting & forest mgmt

– Government Advocates – Committee for the Application of Forestry (foresters

Government & Forestry

Cowboy Economy vs. Spaceman EconomyCowboy Economy vs. Spaceman Economy

• Open economy; past

• Resources regarded as limitless; Exploitative

• Production, consumption viewed favorably

• Lives for the day, ignores tomorrow

• Closed economy; present

• Earth has limited reserves of resources

• Minimize consumption & production

• Conservation of resources for future generation

Cowboy Economy Spaceman Economy

Schumacher: “Schumacher: “Small Is BeautifulSmall Is Beautiful””

• Economics -- not the only relevant criteria for decisions. • Decisions produced using econ criteria are fragmentary!

– Supply only one result whether or not it yields $ to those who undertake the activity

• Using economics, if something fails to earn an adequate profit in $ terms not good!

• There are other assets or activities that society keeps or does because of non-economic values (social, moral, natural, etc)

Leopold’s Land EthicLeopold’s Land Ethic

• A Sand County Almanac• Criticism on the strength of the profit motive (economics)

in land use decisions• Considers intrinsic values of components in the

ecosystem otherwise not meeting $ gains• Advocates gov’t conservation, limits to gov’t enterprise• Land ethic – later became part of SAF’s Code of Ethics

Leopold’s Land EthicLeopold’s Land Ethic

• Land ethic: “… a system of conservation based solely on economic self-interest is hopelessly lopsided. It tends to ignore, and thus eventually to eliminate, many elements in the land community that lack commercial value, but that are essential to its healthy functioning. It assumes falsely…that the economic parts of the biotic clock will function without the uneconomic parts. It tends to relegate to gov’t many functions eventually too large, too complex, or too widely dispersed to be performed by gov’t.”

Compton’s 1919 treatise on issues to Compton’s 1919 treatise on issues to support market/private control of resourcessupport market/private control of resources

Which of his 14 issues are still current/

relevant today?

Compton’s 1919 treatise on issues to support Compton’s 1919 treatise on issues to support market/private control of resourcesmarket/private control of resources

1. “cheap & plentiful timber not a sign of wealth” – forest products cheaper than other commodities producible from same land & capital, so that forestry not a good use of land & capital.

2. non-reforestation of cut-over lands – not a misfortune?

3. old-growth forests? harvest of old trees – not a public loss?

4. loss of species – not detrimental to public welfare

5. land’s greatest productive use should not dictate its use, that is, lands should not be used for growing trees even if they are suited for growing trees.

6. disappearance of timber industries in certain regions due to exhaustion of timber supplies is not necessarily a local or national misfortune

Compton’s 1919 treatise on issues…Compton’s 1919 treatise on issues…

7. timber as a “mine” and not a “crop”8. shrinking employment in the forest industry9. land use change from forest to non-forest uses, esp. if reforesting it

is poor economics10. poor quality cutover sites are uneconomical to reforest; if public

wants it – then public does it!11. no difference in public vs. public obligation in using lands to grow

timber or ag crops for profit?12. incentives issue -- How much to pay landowner to produce for

public benefits or gains?13. equity issue – public use of private land, public pays additional

cost14. maintenance of idleness of cut-over lands is not always wasteful

Crompton’s 1919 treatise on issues to Crompton’s 1919 treatise on issues to support market/private control of resourcessupport market/private control of resources

Current: 2, 4, 5, 6, 10, 12, 13

Not current: 1, 3, 7, 8, 9, 11, 14

numbers 2, 5, and 10 are similar!

Compton’s 1919 treatise on issues to Compton’s 1919 treatise on issues to support market/private control of resourcessupport market/private control of resources

1. “cheap & plentiful timber not a sign of wealth” – forest products cheaper than other commodities producible from same land & capital, so that forestry not a good use of land & capital!!!!

2. non-reforestation of cut-over lands – not a misfortune???-- real issue

3. old-growth forests? [harvest of old trees > new trees growing] – not a public loss?

4. loss of species – not detrimental to public welfare

5. land’s greatest productive use should not dictate its use, that is, lands should not be used for growing trees even if they are suited for growing trees! – TRUE urbanization + other uses

6. disappearance of timber industries in certain regions due to exhaustion of timber supplies is not necessarily a local or national misfortune

Compton’s 1919 treatise on issues to Compton’s 1919 treatise on issues to support market/private control of resourcessupport market/private control of resources

7. timber as a “mine” and not a “crop” --- no longer an item today!8. shrinking employment in the forest industry – relate to #69. land use change from forest to non-forest uses, esp. if reforesting it

is poor economics10. poor quality cutover sites are uneconomical to reforest; if public

wants it – then public does it!11. no difference in public vs. public obligation in using lands to grow

timber or ag crops for profit???12. incentives issue -- How much to pay landowner to produce for

public benefits or gains?13. equity issue – public public use of private land, public pays

additional cost14. maintenance of the idleness of cut-over lands is not always

wasteful

• Q: is it possible to do in the US what NZ did for its forest service?• Background: NZ Forest Service did same thing as USFS:

– research, landowner assistance, policy development, pest control, mgmt of publicly owned forest land.

– Developed & managed plantations; also sold timber (commercial).

– Lost money; they tried to fulfill political objectives at the expense of business objectives.

• 1980s altered its public policies on forestry• 1983: newly elected Prime Minister did some changes in forestry

– Min. of Forests – research, policy dev’t, landowner assistance– Min. of Environment – control native forests, most were

reserved as national parks– NZ Forestry Corp. – mgmt of plantations and sawmills; sold to

private investors; later sold timber only, not lands

Illustration: Privatization of NZ Forest Service

• Q: is it possible to do in the US what NZ did for its forest service?

• In US, possible reasons and proposals for privatization:– Outright sale– Long-term leasing of productive forest lands to industry for

mgmt & harvest rights– Short-term granting of concession rights to the land– Cost-sharing arrangements between public & private orgs.– Problems in western US public range mgmt – prompted similar

call for privatization!

Illustration: Privatization of NZ Forest Service