I. Renewable Resource Economics

Natural resources generally fall into one of two broad categories: "renewable" and "non-renewable." Non-renewable resources are such substances as minerals, oil and natural gas that do not replenish themselves in a reasonable time frame. Once they are used, they are gone forever. Renewable resources are those like forests, wildlife and crops that do replenish themselves in a reasonable time frame. Fish are a renewable resource. Left to their own devices, fish stocks will replenish themselves, provided that they are able to reproduce in numbers that exceed the previous year's losses from natural predation, disease, and fishing. For all fish species, the following formula applies:

Change in Stock = New Births - Deaths - Fishing

In order to replace itself, a fish stock must not be "overfished" - that is, the number of fish taken during the fishing season must not exceed the species' fertility rate. Although most fish species can sustain occasional overfishing, prolonged periods of population decline can be critical and can lead to a collapse, when a species undergoes an abrupt, severe, continued decline from which stocks may not recover. The key to managing fish - like any other renewable resource - is therefore to implement policies that encourage fishermen to take fish in numbers that will provide for human consumption without outstripping the species' ability to reproduce itself.

II. The Costs and Benefits of Extracting Renewable Resources

There are costs and benefits of fishing, for both individuals and society as a whole. For the individual fisherman, the benefit that is obtained from increasing his catch by one additional fish is the revenue that he will receive from selling that fish in the market. The marginal cost of catching fish is measured in time and money.

For society, the benefits from commercial fishing include a readily available, relatively plentiful and inexpensive supply of fish for food and other products derived from fish. The cost to society of removing each fish includes the personal costs borne by fishermen plus the cost of a diminished future stock.

In healthy populations of fish, more are born and reach sexual maturity every year than die (both death from human activities and from other natural causes.) The numbers of fish above what is needed to maintain or modestly grow the species population until it reaches a level optimum for its environment are referred to as surplus. In fisheries, the social benefits of harvesting a particular fish exceeds the costs of doing so as long as a surplus of fish exists. As the surplus disappears and species decline, every fish taken could have bred and spawned hundreds of other fish, removing it from the sea reduces next year's stock by more than one fish. Thus, removing the fish may benefit the fisherman, but it hurts society. That is, the social cost of removing the extra fish exceeds the private cost. This is a classic example of what economists call a negative externality.

As long as the benefit for the fisherman exceeds the cost, he will have an incentive to continue fishing. This leads to excessive catches, which in turn lead to the depletion of the fish stock. Eventually, excessive catches lead to what economists refer to as "the tragedy of the commons."

III. The Tragedy of the Commons

In a classic article published in 1968, Garrett Hardin argued that most environmental problems stem from a single cause: the overuse of resources that are owned in common. As a result, people who misuse the "commons" bear only a small portion of the social costs of their actions. Moreover, people as individuals find that it is in their self-interest to use the commons in ways that are harmful for people collectively.

The problem is not new. It has been around for as long as human beings have occupied the planet. Take the case of commonly owned grazing land. If a single cattle herder conserves some grass for the coming year, the odds are small that he will derive any benefit from that action - since the grass is then available for consumption by the cattle of all other herders. With commonly owned grazing land, no single herder reaps the full benefits of "good" behavior or bears the full costs of "bad" behavior. All herders may find it in their self-interest to overgraze the land, even though in the long run all are worse off as a result.

Hardin's analysis can easily be extended to other environmental problems. Most of us would not consider dumping trash in our neighbor's backyard. But since air and water are commonly owned resources to which we have free access, we find it in our self-interest to use them as dumping grounds for all manner of waste. Private timber companies are often exemplary environmental stewards of their own land. Indeed, much of what we know about forest management comes from their pioneering discoveries. Yet some of the same companies have caused environmental harm in the federally owned commons of the national forests. The lessons can also be applied to endangered species:

• One hundred years ago, the nation had three billion passenger pigeons and very few chickens. But because chickens were privately owned and pigeons were common property, today there are three billion chickens and the passenger pigeon is extinct.

• At the beginning of the 19th century in the American West, bison numbered in the millions whereas cattle were relatively scarce. By the end of the century however, bison were nearly extinct, while cattle were abundant. The difference between the two species is that cattle were privately owned so the owners had a stake in their welfare, while bison were unowned and were only considered valuable once they were harvested. Now under private ownership, the bison have made a remarkable comeback.

There is also evidence that a property rights approach is a far more successful way to preserve wildlife than the regulation approach. For example:

• Where villagers have property rights in South Africa, Botswana and Zimbabwe, the elephant population has increased by almost 600% since 1981. Meanwhile, elephant numbers have decreased by two-thirds in Africa as a whole, and have reached critically low levels in countries like Kenya, where elephant property rights are outlawed.

Like pigeons, buffaloes, and Kenyan elephants, most species of fish in American waters are treated as a common resource. Under U.S. law, native wildlife belong to the public, and cannot be owned by an individual unless permitted by the state. Like the buffalo, fish have no protectors or defenders. Like the buffalo hunters before them, today's fishermen have weak incentives to conserve the common resource and strong incentives to overuse it. Unless this incentive structure is changed, over-fishing will continue to occur until the stocks are depleted.

IV. The Tragedy of the Political Commons

What can be done about the tragedy of the environmental commons? Many people believe that the answer is government. Since individuals pursuing their own self-interest will deplete the commons, they reason, we need government to protect it for society as a whole. The record of government, however, is very mixed. Most environmentalists, regardless of other differences, agree on one thing: U.S. government agencies charged with protecting the environment often does a poor job. For example, in an internal study at the Environmental Protection Agency (EPA), staffers were asked to rank EPA programs in order of their environmental importance. As Table I shows, when this ranking was compared to a ranking of programs based on public fears and perceptions, the findings were almost the reverse of each other. The EPA spends the most on those programs that are politically popular and much less on those that might advance the environmental objectives identified by the experts. The finding was echoed in an outside review of the EPA by scholars at Harvard University. Studies also have revealed poor environmental records at other government agencies. These include the U.S. Park Service, the U.S. Forest Service, the Bureau of Land Management, the Army Corps of Engineers, the Atomic Energy Commission and its successor the Department of Energy, the Federal Highway Administration and the World Bank. Consider, for example, the record of the U.S. Forest Service:

• About 342,000 miles of roads have been built in our national forests - more than eight times the total mileage of the U.S. Interstate Highway System.

• These roads, primarily designed to facilitate logging, extend into the ecologically fragile backcountry of the Rocky Mountains and Alaska, where they have caused soil erosion, damaging trout and salmon fisheries and causing other environmental harm.

• In many cases, the costs of these logging activities far exceed any commercial benefit from the timber acquired; this environmental destruction would not have occurred without government subsidies.

Space does not permit a full discussion of all of the ways in which federal bureaucracies cause environmental harm. However, a host of other rules, regulations and policies buried within the Washington labyrinth encourage environmental destruction in sometimes subtle, sometimes blatant, ways. For example:

• Special provisions in the tax code, in addition to low-interest Small Business Administration (SBA) loans, subsidize uneconomical development on the periphery of ecologically fragile areas, including Yellowstone National Park.

• Agricultural price supports encourage uneconomical farm development and have led to the draining of marshes that formerly were waterfowl habitats.

• Federal subsidies for flood and hurricane insurance, grants from public utility and highway funds and projects sponsored by the Army Corps of Engineers all have contributed to destruction in the Barrier Islands along the Atlantic and Gulf coasts.

The problems of government mismanagement of environmental resources do not arise because government has too little power. Even worse problems exist in the former Soviet Union, where government power was enormous. In 1921, Lenin signed a decree prohibiting any development of natural resources in Soviet national parks. Yet under the pressure of five-year plans, bureaucrats increasingly saw protected resources as raw material for economic growth. Only Lenin's personal interest prevented complete surrender to the development-at-any-cost mentality. Once the Stalinists came to power, Lenin's concerns were totally ignored.

