Governing The Commons (Elinor Ostrom)
People have shared natural resources for thousands of years, often depleting them entirely before moving on. As the human population has grown and the planet's finite nature becomes apparent, there is increasing urgency in the study of ways to reconcile the immediate needs of today, whilst avoiding the permanent destruction of common resources. Elinor Ostrom, the first female winner of the Nobel Prize in Economics authored Governing The Commons in 1990, a compilation and summation of various studies of common resource use which challenges conventional wisdom on the topic. Academic in style, this book, whilst was unlikely to win any literary awards, is an essential counter to one-size-fits-all policy makers and dogmatic ideologues alike.
Governing The Commons reminds me in it's conclusions of William Easterly's various critiques of international aid organisations, insofar as it contains a Hayekian message of the value of local knowledge and information. Both are critical of conventional economic wisdom, and the blind application of simplified models to specific and unique situations. Ostrom begins the book by outlining three related and well known models - The Prisoner's Dilemma, Hardin's Tragedy Of The Commons, and Olsen's Logic Of Collective Action. Each demonstrates situations in which individuals can act 'rationally' and in their own interest, leading to suboptimal outcomes. All of these models have in common the free rider problem - one can utilise a resource without contributing to its upkeep. For example, if several farmers share a field for grazing, it is to the advantage of each farmer to own as many cows as possible to feed off the shared land - but this will ultimately ruin that land. Similarly fisherman are individually incentivised to maximise their catch, even if it destroys the stock of fish over time.
Ostrom points out that each of the three models makes logical sense within the parameters of the specific model - for example in Prisoner's Dilemma games prisoners cannot confer - but only within these parameters. Models need to be simplified in order to be useful; but, she argues, when they become metaphors for all shared resource scenarios they cease to have value.
As a PhD in Political Science rather than Economics, Ostrom relies on case studies to inform and criticise models. Conventional wisdom states that there are two solutions to the tragedy of the commons - to privatise resources or to nationalise them. Ostrom's analysis covers shared fisheries in Turkey and Sri Lanka, communal forests in Japan and Switzerland, water basins in California and more, ranging from 100 to 1000 year-old institutional arrangements. These studies show that it is possible to communally maintain and share finite resources under the right conditions for a long time, without the binary prescriptions above. Furthermore, both privatisation and central government solutions can provide suboptimal and unfair outcomes in many scenarios.
The studies in question show 8 commonalities amongst the diverse Common Pool Resource (CPR) situations that were successful over time. These were (1) clearly defined boundaries, (2) rules that fit local conditions, (3) most individuals affected by operational rules have a say in modifying those rules, (4) monitoring of rules is carried out by those affected by their being broken, (5) graduated penalties for those caught rule-breaking, (6) access to quick and low cost arenas for conflict resolution, (7) right to organise allowed by authorities, and finally (8) for larger communities, nested institutions.
When assessing the common conditions, it is clear that they are set up in favour of common sense cooperation, and fairness. Of course in principle everyone agrees that destroying a water basin or a fishery stock is against one's own interest, but if it's going to happen it is in one's interest to participate in that destruction - to maximise short term benefit. In this sense both cooperation and lack of cooperation are self-fulfilling prophecies. This is why the concept of rational self-interest prevalent in mainstream economics is an oversimplification. We make partly-emotional decisions on how to act that are based on a complicated and specific set of circumstances - and the more people believe in a rule the more likely they are to adhere to it. In times of extreme drought rules amongst irrigation communities are relaxed or changed to avoid hunger or ruin - so that under uncertainty local conditions retain the support of those expected to adhere to the rules. This cannot be achieved if rules are nationwide and uniform.
This is not a study which puts forward a 'third way' of governance to replace private or public ownership, as such. Ostrom also highlights case studies in which communal self-governance has failed to prevent the destruction of resources. The point here is that bottom up solutions can work under certain conditions and not under others, just as is the case with privatisation or central control. Private firms often work under short term pressures and show no natural predilection to maintenance of long term natural resources (see Amazonian de-forestry). Conversely, Soviet control of its fisheries in the second half of the twentieth century set quotas of fish to be caught based purely on weight - leading to the disastrous killing of over 180,000 whales with virtually no benefit to Soviet citizens.
Ostrom's work, like that of William Easterly (in development economics) emphasises incentives, and highlights where economists have lost sight of them. As she states, "The models that social scientists tend to use for analyzing CPR problems have the perverse effect of supporting increased centralisation of political authority." The institutional arrangements in Governing The Commons are not in conflict with free markets, rather they are the embodiment of bottom-up innovation in action. Empowerment and engagement of those involved is precisely what leads to acting in good faith, and the longevity of beneficial institutional arrangements. It is no coincidence that successful arrangements work best at the local level, often within communities where to cheat will lead to social stigma, and to think long term is generationally embedded. Nassim Taleb's recent work emphasises localism as a guiding principle for political institutions - the idea that groups of different sizes behave materially different. Thus we must guard against separating power from competence (and acknowledge that competence comes from local, practical knowledge). This 'scale transformation', the idea that a city is not a large village but something different altogether, is anticipated by Governing The Commons and the subsequent work of Elinor Ostrom and her collaborators.
The author points out that mirroring the dangers of sweeping rules from upon high in this context, are the dangers of similar behaviour in academia of the social sciences. Models are attractive tools of study, but so often there is no single way to solve the myriad problems that have such distinctive and importantly-different features in each situation. We must move from model to specific case and back in order to learn, and to always be mindful that the world is far more complex than models will allow.