The efficient division of scarce resources: in defense of the complete privatization of nature

Against the backdrop of debates about environmental protection, based on economic logic, we will present our view on the most effective way to utilize and protect nature in Bulgaria.

Economic calculation and efficiency

As Ludwig von Mises pointed out in his article Economic Calculation in the Socialist Commonwealth back in 1920, economic calculation [1] cannot be carried out in conditions of state ownership and the absence of market prices. [2] Alas, this is the state of all national parks, “protected” areas and animal habitats; that is, from an economic point of view, we are witnessing “natural socialism”. [3] At first glance, the thesis of economic calculation may sound naive and even have objections: “Nature is there to be beautiful and to bring health, not to be associated with economic and statistical plans!” But “economic calculation” does not mean simply including certain acres of forest, mountain slopes, peaks and campsites in the plans of companies privileged to own concessions.

Let us consider the effects of the impossibility of carrying out economic calculation. First, when economic calculation is inhibited by the absence of market signals (through prices) and private property, the governing institution is blind to the rational use of the resource and the desires of those who want to use it (most often - consumers). Therefore, even if we assume that the state administration, regional officials, representatives of non-governmental organizations and even forest managers are completely selfless individuals who pursue the ideal goal of preserving the natural heritage, when they try to achieve it outside the market - i.e. through state ownership of natural resources - all these institutions and individuals fundamentally have no idea what and how to do with natural resources. In this line of thought, state "managers" of nature face exactly the same problem that plagued planners in the former Eastern Bloc. This applies not only to the number of lifts, [4] but also to the management of the natural parks themselves. How many recreation areas should be built; where, how many, and whether to build them at all; how exactly to protect the forests – whether by appointing a guard at each tree, or by setting up guarded entry points, or in some other way; how much area should the park cover and how much can be used in other ways; whether hunting should be allowed, or whether animals should be kept only for viewing by visitors in their natural environment, etc. – these are questions to which everyone can give a subjective answer, and yet this answer cannot really meet the needs of the “consumers” of nature, since in the absence of prices the latter cannot send the vital signal of what exactly they want and what is the most efficient way to use nature. As we know from economic science [5] and history, [6] such experiments are doomed to failure and lead to economic discoordination, waste of scarce resources, dissatisfied consumers, and in the case of nature – to dire consequences.

The ability to calculate based on market prices allows different social groups (entrepreneurs, consumers, NGOs, etc.) to effectively send and receive signals to others, through which they can coordinate their behavior and use scarce resources wisely. In this way, the actions of producers and consumers are "adjusted" in absolutely every industry in which free market principles are allowed to operate.

When the only “regulation” is the so-called “Invisible Hand”, we cannot de facto talk about a waste of scarce resources. If something is not wanted, it is simply not produced; if it is wanted, the price mechanism (economic calculation) indicates the best way to produce it – that is why we do not have platinum laptops, we do not use gold leaf instead of wallpaper and we do not produce glasses from diamonds, for example.

This logic would be fully applicable to forests, just as it is for the provision of any other good and service – the market price mechanism will show competing investors what their customers need and what is the best way to develop and protect forest assets. If it is profitable to develop ski tourism, this is what will develop and supply will be calibrated to demand – i.e. we will not witness a shortage of lifts or slopes. Here someone may object: “And if the so-called “investor” calculates that it will be most effective to destroy the forest in order to build ski slopes or if he does not preserve his natural assets, how can we protect nature from his destructive actions?!”

" The Tragedy of the Commons" and the Motives

First, in a fully liberalized market, forests, mountains, water bodies, and the fauna that inhabit them would be an economic asset because of their scarcity. In this case, we can expect that entrepreneurs will develop them in a way that: 1) will seek to preserve their asset; 2) will develop it according to the needs of users. When we talk about private property, we should not forget (as became clear above) that its market price will show the best way to use it. But there is another point here: private property does not necessarily have to fall into the hands of investors. It can be acquired by a non-profit organization that – believing that in this way it will protect it most effectively – determines the rules for its use. Such an institution can prohibit all logging, construction, and hunting on its property. [7]

Another aspect that we need to pay attention to is the effects that arise from the type of ownership. As has become clear, in a system of free exchange, resources, due to their scarcity, are an economic asset. The strongest motive that entrepreneurs then have is to protect, develop and invest in this asset, because it is this that brings them profit. [8] Therefore, just as no real entrepreneur buys a factory simply to let the machines run until they are completely depreciated, and then simply demolishes or abandons it, so no owner of a forest will let it fall prey to poachers (because then he will lose his profit at the expense of someone else) and will not simply destroy it, because then his investment will turn out to be unprofitable and will be at a loss. [9] This applies to both forests and the animals that inhabit them.