The principal reason why government solutions usually don't work is that the political process is itself a "commons." People who support bad policies bear only a small part of the costs of those policies. Most of the costs are borne by others. On the other hand, people who support good policies reap only a small portion of the benefits. As a result, the pursuit of political self-interest all too often results in environmental harm.

In general, the political process generates three types of distorted incentives.

First, legislators have an incentive to pass laws proclaiming lofty environmental goals that seem to reflect the public's abstract values but that avoid addressing the requisite trade-offs. This is because making these trade-offs inevitably produces criticisms that the policies are either too lenient or too strict. Thus legislators delegate to agencies the task of translating the vague language of law into specific regulations. For instance, in the Endangered Species Act of 1972 Congress directed the EPA to strictly regulate the killing or harming of endangered and threatened species. However, the EPA was given discretion over how to determine when a species is to be considered endangered and what was meant by harm. Congress drew praise for writing such a strong act, while the EPA was left to fend off criticism and lawsuits concerning its determinations of what counts as endangered and what counts as harm.

Agencies also face a political commons problem. There is often only a weak link between the effectiveness of decisions that regulators make and their own well-being and career success. This means they have little incentive to develop effective and efficient regulations. For example, because part of the revenues from logging on national forests flow directly into the U.S. Forest Service (USFS) budget, the forest service promotes logging on national forests. It routinely allows logging in areas where the management costs exceed the timber revenues. The budgetary shortfall for below-cost logging is borne not by the USFS but by the general treasury and ultimately the taxpayers, yet part of the revenues flow directly USFS coffers. Worse, environmental damage is often associated with below-cost logging operations on steep slopes. This damage is not accounted for by the USFS, but the public suffers from damaged waterways, decreased wildlife populations and increased landslides. In addition, agency personnel have the incentive to expand their mission beyond its legislated bounds in order justify calls for budget increases and to increase the agency's importance and their importance within the agency.

Finally, lobbyists have an incentive to push for laws that benefit the special interests they represent, even if these laws impose large costs on the rest of society. For instance, when environmentalists push for "no disturbance" of sagebrush habitat in Southern California, they realize the full benefits of their lobbying efforts, while imposing costs of increased fire danger and higher housing costs on everyone living in the area. And, in the forest service case in the previous paragraph, forest product companies lobby for increased timber sales and argue for expanded forest service budgets (both of which endear them to USFS bureaucrats) - imposing the cost of these policies on general taxpayer, who, with only pennies at stake, remains rationally ignorant of forest service policy.

In short, the solutions developed by administrative agencies government fail because the political process is itself a commons. People who support policies that impose costs on the entire community bear only a small part of the cost of the policies. Yet they may derive personal benefits. Conversely, public-spirited people who oppose unwise legislation bear the full costs of their opposition. But if they are successful, the benefits of their efforts are mainly enjoyed by others. Because people face perverse incentives in the political commons for much the same reason they face perverse incentives in the environmental commons, the law is degraded for the same reasons as commonly owned grazing land.

One cannot successfully reach environmental goals by substituting a "political commons" for an "economic commons." Trying to achieve environmental goals by turning the problem over to government often exacerbates environmental destruction.

V. Public Policy Approaches

Public policy-makers have three basic options for managing fisheries and other renewable resources. Species can be left in a state of open anarchy, they can be regulated by the government, or they can be turned into private property and managed by individuals.

A. Anarchy

For most species, there is no need for management by humans at all. These usually fall into one of two groups. On one hand, there are many species for which there is no market demand, and which are therefore not subject to depletion through over-harvesting. For example, almost all species of insect, vermin, and songbirds do not require conservation. Other examples include pigeons, feral pigs, possums, and coyotes. These animals are abundant, in many cases over-abundant, and do not depend for their continued survival on either government protection or private ownership.

In the sea, the vast majority of species fall into this category. In American waters, there are 959 fish stocks, but only around 130 of these are commercially valuable. The other species are under an anarchic system. This only becomes a problem in four instances: when fishers facing a decline in commercial fish stocks begin to exploit currently underused non-commercial stocks; when by taking commercially valuable species, fishers disrupt the predator/prey relations in the marine ecosystem; when non-regulated fish are caught (and die) in large numbers as a by-product of the process of commercial fishing; and when fishing technologies harm the marine environment itself.

These problems aside, there are currently many species of animal for which humans do have uses, but which reproduce in sufficient numbers to replace themselves in spite of collection. For example, freshwater carp are popular food items in many parts of the U.S., and are taken in large numbers from waterways, especially in low-income areas. However, carp are so abundant that they are considered by many anglers to be a nuisance. Another example is the nutria - a beaver-like rodent that is found throughout the Southeastern U.S. Although there is a market for nutria pelts and people also occasionally eat them, nutria are over-populating many rural areas. Neither government regulations nor private ownership is needed for carp or nutria.

B. Regulation

The second option for managing natural resources is government regulation. Until relatively recently, most fisheries were completely unmanaged. In 1976, Congress passed the Magnuson Fishery Conservation and Management Act, which brought American waters under government control in an effort to reduce over-fishing. There were two main features of this legislation. First, the act created 200-mile economic zones in American coastal waters that are exclusively accessible by American fishermen. Second, it divided American waters into eight fishery regions, each of which was placed under the authority of a regional fish council. There are currently 39 separate fishery management plans in place around the country. These councils were given the task of formulating and implementing fishery law in their region. Each of the eight councils drafts management plans specifically tailored to the breeding seasons, migration routes, and current stock levels of fish species in their regions. To do this, the councils use command-and-control regulations, which are aimed at preserving fisheries by placing restrictions in four separate areas:

• The size of fishing vessels

• The types of nets/traps

• The length and timing of the fishing season

• The areas that are open to fishing

• The amount (usually specified in tonnage) of particular species that can be kept.

Theoretically, by controlling the means by which fish are caught, the councils can limit the access that private individuals have to natural resources. The goal is to allow the fisheries to renew themselves, ensuring their availability for future generations. However, as mentioned above, the political process suffers from two weaknesses: it is itself a commons, and it does nothing to change the incentives facing fishers. For every council, the federal government assigns conservationists and fish biologists who have specialized knowledge of the fish in the region to act advise the council members in setting fishery policies. However, in most councils, the majority of the council members are themselves fishermen, and therefore have a vested financial interest in promoting the interests of fishermen rather than fish. Of those members who are not fishermen, many are politicians, who are primarily concerned with meeting the needs of the fishermen in their districts in order to get votes in the next election (See the political commons above). Neither the fishermen nor the politicians have very strong incentives to adhere to the recommendations of the conservationists or fish biologists. The result has been fishery management plans that are more concerned with profits and votes than with conserving fish.

Under the regulatory approach, commercial fishermen have the incentive to catch the maximum amount of fish that they can. Fishermen obtain the full benefit of each additional fish that they catch without bearing the full costs of overfishing (depleted stocks). Fishermen have no ownership over fish until they are actually caught. As a result, there is a "race to fish," as fishermen use every tactic and tool available to extract the largest catch. While conservation may seem nice in principle, any fisherman decides to conserve the resource by limiting his catch, will lose fish to those who are not public spirited and conservation minded. Simply put, if the conservation-minded fisherman doesn't get the fish, the profit-minded one will, and the first fisherman will not be a fisherman for long.

The problem with regulations is that fishermen have an economic self-interest in avoiding and evading them - through both legal and illegal means.

• Prevented from fishing on some days, they make a greater effort to fish on days when fishing is allowed.

• Forced to use smaller boats, they use more of them.

• Forced to use smaller nets, they use those nets more often.

• And in response to limits on the number of fish they can bring back to harbor, they continue to overfish - throwing the smallest ones overboard, before their return.

