The Tragedy of the Commons

Imagine you're a farmer in a peaceful mountain village. Both you and other villagers raise sheep by grazing them on a nearby meadow. Due to the rocky terrain however, this meadow is the only available grazing livestock. This means you and your neighbours will need to share this meadow so that everyone's sheep are able to graze, but here we run into an issue. The meadow isn't very big, and can't sustain everyone's sheep grazing all the time. As long as everyone grazes their sheep a predetermined amount, the meadow should be able to sustain everyone. However, if one farmer decides to keep his sheep on the meadow for longer, they will fatten up and fetch a higher price at the market, but there will be less grass for everyone else. One day, you suspect this is happening, and are faced with a choice. Do you keep grazing your sheep the same amount as you're supposed to, respecting the agreement but having less and less access to grass? Or, do you too overgraze your sheep, fattening them while you can, in the hopes of surviving the coming winter?

The above scenario is referred to as "The tragedy of the commons", and illustrates a fundamental problem regarding the economics of shared resources. In order for any group to make the best overall use of a resource in the long term, two things must be done. Firstly, access to that resource should be limited to a point where that resource is sustainable, so that consumption can continue more or less indefinitely. Secondly, the remaining access should be divided fairly amongst the group, so that everyone is able to use the resource enough to fulfil their needs. However, the members of the group are individuals, and may choose to act in their own self interest, rather than maximising benefits for the group. Furthermore, any other member of the group may rationally deduce that, since other members may come to the conclusion that acting in self interest would be of greater personal benefit, the logical next step would be to also act in self interest to safeguard against future harms. This is a recurring problem in game theory, a theory that examines decision making amongst groups of rational actors. Often, individuals stand to gain more by conflicting rather than co-operating with members of a group. While co-operating can secure benefits such as greater stability, longevity, an increased overall group utility, it is hard to incentivise co-operation organically, as all it takes is a single group member to unbalance the whole system.

So, how does this all pertain to capitalism? While modern capitalism may have moved past small meadows on hillsides, there are still plenty of analogous resource pools we use today. A majority of the seafood we consume is not farmed, but rather fished from the ocean. Area's of forests can be privately owned, but many are logged after acquiring permits from local governments, which would imply that the forests are collectively owned by the nation. If we are able to expand our conception of a "resource" we can start to see how clean air, ecosystems and atmospheric CO² levels also apply to this problem. The problem as it pertains to these resources comes from the intersection of two factors. Firstly, capitalist modes of production impact these resources either by directly pulling from them (e.g. Fishing, deforestation) or indirectly as externalities of production (e.g. Output of greenhouse gases, garbage from packaging). Secondly, and most importantly, there exists very little incentive to stop corporations and organisations from overusing these resources, while there exists many incentives for them to do the opposite. Capitalist ventures exist to produce profit, first and foremost, and in almost every case, they are able to produce more profit the more they are able to draw from the resource pool. The more fish a fishing company is able to pull in, the greater market presence it has. The more land a company can acquire from deforestation, the greater the assets they now own to attract future investors. The more a factory produces, the greater the amount of disposable packaging it creates, all of which needs to be disposed of in rapidly diminishing landfills. Every organisation that emits greenhouse gases as part of it's production line continue to eat into the resource of "amount of gas we can collectively emit while still combating climate change", with that resource in particular having been diminished so much we're all starting to feel the effects.

The way to manage and combat these problems is through cooperation, but companies under a capitalist economy have no incentive or even paradigm to cooperate with one another. Under capitalism, companies view each other as competitors, combatants to be defeated in the arena of the free market. In fact so much of the capitalist paradigm exists to actively prevent cooperation. Cooperation amongst competitors leads to, amongst other things, monopolies or duopolies forming, insider trading and crowding out of potential future competitors, all of which free market capitalists take great care to avoid happening, and for good reason. Perhaps the only worse outcome than a tragedy of the commons is for shared resource to become owned by a single entity, permanently restricting access as opposed to merely diminishing it.

Conceivably a group of capitalist competitors, let's say the fishing industry for example, could come together to self regulate. After all, if rampant overuse of fishing stock continues unabated, the entire industry would cease exist, which would be against the interests of everyone involved. Surely, even if these competitors are only looking out for their own skin, there is still sense in co-operating. This is true, but unfortunately there are two problems that mean this rarely works out. The first is the game theory problem we already explored. Catch loads for fishing vessels can be difficult to police, and it's not difficult for one or two vessels to skirt the system for greater personal gain. All it takes to justify is the mere suspicion that someone else might be doing it, and suddenly it makes sense to skirt regulation. The second issue, which we'll call the "inevitability insurance" problem, is that, if you suspect a system will eventually collapse, or a shared resource become depleted, it is hugely advantageous to try and make the most of that resource while it lasts, so as to better prepare yourself for when the collapse comes. Thanks to the fluidity of capital, profits made from the final days of the fishing industry can be quickly invested elsewhere, ensuring that the owners of the company still maintain their wealth. This problem is most the most prevalent in the case of greenhouse gas emissions and climate change. Many companies, and even some governments believe that we're never going to be able to roll back emissions enough to reverse the harms, so rather than cripple oneself in an ineffective attempt to stop climate change, it makes more sense to make as much profit as possible, so as to better afford to adapt to changing conditions. This becomes even more disastrous when considered from the perspective of investors, who don't even have tangible assets that give them meaningful stake in the game. They are happy to invest in logging until all the trees are cut down and it no longer becomes profitable, at which point they will merely transfer their capital to whichever new investment seems the most promising.

So, how do we fix this problem? A number of solutions have been proposed by economists and scholars, but in my opinion there is only one viable one, and that is state intervention. The main problem with overcoming modern tragedies of commons is the sheer scale of the resources involved. Oceans, vast biomes, the atmosphere, states are the only entities with enough power to effectively implement and enforce restrictions and regulations that can effectively protect these resources. We should of course be careful about how we go about this, as over regulation can lead to it's own problems. In China for example, amongst communities that rely on bamboo forests for their livelihood, they have quite effectively been able to manage the resource themselves in a sustainable fashion. However, government intervention has meant that many communities are now restricted in accessing nessacary materials and food. In many cases, local communities, and even businesses will have some insight into what is the best way to manage these resources, and so policy should be made in consultation with these groups as much as possible.

Many economists point to examples like above as proof that state intervention isn't nessacary, and that self regulation can be effective. This analysis however misses a key difference between these small communities and free market capitalism. In communities where management of the commons is effective, there exist strong complementary social norms that enforce standards of behaviour, and ensure a sense of obligation is shared among members of the group. As we've already explored such sentiments of obligation are an anathema to competitors in a free capitalist market, and as such are virtually impossible to foster. The final free market solution that is proposed is the hyper libertarian approach of large scale privatisation, giving the incentive to maintain a resource to a single entity. While this does eliminate much of the game theory problems we've discussed, it of course comes with it's own set of problems and externalities. How would one even go about privatising forests that span countries, or the ocean, or the atmosphere? The end result of such sounds far too dystopian to be seriously considered.

Economics in many regards can be simplified to mechanisms for the distribution of limited resources, but any economic system needs to also account for the existence of pools of resources that are collectively accessed. Contemporary global capitalism ignores issues of climate change and environmental destruction, and is structurally unequipped to answer them. If we want to overcome these problems, we need to recognise these shortcomings and plan for the future, lest we all not survive the proverbial coming winter.