The opposite happens when the state [10] owns and manages property. As we know from public choice theory, state officials and forest managers primarily pursue their own self-interest, not the “interest of the public.” In this sense, since they do not actually own nature but simply “manage” it temporarily (within their mandate), they also have an incentive to exploit it as much as possible—including through poaching schemes. Second, when individuals view property as “common,” the negative effects of what is called in economics the “tragedy of the commons” emerge—everyone has a strong incentive to exploit the resource (in this case, nature) as much as possible, because they know that otherwise someone else will do it and then they will realize foregone benefits.

These effects cannot be eliminated by pouring in more taxpayer funds. The only thing that a policy of stronger restrictions can lead to is the additional limitation of entrepreneurship and the economic development of local regions. If “state” funds are spent on the protection of parks, the effect will also be negative. In this way, more interested parties are created who have no incentive to actually protect the “common” property (since it is not theirs and they do not bear direct responsibility for its protection), but on the contrary – they have a strong motive to take advantage of it as much as possible, even in the form of providing protection for illegal hunting and logging against the corresponding bribes. As the data show, and as can be seen with the naked eye, this is precisely what we are witnessing with regard to the “protected” nature in Bulgaria – according to data from the World Wildlife Fund, poaching in state forests (which does not occur in private ones) amounts to 2.4 million cubic meters of wood.

Conclusion

Economic logic shows us that the most effective and safest way to preserve nature – as well as any other resource – is to privatize it. Moreover, only then will the needs of individuals be met effectively, without witnessing (further) destruction and waste.

[1] We use the following definition of “economic calculation”: “economic calculation” means the use of current prices and expected future prices to compare current costs and expected future revenues. In this way, the entrepreneur, and every individual, decides what goods and services to produce and what production methods to use to produce them.

[2] As we know, economic principles are general and always valid. This means that the principles we apply to all goods and services are valid whether we are talking about building buildings, producing food, providing hairdressing services, or using nature as an economic asset.

[3] Insofar as the form of ownership and management of most of nature in our country falls under the classical definition of socialism, which is: "State ownership and management of the factors of production."

[4] Where the queues of skiers (or lack thereof) can still clearly show a deficit (or, respectively, a surplus).

[5] See the more extensive book by Ludwig von Mises, entitled Socialism, an Economic and Sociological Analysis .

[6] The collapse of the entire Eastern Bloc.

[7] This is a stark contrast to the current situation, where different groups are in fact in conflict over the most appropriate use of forests, mountains, and animals in them, and are competing to see who will lobby the state more to achieve their goals. In other words, privatizing forests would eliminate another problem that exists today, namely the conflict between different interest groups. Moreover, in a situation of private ownership, the only ones who may suffer are the owners of nature themselves, not the entire society, which pays through its taxes to finance the ideas of the group that lobbied harder.

[8] Perhaps the best examples of how private ownership and the economic exploitation of animals and nature help to protect and improve their welfare are the private parks of South Africa. In that country, it is the privatization of parks that has saved animals. As a local official at the private Rooipoort Game Reserve told Forbes: “People are worried about the African lions, I am worried too. But here we have an example of how when animals acquire real value, it can save them. You will see kudu, giraffes, zebras, mountain lions and many other animals on this property. Even leopards are coming back. … [In parks] where hunting is allowed, there are armies of people who protect the game because it is in their interest to do so.”

In the same article, we see an example of what happens when animals live in state nature parks and even hunting them is prohibited: "Kenya banned hunting and the number of wild animals has dropped to only a fraction of what it used to be."

[9] Here again we have the example of private parks in Africa, where entrepreneurs breed animals and strictly regulate the number of catches for their clients.

[10] We would point out that this de facto means “nobody.”

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