For example, on the West Coast, 44 percent of all fish caught are thrown back. For the U.S. as a whole, 2.3 billion pounds of dead fish are thrown back into the ocean every year. The lesson: Fishermen, like everyone else, are rational, profit-maximizing creatures. As long as there are obstacles that stand between fishermen and profit, they will attempt to overcome those obstacles.

While government regulation is sometimes necessary, it is rarely effective. For the most part, regulation achieves its objectives in those cases where it imposes a mild inconvenience, and not in those cases where it runs counter to economic self-interest.

C. Property Rights

The third way to manage a renewable resource is through the use of property rights. Instead of placing a limit on fishing, so that the catch is equal to the social optimum, property rights are intended to operate on the source of the negative externality by equating private and social costs.

Under the property rights approach, resource users homestead, purchase or are assigned ownership rights to the resource to be harvested. The rationale behind property rights in wildlife is that, unlike regulation, they give the people the incentives to conserve fish for long-term exploitation and profit. As owners, fishermen will reap the benefits of wise use and bear the costs of overuse. Unlike resources that are owned by no one, resources that are owned by individuals have protectors and defenders. Why? Because people have a self interest in maximizing the value of their own property.

Privatization of marine resources has worked where it has been tried. Indeed, even as government-operated fisheries continue to decline, privately-owned fisheries in the U.S. and other countries have prospered. For example:

• In Iceland, after decades of unsuccessful attempts to restrict fishing through quotas, the government introduced property rights in the country's herring fisheries. As a result, the number of vessels fishing for herring fell from 200 in 1980 to 30 by 1995, catches. In recent years, catches have fallen to sustainable levels, even as the value of catches has risen dramatically.

• In New Zealand, which introduced property rights in 1986, stocks of blue fin tuna, abalone, and lobster have recovered after decades of decline.

• In Australia, an oversized fishing fleet led to the near-collapse of blue fin tuna fisheries. Since the introduction of property rights in 1989, annual catches have fallen by 60 percent, the average income of fishermen has increased dramatically, and the nation's tuna fisheries have become the most profitable in the Pacific.

• In Washington state, oyster farmers who own the tidelands have sustained oyster stocks for well over a century, even as publicly-owned oyster beds in Mississippi have become depleted.

• From the introduction of property rights in the north Atlantic in 1992 to the present day, the harvest of wild salmon netted off Greenland and Iceland has fallen from 213 metric tons to just 12 metric tons, saving a million fish a year from the nets.

• Since the 1950s, the transfer of almost all of England's inland fisheries from public to private ownership has brought salmon and trout populations to levels not seen since the early 19th Century. To take one example, after years of public ownership, the River Derwent was the most heavily polluted river in England, with almost no remaining fish stocks. Following the introduction of property rights, the river's fisheries were purchased by an anglers' club. The river is now one of the cleanest in Europe, with salmon stocks that exceed those of Canadian rivers.

• Following the British example, the Canadian province of New Brunswick introduced a property rights scheme in its inland fisheries in the 1980s. As a result, it now has the healthiest salmon stocks in Canada.

VI. The full liberal (or classical liberal) conception of property involves the following eleven elements1:

1. The Right to Possess -- that is, where possible, to exclusive physical control of the thing owned. Where due to its non-corporeal nature (such as in cases of intellectual property) it cannot be physically possessed, possession may be understood as the right to exclude others from the use of other benefits of the thing in question.
2. The Right to Use -- that is, to personal enjoyment and use of the thing as distinct from (3) and (4) below.
3. The Right to Manage -- that is, to decide how and by whom a thing shall be used.
4. The Right to Income -- that is, to the benefits derived from foregoing personal use of a thing and allowing others to use it.
5. The Right to Capital -- that is, the power to alienate the thing and to consume, waste, modify or destroy it.
6. The Right to Security -- that is, immunity from expropriation.
7. The Power of Transmissibility -- that is, the power to devise or bequeath the thing.
8. Absence of Term -- that is, one's ownership rights are of indeterminate length.
9. Prohibition of Harmful Use -- that is, one has the duty to forbear from using the thing in certain ways harmful to others.
10. Liability to Execution -- that is, liability to having the thing taken away for repayment of a debt (or under some penal regimes as a punishment.)
11. Residuary Character -- that is, the existence of rules governing the reversion of lapsed ownership rights.

Property can be understood as a bundle of sticks (the elements listed above). Rights to property are limited when one does not have control of one or more of the sticks in the bundle, either through government limitation or through voluntary alienation of a stick in the bundle through, for example, selling a certain right. A person may own a particular piece of land for example, and have the right to develop it for residential, commercial or agricultural uses, to sell to others and to exclude other people from it, but he/she may not own the subsurface or mineral rights.

Property rights to marine resources are attenuated or limited in a like fashion. For instance, in the case of individually tradable fishing quotas the government sets the total amount of the allowable catch for the species covered. Fishermen who hold quotas do not have the right to any particular fish - at least until they are onboard - but rather, the right attempt to catch an allotted percentage of that overall total. Each quota holder may buy or sell their right in whole or in part, but their quota is of limited duration (for the fishing season(s) covered by the quota) and the total allowable catch and thus the overall amount of fish a quota holder is allowed to catch may be changed after that time period, or if a serious decline occurs, even within the time period. In the meantime, the fishermen may not prevent other quota holders from fishing in any particular area of the ocean, nor may they prevent other commercial or recreational transit in areas of the ocean upon which they are fishing.

In the case of England's rivers, fishing clubs have the right to limit who may fish (thus excluding non-members) and to set fishing limits (i.e., on the number and size of fish caught, or the angling technologies used). However, they may not exclude commercial or recreational boaters or commercial or municipal water users except in cases where the club can demonstrate in court that such uses are having a detrimental impact on the fish populations and fishing opportunities.

Artificial reefs are not expensive to create or maintain (they occur naturally as select materials like junk cars or disused offshore oil rigs are placed on the ocean floor.) However, they provide substantial positive externalities: fishermen and recreational divers benefit from the reefs existence. In general, private reef creators do not have the right to exclude commercial or recreational users, though they have the right to limit access to above-water structures still in use that the reefs are attached to. If, by contrast, private reef developers were allowed to limit access or charge fees to fishers and divers to an appropriate area around a reef that they created, more artificial reefs might be built, or they might be constructed in a fashion to conserve or repopulate a species of rare fish or marine mammal.

VII. Case Studies in Property Rights in Land

Even for ecologically fragile resources, in most instances private property holders began to protect the environment before government set that as a goal. For instance:

A: The YO Ranch

The variety of innovative programs presented by the owners of the YO are truly amazing and attest well to the entrepreneurial spirit created in a free-market economy with private property at its core. This 50,000 acre ranch is only part of the more than 550,000 acres once owned by the current owner's (Charles Schriener III) great-grandfather. Over the years, with the failing agricultural economy, the ranch has evolved from that of a traditional cattle ranch to becoming a privately owned and operated old-west oriented conglomerate.

While cattle and crops are still the ranch's mainstay, several other increasingly important related businesses have evolved including: Registered Quarter Horse breeding, the largest of herd registered Longhorn cattle both for breeding, beef and show, the YO Hilton Hotel, America's largest private game preserve, annual cattle drives and carnivals, and finally it has become the largest private hunting area of its type in the world.

On the YO Ranch, conservation of the wilderness is a strictly enforced code (both for economic and aesthetic reasons). The owners have a summer training camp for youths which stresses the development of outdoor skills a.k.a. gun-handling and archery while developing an understanding the importance of environmental quality. On the YO, 50 species of exotic animals, many nearly extinct in their native habitats, thrive. The rarer species include Scimitar Horned Oryx, Arabian Oryx, Addax, Pere David Deer, Indian Blackbuck Antelope, Sika Deer and Barashinga Deer. The Schriener's breeding efforts have been so successful that the Schrieners have, at the request of several governments, exported animals nearly extinct in the wild back to their native countries for restocking and recovery. The Schrieners are rightfully proud of their conservation efforts--especially as their entire ranch has no easily accessible source of water (all the water is drawn by over 52 windmills).

