Elinor Ostrom on privatisation

Throughout her career the late Elinor Ostrom was keen to avoid crude ideological labelling, and the title of her 2012 Hayek Lecture ‘beyond market failure and government regulation’ confirmed a determination to chart an intellectual course avoiding conventional left v right confrontations. Nonetheless, there was a good deal within Ostrom’s analysis of environmental/common pool problems that chimed with the basic insights of classical liberal political economy.

Neither Ostrom, nor classical liberals maintain that all environmental problems can be addressed in a decentralised way. There are some large scale trans-boundary problems of pollution, such as anthropogenic climate change, for example, where there may be no alternative but to rely on an element of central regulation. Nonetheless, both Ostrom and classical liberals argue that there is a significant class of environmental problems, including the management of forests, watersheds, inshore fisheries and many local collective or public goods where it would be better to rely on more decentralised forms of management. For classical liberals, by decentralising decision-making to a variety of individuals and organisations a private property system facilitates a greater level of experimentation than more state-centric regimes, allowing for emulative learning while minimising the impact of inevitable mistakes. Private property also overcomes free-rider problems by allowing people to reap the rewards from conserving resources and to bear the penalties from failing to do so. Ostrom’s arguments were based on the similar contention that decentralised community-based forms of governance are often better placed to enable trial and error discovery of the rules needed to overcome environmental/common pool problems and to provide incentives for those most affected by such rules to make them work.

Within this context, it is important to confront a myth, propagated by ill-informed opinion, that Ostrom’s research constitutes a refutation of ‘neo-liberal’ economics and its arguments in favour of private property. Two examples of this opinion are set out below.

Writing in The Guardian in October 2009, Kevin Gallagher claimed that:

‘In a nutshell, Ostrom won the Nobel Prize for showing that privatising natural resources is not the route to halting environmental degradation.’

Similarly, the Nobel Laureate Joseph Stiglitz was quoted in The New York Times saying:

‘Conservatives used the Tragedy of the Commons to argue for property rights ... What Ostrom has demonstrated is the existence of social control mechanisms that regulate the use of the commons without having to resort to property rights.’

Gallagher’s journalistic lack of acquaintance with Ostrom’s work is sloppy though perhaps understandable, but Stiglitz’s statement is frankly reprehensible. At no point does Ostrom claim that environmental problems can be addressed ‘without having to resort to property rights’. Well specified property rights and the ability to exclude outsiders are fundamental to the ‘common property regimes’ which Ostrom believes provide an alternative to parcelling out environmental resources either to discrete individuals or to public ownership. Similarly, at no point does Ostrom refute the case for private ownership per se. What she questions is the wisdom of external agents imposing individual property rights in communities which have evolved effective ‘common property regimes’. Common property regimes such as the Swiss Alpine pastures are themselves, according to Ostrom, a form of exclusive private property – it is just that private property rights should not always be equated with individual property rights. Common property regimes refer to a context of exclusive ownership but where the relevant owner is a decentralised communal unit. In the words of Ostrom and her co-author Margaret McKean, ‘It is crucial to recognise that common property is shared private property....’

They proceed:

‘Common property regimes are a way of privatising the rights to something without dividing it into pieces... Historically common property regimes have evolved in places where the demand on a resource is too great to tolerate open access, so property rights have to be created, but some other factor makes it impossible or undesirable to parcel the resource itself’ (McKean and Ostrom, 1995: 6).

Few would suggest that the condominium associations and private (sometimes gated) communities that have spread rapidly over recent years across the United States and East Asia as bottom up alternatives to the municipal provision of collective goods are not a form of ‘privatisation’. Indeed, many social democratic critics have condemned them as such (McKenzie, 1996). These are, however, precisely the type of common property regimes that Ostrom thought could and should be used much more widely. Residents have individual property rights to their houses but must submit to common regulations developed by a cooperative residents association to maintain aesthetic standards, control new development and ensure contributions to goods such as parks, roads and street lighting.

It is an unfortunate, but all too frequent mistake found among simplistic exponents of ‘left’ and ‘right’ wing thinking to equate the case for privatisation with individual ownership. Condominiums and ‘common property regimes’ provide clear examples of private though not necessarily individual ownership. Among her many achievements we should be thankful to Elinor Ostrom for pointing this out.

 

References

McKean, M. and E. Ostrom (1995) ‘Common Property Regimes in the Forest: Just a Relic from the Past?’, Unasylva, 46 (180): 3-15;

McKenzie, E. (1996) Privatopia, New Haven: Yale University Press.

Ostrom, E. (1990) Governing the Commons, Cambridge: Cambridge University Press.

 

Mark Pennington is Professor of Public Policy and Political Economy in the Department of Political Economy, Kings College, University of London. He is the author of Robust Political Economy: Classical Liberalism and the Future of Public Policy (Edward Elgar: 2011).

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