B: North Maine Woods, Inc.

North Maine Woods, Inc., is one of the most complex and innovative programs for the multiple use of lands. Some 20 different companies and individuals own over 2,783,170 acres of primitive forestlands and lakes in northwest Maine. This land maintains a variety of wild flora and fauna. The land has been left largely undeveloped as it is mainly used for commercial logging. Until the 1950's public access to these lands for hunting fishing etc. . ., was largely restricted as it had to be done on foot or in canoe. However, as destructive river log drives were prohibited, the logging companies built many roads to gain access to the timber. This in turn made the forest more available to the public. It was a boon for outdoor recreational activity.

The owners accommodated this use, as it had been going on for years and was tacitly supported by the state government. Problems arose, however, with the advent of logging roads. Increased use eroded the roads, sometimes the public came into conflict with logging trucks on the narrow roads. Also, increased camping brought increased risk of forest fires and litter. Something clearly had to be done without inciting the ill-will of the public-at-large. Thus, these 20 individuals and organizations formed a management trust to control the publics' use of their lands and manage the land as a single unit.

They devised a series of 17 access checkpoints and 16 access roadways where visitors are required to register, pay a small fee for different types of use and obtain permits for campsites. At first there was a negative reaction from users who had enjoyed formerly free usage. However, their anger was eventually assuaged with the recognition that this fee system was in the best interest of all parties. The fees are comparable to those charged for access local governmentally owned parks. They are used to maintain the roadways, improve certain campsites and to help with the cleanup of pollution left by campers. Fires are only allowed in steel fire rings provided by the owners.

The area is open seven months of the year and in 1984 had over 189,000 visitors. Though the fees do not completely cover the management of the park for the publics' use, the owners subsidize the rest with profits from their logging operations to placate the public and garner themselves good public relations.

C. Sea Lion Caves, Inc.

America's largest sea cave and the only mainland rookery of Stellar Sea Lions was discovered in Oregon in 1880 by Capt. William Cox. He Purchased the caves and his family maintained them until 1926. In 1927 the land was purchased by R. E. Clanton with the intention of starting a business. He and partners constructed a 1500 ft. trail along the cliff face and a 135 step tower down to the cave. Clanton withdrew from the partnership and over the years the business was passed down to his partner's son. In 1961 an elevator was put in and tourism increased markedly.

In size and beauty, the caves are reputed to be as comparable to the Blue Grotto of Capri in Italy. They are the only known mainland rookery of the Stellar Sea Lion and have approximately 200 in residency. Other sea lions come and go freely. The cave and rocks also form an important bird rookery. Another site-seeing attraction of the caves is from the cliffs where there is an ocean view of over twenty miles and whales are frequently sited. The caves have over 200,000 visitors annually who pay fees of $2.50-$4.00 apiece.

Sea lion and other sea mammal populations dwindled due to hunting and commercial fishing. Fishers believed that sea lions ate a large share of their commercial catch and hired bounty hunters. Until the passage of the Marine Mammal Protection Act, the caves served as one of the few bastions of safe harbor for sea mammals. Not only are the caves a major tourist attraction in Oregon, they are also an important research location for naturalists, scientists and students of geology, ornithology, marine biology and natural history.

The caves owners have been praised by The Humane Society and the Governor for their continuing stewardship of the area. As the owners correctly point out, "Had not the area been privately owned, developed, and protected, especially when the State of Oregon paid a bounty for slaughtered sea lions, the Sea Lions Caves area would undoubtedly be void of sea lions and other marine life, and the natural wonder would probably not exist today. . . . Our existence at Sea Lion Caves is totally dependent upon the wildlife in the area and the cave, so we take every precaution possible NOT to disturb the natural lifestyle of the animals in any way, and still make it accessible to the public for observation."

The owners practiced conservation before it became fashionable and their continued investment in the property was considered by many to be foolhardy. But the Sea Lions Caves shows that with a little foresight, making a living and preserving wildlife are compatible.

D. The Audubon Society

Founded in 1905, the National Audubon Society is named for John James Audubon (1785-1851), famed ornithologist, explorer, and wildlife artist. The mission of the National Audubon Society is to conserve and restore natural ecosystems, focusing on birds and other wildlife for the benefit of humanity and the earth's biological diversity. In the United States, the Audubon Society has more than 550,000 members, 508 state and local chapters and more than 100 Audubon Sanctuaries and nature centers nationwide totaling more than 300,000 acres.

One of the gems of the Audubon sanctuary system is the Paul J. Rainey Sanctuary (26,800 acres) in Louisiana. The Rainey Sanctuary is an exemplary case of the ability of institutions, when provided with the proper incentives, working together to reach the not so contradictory goals of economic profit and environmental preservation. This sanctuary provides a nearly pristine habitat for hundreds of animals, including alligators, mink, armadillo, otters and a winter haven for migrating snow geese. It is run for the sake of nature and tourist are discouraged.

However, since the mid-fifties oil companies have run profitable gas wells on the preserve and ranchers have run livestock in certain areas. The relationship between the oil companies and the Audubon Society is mutually beneficial. Audubon managers found that the timing, placement, operation, and structure of oil exploration could be carefully planned in conjunction with the seasonal requirements of the wildlife, thereby avoiding adverse environmental effects while providing a source of revenue to further support their entire range of conservation operations.

The fees, that the oil companies pay, have provided funds for Audubon's lobbying efforts, further land purchases and finally for habitat reclamation and improvements--the oil companies have also helped Audubon build levees and flumes for water control on the preserve. The oil companies have received profits from the wells as well as good PR. All of this has been done with little or no damage to the environment. This arrangement has been so beneficial for all parties involved that further collaborative efforts of this kind have been undertaken on Audubon Preserves in Michigan, South Carolina and Florida.

E. The Nature Conservancy

The Nature Conservancy, a nonprofit organization founded in 1951, is the world's largest private international conservation group. The mission of The Nature Conservancy is to preserve the plants, animals and natural communities that represent the diversity of life on Earth by protecting the lands and waters they need to survive. To carry out this goal, the Conservancy sets its conservation priorities through ecoregional planning, attempting to preserve at least one representative example of each unique ecosystem.

The Conservancy both hires biologist and ecologists and works with various academics to establish its conservation priorities. Rather than protest and lobby, the Nature Conservancy largely uses a nonconfrontational approach to protecting species in situ: it purchases habitat.

The Conservancy runs the largest private system of nature sanctuaries in the world. To date, the Conservancy and its 1,029,012 members have been responsible for the protecting and maintaining 12,089,000 acres in the United States in its nearly 1,400 preserves in the country. This is amounts to an area greater than the combined size of Connecticut, Delaware, New Jersey and Rhode Island. The preserves range in size from less than half-an acre, to several hundred thousand acres in size. In addition, the Conservancy has helped like-minded organizations preserve more than 80 million acres in the Asia Pacific, Canada, the Caribbean and Latin America.

All of the Conservancy's preserves are run in order to maintain the ecosystem or habitat as a functional whole. These preserves are field laboratories, both to learn about the specific ecosystemic goods and their interrelationships protected by the specific preserve and to better understand, in general, how to improve ecosystem management and protect biodiversity worldwide. The Conservancy does not promote the preserves for recreation, and many of them do not allow the general public to visit.

A similar principle applies to the ocean. If the goal of government is to protect human rights to use ocean resources we are likely to get better results than if the goal is to protect those resources in the first place.

VIII. Case Studies in Property Rights

A. Individual Transferable Quotes in New Zealand

Individual Transferable Quotas (ITQs) are one way of correcting the negative effects of America's command-and-control fisheries policies. ITQs prevent over-fishing by setting a limit, or total allowable catch (TAC), on the number of fish any single fishermen can harvest. Fishermen no longer have an incentive to race to fish because they are guaranteed a share of the TAC. This reduces the likelihood that fish stocks will be depleted by over-fishing. Because fishermen can buy and sell their quotas in a competitive market, the least efficient fishing vessels will find it more profitable to sell their quotas rather than to fill them through fishing. This in turn reduces excess capacity and increases the efficiency of vessels operating in the fishery.

The ITQ system was first introduced in the 1960s, when a number of countries began to look for ways to restore national lobster fisheries after decades of overfishing. In most cases, the introduction of property rights began as an experimental program with one species of fish - usually lobster or other crustaceans. To begin with, governments established a limit on the total number of lobster traps that could be used in each fishery. Licenses for the traps were given to existing fishermen. For new fishermen, the only way to trap lobsters in the fishery was to buy a license from one of the original fishermen. In a way, the system was similar to the taxicab system in New York, where the city has established a limit on the total number of taxi licenses or "medallions," and new drivers can only own a cab if they buy a medallion from another driver. In this way, fishermen were able to establish a system of property rights whereby they could each own a percentage of the traps used, without carving up plots on the ocean floor.

Since the introduction of the system, more than 15 countries have established ITQs in ocean fisheries. Today, ITQs are used to manage 60 species, including 4 in the United States. The most notable example of a successful ITQ system is found in New Zealand:

• For several decades, New Zealand used a U.S.-style regulated open-access fisheries policy, with a combination of command-and-control regulations and subsidies for the fishing industry.

• As a result of these policies, by the early 1980s, the country's fisheries were pushed to excess capacity and depleted fish populations.

• Catches of the country's most important commercial species - red snapper - had fallen by 43% by 1983.

• In 1986, the country introduced an ITQ system, which has been expanded to include 33 species.

Under the quota system, New Zealand's fishery industries have been brought back from the brink of near collapse. Now, breeding fish stocks are being maintained, and the entire New Zealand fisheries management system is 100% self-financing.

B. Sea Turtles in the Cayman Islands

Granting liberal property rights in members of endangered species that were amendable to private ownership and control would enhance species preservation efforts by fostering positive incentives and improving the knowledge base relative to endangered species.

Though there are a number of zoos and conservation organizations devoted to helping endangered species to recover and thrive, the pool of active "conservationists" would likely expand if the Endangered Species Act (ESA) did not preclude "enviro-capitalists" from profiting from species propagation activities. Perversely, the ESA denies the very values, incentives and motives for knowledge that are most conducive to promoting species flourishing in the human society: self-interest. The ESA places many regulatory hurdles in the way of private species recovery efforts including: fees, paperwork burdens and specification of activities allowed.

But the limitation most likely to inhibit participation in a species recovery program is the ESA's prohibition of breeding, trading in or using endangered species for commercial purposes. In other words people and companies who might be willing to promote species recovery with the goal of making a profit need not apply to partner with the USFWS on a recovery or captive breeding program. This, not surprisingly, limits the resources devoted to species recovery efforts that flow from private sources. Zoos and conservation organizations complain that they do not receive enough in donations to help all of the species which they might otherwise be capable of preserving. But companies that might be willing to spend millions of dollars to discover new methods and create new technologies to preserve species with the goal of eventually exploiting the species in some way are precluded from doing so. Under the ESA, it is not enough to help a species recover, one must do so for the "right" (government sanctioned) reasons or not do it at all.

Indeed, there have been instances where species, that were treated as private property and exploited commercially, were subsequently listed as endangered further imperiling their survival. For instance, in 1968, Mariculture Ltd. began a green sea turtle farming operation in the Cayman Islands. The world's green sea turtle populations were (and still are) declining due to demand for sea turtle products combined with open access harvesting and destruction of breeding habitat from ocean front development. Mariculture, with a motto of "Conservation through Commerce," hoped both to profit from the demand for sea turtle products while stemming the decline in turtle populations. The latter would be accomplished both as certified farmed sea turtle products replaced wildstocks in the marketplace and wild stocks would be supplemented by farm-bred turtles.

To begin, Mariculture collected eggs from the wild that would not otherwise have survived either because of where or the way they were buried. Despite admonitions from prominent ocean conservationists as Jacques Cousteau, who proclaimed, "If the green sea turtle is to survive, it must be farmed," environmentalists were successful in having trade in sea turtle products banned internationally. As a result of closing markets, Mariculture was forced into bankruptcy and though it tried to reorganize as the Cayman Turtle Farm, when the Green sea turtle was added to the U.S. endangered species list in 1978 - which ended even the shipment of turtle products through the country -, the reorganized enterprise also went out of business. Just prior to the sea turtles' ESA listing, Cayman Turtle Farm had announced that it was on the verge of self-sufficiency (i.e., its breeding program was so successful it would no longer have to collect eggs from the wild). At the time of its closure, there were close to 80,000 sea turtles at the farm, while there were only an estimated 5,000 wild green sea turtles in the Caribbean and the Gulf of Mexico.

Scientific research at the farm provided a wealth of information on the breeding habits and life history of the Green sea turtle, and even the farm's detractors, who objected to commercialization, admitted that the farm was 'of real importance to conservation as well as biology.'
(De Alessi, 1998, p. 67).

C. Sea scallops in Canada

One of the most successful examples of the use of property rights to regulate ocean wildlife can be seen in the case of Canada's Atlantic sea scallop fisheries. For decades, the harvesting of sea scallops along the George's Bank was regulated by a combination of fishing quotas, seasonal restrictions, and equipment regulations. The result of this approach was too many boats chasing too few scallops. By the mid-1980s, the sea scallop fishery was at about 50% of its natural levels. In response, the Canadian government introduced a system of property-rights somewhat similar to the New Zealand lobster fisheries. The government began by issuing licenses to existing fishermen and restricting further entry. Each license entitled an individual fisherman to a fixed percentage of the year's total allowable catch (TAC). The more licenses that an individual or company holds, the greater the portion of the catch to which they are entitled. As in New Zealand, new fishermen could only enter the fishery by buying a license from one of the original fishermen. Unlike New Zealand, however, the Canadian government has encouraged fishermen to consolidate their efforts by forming joint fishing enterprises. The system that has been worked out is called an "enterprise allocation" (EA) system - whereby portions of the TAC are given not only to individual vessels but also to companies, which can fill their quota in whatever way they see fit. After a couple of years, the government became even less involved in managing the fishery. Although the government continues to set the TAC, it allows companies and individuals to decide among themselves how the quota would be broken up.

The results of the introduction of the property rights system have been dramatic. The best illustration of the system's success can be seen by comparing it to the U.S. sea scallops fishery during the same period. Like Canada, U.S. scallop fisheries were at about 50% of their natural levels by the mid-1980s. However, while Canada adopted property rights, the U.S. turned instead to tighter regulations on fishing equipment. In Canada, the annual catch has risen fourfold, even as the size of the fishing fleet has dropped from 67 to 28 vessels and the population of scallops has increased to between 80 and 100% of its natural levels. In the U.S., the annual catch has plummeted, there are now 200 vessels in the fishing fleet, and the scallop population is at about 20% of its natural levels.

D. Ocean Entrepreneurs off the Marshall Islands.2

Ocean Farming, Inc., is in the business of fertilizing the seas to enhance growth of phytoplankton, which nourishes fish production. Based on actual experiments, company president Michael Markels estimates that with continuous fertilization about one thousand tons of catchable fish per square mile can be produced each year. At this rate, 100,000 square miles of fertilized ocean, a mere fraction of the world's oceans, could produce about the amount of fish the world currently produces each year.

Ocean Farming recently entered into a contract with the Republic of the Marshall Islands that gives the company an option for exclusive fishing rights on up to 800,000 square miles of deep ocean. Once harvesting starts, Ocean Farming will pay the Marshall Islands government $3.75 per square mile of ocean optioned or 7 percent of the value of the catch, whichever is more. Ocean Farming can charge other companies to fish the waters, and the firm has agreed to allow previous small-scale fishing to continue.

As this case shows, an exclusive right to harvest resources from a marine area allows an entrepreneur to invest in improvements and to capture the benefits of his or her investment. This same approach could be used for many other fisheries. For example, suppose the National Marine Fisheries Service allowed people to "homestead" sections of the ocean within the 200- mile limit and harvest bottom fish from their homestead.

IX. How the Common Law Protects Property.

The courts are critical to protecting property rights and thus the marine resources that people own in the system that we advocate. Particularly as they use the common law. In general the law can be divided into two broad categories, the public law and private or common law. Public laws, created by legislative bodies, encompass statutory based-rules and constitutional strictures. Private law, on the other hand, has traditionally arisen spontaneously as a result of court rulings or judicial determinations in the areas of property, contract, and tort law.

At the core of each of these realms of law is the notion of private property rights. Property law is concerned with the pedigree of possession and justifiable use of real and personal property. Contract law governs transactions of private property and personal services. Tort law protects individuals, and their real and personal property, against injury or invasion.

'Common law' is a label used to describe the ancient legal process of discovering and delineating the law on a case-by-case basis. Historically, common law judges did not see themselves as creating law so much as discovering it. They subscribed to natural law doctrine whereby "there are natural rules of conduct inherent in humanity itself, most easily discovered by the evolution of customs of dealing. The job of the common law judge was to look to custom in an effort to discern the law that already existed and then render rulings based upon it" (Green, 1995, p. 3). Over time the notion evolved that like decisions should be decided similarly and the concept of stare decisis was born.

Until the latter part of the nineteenth century, individuals used three bodies of the common law (e.g., trespass, tort and riparian law) to quite good effect in defense of themselves and the environment. The common law provides a strong defense against environmental harm. Common law determinations rely upon the personal initiatives of conflicting parties one can expect that: (1) the determinations are advised by a careful and equitable consideration of all of the relevant information presented; and that (2) the conflicting parties will present the strongest arguments for their positions. Therefore, if the judge is unbiased and understands his role correctly , then his legal finding will reflect most accurately the rule that should and, in fact, does govern the situation.

Another reason that the common law provides such a strong defense of environmental quality is its recognition of the fundamental importance of private property as instrumental to the protection and promotion of individual rights. The common law evolved out of and in connection with a deep and abiding respect for the value of private property and the rights of the property owner to be undisturbed in the possession and use of his possessions. In addition, it possesses powerful tools to delineate or better define particular property rights allowing markets for those rights to develop and operate smoothly.

When property rights are clearly defined, readily enforced and easily transferable, markets can be effective in peacefully promoting the desires and interests of varied individuals -- including their interests in environmental goods such as marine resources.

With regard to the protection of marine resources, three realms of the common law are of particular interest: trespass, nuisance (private and public), and riparian law. According to one law textbook:

Trespass and nuisance are related doctrines protecting interests in, respectively, the exclusive possession, and the use and enjoyment, of land. In an earlier era, trespass came to be regarded primarily as a safeguard against physical intrusion on land. By contrast, nuisance actions have a long history of affording protection against obnoxious uses of neighboring land. . . . [H]owever, in modern times the distinctions between the situations in which cases arise begin to blur.

(Franklin and Rabin, 1988, p. 573)

Riparian law evolved from nuisance law but has a strong trespass law element. Under the common law, people who own or occupy land beside rivers and lakes (i.e., riparians) have rights to the natural flow of water beside, on or through their property unchanged in quantity or quality. Water uses that either alter the quality or quantity of water enjoyed by users do not have to cause identifiable harm to be enjoined or require some kind of compensation. Many early nuisance cases concerned water pollution, and by the 1850's riparian law had developed into such a finely-tuned system of rights and responsibilities that it emerged as a very powerful weapon against the era's severe environmental challenges. In essence, riparian law privatizes a common pool resource, because its rules and regulations provide a private mechanism whereby a select class of people can protect a commons.

Trespass, nuisance and riparian law, as historically developed and (until recently) applied, provided a strong bulwark directly against individual rights violations and indirectly against undesirable environmental alterations. The strength of these laws stemmed from the fact that they cut across the boundaries of intentional and unintentional categories of harm. Because of the special importance that the common law traditionally placed upon property ownership, strict liability has been a dominant feature of the law in these areas. In regard to the law of trespass, unauthorized entry by a person or object onto another's land as a result of any voluntary act was subject to liability and future injunction. Even if the entry was unintentional, and non-negligent (the person in question thought he was on his own land or had permission to be on the land), once it was established that actual physical entry had occurred, then any technical invasion could serve as a basis of action. In riparian law, under the traditional doctrine of aqua currit, et debet curerer, ut sloebat es juie naturae ("water runs, and it should run, as it is used to run naturally"), liability was just as absolute. Riparians did not need to demonstrate harm, it was presumed once interference with a riparian right was established.

There are two types of nuisance, public and private. Nuisance is an action for indirect and consequential interference or injury to the use and enjoyment of land. Initially, nuisance determinations resulted in damages, but courts of equity later provided injunctive relief as well. To prove private nuisance, one had to show actual harm, but as with trespass and riparian law, once harm was demonstrated, liability was absolute. Proof of this was demonstrated in:

William Aldred's Case (1611) [77 Eng. Rep. 816], the plaintiff brought an action on the case against the defendant's offending hog sty. The defendant explicitly invited the court to consider the social value of his operations as a defense to the nuisance action, stating that because his activities were 'necessary for the sustenance of man . . . one ought not to have so delicate a nose.' But the court rejected the argument and instead articulated the doctrine of sic utere tuo ut alienum non laedas ('one should use his own property in such a manner as not to injure that of another'). (Green, 1995, p. 11)

In its formulation as an absolute liability concept, the courts found that causing an injury to someone's enjoyment of his property creates a cause for recovery regardless of the legitimacy of the social value or reasonableness or utility of the undertaking.

The law of public nuisance has been used to fill gaps left in the protection of legitimate interests by other branches of the common law. Historically, the origins of public nuisance related to minor criminal interference's with the rights of the Crown, which over time became understood as rights of the public (encroachments of commons or roads, etc.). Public nuisance came to cover a wide variety of minor criminal offenses that involved unreasonable interference's with some interest of the general public, such as threats to the public health (through the keeping of diseased animals), threats to the public safety (by storing highly volatile explosives in the midst of a city), or threats to the public comfort (through widely disseminated smoke or dust). In order for a private individual (as opposed to a public official) to bring a public nuisance claim he or she had to overcome strict standing requirements. The individual had to be able to show a special harm, of a different kind (not simply of a difference of degree) from that suffered by the general public. Public nuisance fills in the gaps in private nuisance actions in two ways. First, it is prospective. Harm is prevented in advance, not recompensed after it has occurred. Second, it covers a range of cases for which no individual may have an actionable claim. As currently constituted, no individual person has a right against obstructed highways, or the keeping of diseased animals, or the storage of hazardous waste; however, the public as a whole (in order to prevent rights violations in advance) has a legitimate interest in seeing that no one can undertake (or continue in) an action that threatens the significant interference with public health, safety, etc..

One can gauge the strength of common law protections by examining some cases. In Hay v. Cohoes Co., the defendants engaged in blasting to build a canal. The blasting caused rocks to be tossed onto the plaintiff's land, depriving him of the safe use of his property. The court held that while the defendants' activities constituted a lawful and non-negligent use of their property, they did cause a nuisance and a nuisance cannot be allowed, "even for the purpose of lawful trade," and thus the "offending use had to be barred regardless of the detrimental effects upon industrial development" (Green, 1995, p. 14).

Even governments are not immune from common law prohibitions as demonstrated in a 1899 challenge to municipal storm sewage disposal practices, wherein the justice writing the majority opinion held:

I know of no duty of the Court which it is more important to observe and no power of the Court which it is more important to enforce than its power of keeping public bodies within their rights. The moment public bodies exceed their rights, they do so to the injury and oppression of private individuals, and those persons are entitled to be protected from injury arising from the operations of public bodies. (Roberts v. Gwyrfai District Council, quoted in Brubaker, 1995, p. 62)

In Great Britain riparian rights are still fiercely defended and routinely upheld. For instance, the Anglers' Cooperative Association fights pollution by defending riparian rights in county courts. The Association has won all but two of the cases it has argued since its founding in 1948.

X. Understanding the Role of Government Subsidies in the Decline of Marine Resources. 4

A subsidy may be defined as "a government-directed, market-distorting intervention which decreases the cost of producing a specific good or service, or increases the price which may be charged for it."4 Subsidies have resulted in overinvestment in world fishing fleets. The costs of fishing have been estimated to exceed the gains by some $US 16 billion annually. For every single dollar earned in 1989, for example, the costs associated with catching the fish were $US1.77.

Natural resource subsidies reduce the costs to producers below the marginal costs to society, affect both investment and consumption patterns in ways that are harmful to the environment. Subsidies for natural resource use degrade the environment through one or more of six distinct processes.

A. The overcapitalization effect

Subsidies to natural resource industries draw more investment into that sector than would have otherwise been made. The result is more land devoted to agriculture, more fishing boats, more coal mining or more processing plants using a natural resource.

B. The technology effect

C. The resource inefficiency effect

By artificially depressing the prices of natural resources, subsidies remove the incentive for efficient use of resources by industries that process the resources or by the end users. When water prices do not reflect the actual value of the resource, farmers use far more water than they need for a given harvest; water-intensive crops are grown in water-short regions, and irrigation works are not kept in good working order.26 Providing cheap fish to the processing industry reduces the incentive to economize in using the resources.

D. The overharvesting effect

When the marginal cost of extraction or harvesting of a natural resource is reduced by a subsidy, it encourages producers to harvest more of the resource.

E. The overconsumption effect

Subsidies to natural resource industries result in lower prices for the resource and lead to excessive consumption of the good. In the short run, at least, subsidies result in higher levels of consumption of fish than would have been the case in an undistorted market.

F. The public resource deprivation effect

Natural resource subsidies reduce the amount of public funds available to enforce laws and regulations protecting natural resources and to promote their sustainable management.

Government subsidies have played a crucial role in the creation of the present overcapitalization crisis. Major leaps in the technological capabilities of fishing fleets that have taken place in recent decades have been associated with efforts by major fishing nations to make their fleets more efficient and competitive internationally. And once the fishing industry has been overcapitalized to the point that it is unprofitable, government subsidies have frustrated the normal tendency for disinvestment.

Fisheries subsidies contribute to fishing overcapacity in three ways:

• By raising profits per unit of fish produced, subsidies attract more entrants into the fishing industry than would enter it in an undistorted market.
• By reducing fishing costs and providing income support for fishermen and compensation for vessel owners when they are idled, subsidies encourage producers who would otherwise withdraw to remain in the industry.
• By reducing the costs and risks of investing in more efficient fishing technologies, subsidies induce producers to adopt such technologies faster than would otherwise be the case.

Fisheries subsidies can be categorized according to the type of instrument used, that is border instruments or domestic policy instruments, and within the latter category, according to the relationship of the intervention to the producer's balance sheet. Border instruments (i.e., trade measures) increase the domestic prices received by producers, whereas domestic instruments increase their income or reduce their costs. Domestic instruments have been far more important than border instruments to the creation and maintenance of fishing overcapacity.

Tariffs, import quotas or other trade measures are used to support the minimum prices paid to producers for fish. The main border instrument is a tariff that raises the prices of competing imports to the same level as the minimum price being paid to domestic producers.

Such border instruments also act as a tax on processing industry, since they raise the prices paid by processors by the same proportion. Countries that have used tariffs to support minimum fish prices include Norway, Sweden, Finland and France.

Domestic instruments include five types of subsidy: subsidies to output or idle capacity; intermediate input subsidies, subsidies to the use of capital, subsidies to the use of fish, and indirect subsidies.

A. Subsidies to output or idle capacity

This type of subsidy provides direct income, subsidizing all or part of the producer's fishing output or, alternatively, the producer's idle capacity. The effect of direct income support is to discourage exit from the industry. Norway, Sweden, Finland and France support a minimum price for fish as a social welfare scheme for producers. Norway also provides a subsidy where necessary to ensure a minimum basic wage for fishermen. France has a bad weather unemployment compensation scheme, which is available if vessels are confined to harbor for a total of 14 days out of any 30-day period. 46 And Canada's unemployment insurance program, which provides benefits in proportion to the level of fish catch up to a certain point, nearly doubles the net earnings of the average fisher or processing worker, and is triggered by as little as ten weeks of work during a year. It thus serves as a strong incentive to remain in the industry.47

A variant of this type of subsidy is the "laying up" grant to fishing vessel owners for removing vessels temporarily from active fishing, which has been widely used in the European Union. Although it might appear that this subsidy reduces capacity, it actually has the effect of supporting overcapacity by discouraging exit from fishing. Such subsidies are usually prompted by moratoria imposed on fishing for certain depleted species as they waited for fish stocks to rebound, are essentially operating subsidies for idle capacity, which effectively encourage financially hard-pressed vessel owners to bide their time and wait for fish stocks to rebound from overfishing.48

B. Intermediate input subsidies

This type of subsidy reduces the costs of producers, thus both drawing more investment into the industry and making it easier to stay in. Fuel subsidies, through rebates or tax exemptions on marine fuel sales, are the most prominent form of intermediate input subsidy and the most significant in terms of cost savings to vessel owners. The value of fuel subsidies to the fishing fleet of the former Soviet Union has been estimated at $5-6 billion annually.49 Fuel subsidies are used by many major fishing states, including the United States, Canada, France, Australia, Japan, Taiwan and Indonesia, to assist their national fleets.50 Subsidizing fuel purchases for fishing also has a technology effect as well, encouraging the use of more expensive fuel-intensive engines, which allow fishing vessels to range more widely and to harvest fish stocks that previously had been less exploited because of their distance from port.51,16

C. Subsidies to the use of capital

The subsidies with the greatest impact on overcapacity are those for building new vessels and modernizing existing vessels, which is the largest capital cost to the fishing industry. These subsidies have the effect of inducing major technological improvement in the fishing industry. Interventions aimed at stimulating vessel building and modernization include low interest loans and grants, tax concessions on such investments and loan guarantees, which makes governments responsible for commercial loans that a fishing firm cannot repay.

Vessel modernization programs emerged in most fishing states in Europe, and in Canada, the United States and Japan, beginning in the late 1940s or early 1950s, as governments became impatient with the slow pace of development of marine fisheries. Subsidy programs typically featured low interest loans that covered 50 to 80 percent of the vessel construction or improvement costs, with generous repayment periods ranging from 6 to 20 years. In some cases, such as Canada and the UK, outright grants for the initial costs of purchasing fishing vessels or gear were employed when even generous loans failed to stimulate sufficient new investment.

Relief from taxes and from import duties on fishing vessels, gear and equipment was also used to stimulate more investment in the industry.52 Since the early 1960s, Canada, Belgium and the United States have all had loan guarantee schemes.

In recent years, the Japanese Fisheries Agency has administered a number of subsidized loan programs with interest rates as low as 3 percent by 1996, adding up to an active portfolio worth $3.7 billion. The U.S. has long had a program that insures mortgages up to 75 percent of the total cost of work on a fishing vessel. Some EU member states, and Russia also provide loan guarantees for vessel construction.54

The loan guarantee has become an increasingly important instrument for state subsidies to the fishing sector. Loan guarantees reduce the risks of commercial loans and thus draw much larger amounts of capital into the fishing industry than would otherwise be the case. As the economic performance of the fishing industry worldwide has deteriorated, banks have been much less willing to make loans to the fishing industry unless the loans are guaranteed by the government. In Canada, for example, commercial banks have significantly reduced their exposure in the marine fisheries sector, because of resource and market instabilities, and they normally make loans only on equipment that could be removed from the boat and sold in case of bankruptcy.55 Under these circumstances subsidized loans and grants and loan guarantees have become increasingly important to construction of new vessels and modernization of existing vessels. In Portugal, for example, about half of the new fishing industry investment between 1987 and 1990 was funded through subsidies either from the national government or from the European Commission. And in Denmark, the state Fisheries Bank funded at least 50 to 60 percent of all fisheries investment by 1990.56

When the fishing industry is in financial crisis, loan guarantee programs may necessitate actual assumption of debt obligations by governments by writing off loans or refinancing them. In the early 1980s, the Canadian fishing industry was on the verge of financial collapse, because it had gone so heavily into debt in order to undertake the vast expansion of capacity of the late 1970s. The Canadian government intervened in this financial crisis by refinancing and restructuring the industry.57 Japan has also assumed an unknown proportion of the debts of its financially troubled fishing industry. A Japanese fishing industry publication reported in 1991 that the amount of liability taken over by the Japanese government had been "substantial in recent years due to the severe economic status of the fisheries industry."58 Norway has partially written off unpaid fishing loans as well as interest subsidies on commercial loans, even though it did not have a loan guarantee program.59

Government backed loans have stimulated major leaps in tonnage and catching power of the fishing fleets. In the 1950s and 1960s, much of the investment that resulted in the building of more powerful trawl vessels that could catch far more per unit of effort was the result of state subsidy programs. For example, the Spanish distant water fishing fleet converted to the powerful stern trawler in the 1960s, primarily because of the Spanish government enacted a law in 1961 providing funding for one of the biggest programs of construction of stern trawlers in the world. The subsidized construction of stern trawlers resulted in such overcapacity in the Spanish distant water fleet that its yields quickly began to decline.60

Subsidies continued to stimulate vast increases in fishing capacity in the 1970s and 1980s. The U.S. loan guarantee program, for example, was crucial to financing of construction of a fleet of 43 factory trawlers in the 1980s, aimed at more fish from the Alaska Pollack fishery of the Eastern Bering Sea, Aleutian Islands and Gulf of Alaska. About $90 million in low-interest loans was backed by the U.S. loan guarantee program, accounting for nearly one-fifth of the total value of the trawler fleet. The result was a U.S. domestic factory trawler fleet that had the capacity to harvest virtually the entire Pollock quota for the Gulf of Alaska in just the first quarter of the year.61

E. Indirect Subsidies

These are interventions that benefit the fishing industry indirectly while benefiting other industries as well. Indirect subsidies to fish harvesting include subsidies to the shipbuilding industry, some portion of which is passed on to those who buy the vessels, and infrastructure programs that benefit the fish harvesting sector.66

A disproportionate share of the world's fishing vessels is being built in countries whose shipbuilding industries are most heavily subsidized, such as Norway, Japan and Korea. In many cases subsidized shipbuilding reduces the costs of new vessel construction to a fraction of the unsubsidized cost.67 In the negotiations on an agreement to reduce shipbuilding subsidies, which ultimately failed, some nations insisted on explicitly excluding fishing vessels from the intended agreement, indicating that they viewed the stakes in shipbuilding subsidies for their fishing fleets as quite substantial.

Japan appears to be the leading state in providing infrastructure assistance to the fishing industry, spending as much as two-thirds of its fisheries agency budget on such projects as fish port improvement and better on-shore refrigeration facilities. In the United States, states and municipalities in the northwest and northeast have also funded most of fishing port improvements over the years.

Both shipbuilding subsidies and infrastructure programs directly related to fishing clearly reduce the industry's costs substantially.19

3. Subsidies for capacity reduction

Another form of subsidy that has been employed in many fishing states since the early 1970s is a payment for the retirement of vessels from the fishing industry. These subsidies include grants for the "buyback" of fishing vessels and licenses by the government as well as programs that provide training in other employment fields to fishers who have been unable to work because of fishing moratoria. Iceland and Norway were among the first countries to use subsidies to try to reduce fishing capacity. Iceland had operated a scheme for compensating the scrapping of older vessels since the 1970s. Norway had a program from 1979 through 1983 provided grants for scrapping of vessels, although it also covered temporary laying up of vessels and their sale outside the country, neither of which reduces capacity on a global scale. In 1982, Japan instituted a loan fund for the purpose of compensating fishermen who are willing to leave the distant water sector, in which excess capacity existed. The EEC and as a number of its member states, including Germany, United Kingdom and the Netherlands, had also adopted scrapping premiums by the early 1980s.68 Several member states of the EU have continued to administer buy-back programs in the 1990s. Canada adopted vessel and license buyback programs in the British Columbia Salmon fishery, the Atlantic Lobster fishery and the Atlantic Groundfish fishery. Australia used license buyback programs in several fisheries.69 The United States funded buy-back programs in Oregon and Washington Salmon fisheries in the 1970s and 1980s and launched a pilot Fishing Capacity Reduction Program for the Northeast Groundfish fishery in 1995.70

But such "good" subsidies should not be counted on to accomplish much of the task of reducing global fishing capacity. Although vessel scrapping or license buyback programs have generally been successful in removing a sizeable proportion of the vessels and licenses from the target fisheries, it is not clear that most of them have had any significant impact on fishing capacity or on the state of the stocks. The main reason appears to be that the initial reduction in capacity accomplished by the buyback program has been followed by an increase in total effort levels by those remaining in the fishery through increased days at sea and more investment in more efficient technologies. This was clearly the result of the programs in the Australian Southern Shark fishery and in Danish and Dutch fisheries.

In some cases subsidies for vessel withdrawal have been not been aimed at overall capacity reduction but at making way for more efficient vessels. Although Japan was spending nearly half a billion dollars in 1987 to subsidize the retirement of vessels from the distant water fleet, it allowed the owners to use the money to purchase larger vessels with far greater fishing power that replaced the older, less efficient vessels.72 And in the EU in the early 1990s, a program for capacity reduction through subsidized withdrawal of vessels failed to accomplish the objective, because the EU and member states were also continuing to subsidize vessel modernization and construction. And because the European Commission failed to withdraw fishing licenses from those who scrapped their vessels, the shipowners could use their compensation to invest in building new ones.73

Many states now advocate such programs to "scrap" vessels and return licenses as the key to capacity reduction. But international policy should be based on a realistic assessment of what they can accomplish. Vessel buy-backs may be helpful as one part of a strategy for capacity reduction, but only if combined with a complete ban on all other fishing subsidies new economic incentives for conservation in the form of individual tradable quotas, for instance.

1Honore (1961).

2This description comes from Donald Lean, Homesteading the Oceans: The Case for Property Rights in U.S. Fisheries (Montana, Political Economy Research Center:2000), p. 23.

3 Section's VI, VII and IX are taken from H. Sterling Burnett, "Ecosystemic Goods: The Pros and Cons of a Property Rights Approach," Ph.D. dissertation Bowling Green State University, 2001. Footnotes within the text of these sections refer to footnotes in the full text.

4 This section modifies and condences the discussion of fisheries subsidies in, Gareth Porter, Fisheries Subsidies, Overfishing and Trade, which can be found at http://www.debate-central.org/topics/2003/LINKS/Spending_and_Costs/Fishing_Subsidies/ at http://www.sdnbd.org/sdi/issues/environment/article/1.pdf . All footnotes in this section refer to footnotes in Porter.