By Olivier De Schutter and Katharina Pistor
If the enclosures movement that swept through England in the 18th century was the general rehearsal, the play has now been staged for over two centuries, and has penetrated deep into all regions of the world: wherever we look, the privatisation of resources is gaining ground. Resources that used to be treated as “commons” or “common pool resources”, managed by the local communities, are being commodified.
Public utilities such as water or electricity provision are increasingly subject to the same treadmill of titling, exclusion and allocation in accordance with the pricing mechanism, with little attention paid to needs. This has not happened by chance or without theoretical justification. Three separate arguments are commonly used to justify the allocation of resources through the combination of property rights and market mechanisms, which ensure that scarce resources go to the highest bidder.
First, only by protecting private property rights can we ensure that resources will not be depleted. Private landowners, for instance, will internalise the costs of using scarce resources and thereby ensure that they will be productive in the long term.1 In contrast, resources that are shared (that have the status of “commons”) are destined to be overused, because of the collective action problem so influentially described in 1968 by Garrett Hardin as the “tragedy of the commons”: as illustrated by the overgrazing of open pastures, resources that are not privatised will be depleted, because every user will take out as much as possible without regard to the sustainability of the resource.2
Second, property rights transform resources into a capital that can be financialised. In contrast, capital that is not formally recognised is “dead”: it cannot be used as collateral by would-be entrepreneurs in order to monetise it. This is the argument made familiar by H. de Soto in his most important book, The Mystery of Capital, published in 2000,3 in which he attributes the failure of poor countries to grow to undeveloped property regimes. Even before it was made explicit in de Soto’s work, the argument played a central role in the titling programs implemented under the auspices of the World Bank and other organisations in the developing world in the 1990s, a process that gained pace during the past decade.
Third, the clarification of property rights encourages the emergence of efficient markets: by lowering transaction costs, resources will go to the most productive user, thus maximising their productivity as economic assets. The intellectual roots of this argument can be found in “The Problem of Social Cost”,4 the article that made Ronald H. Coase famous, where he remarked that in a hypothetical world of low or zero transaction costs (which he insisted is not the world we live in), the freedom of transactions would result in solutions that are most economically efficient. The basic reasoning was simple enough: buyers of property will pay the price they consider reasonable, taking into consideration the expected income streams from the productive use of assets. The efficient allocation of resources should translate, in the aggregate, to general economic growth – a positive spill-over effect that has inspired admirers of trickle down economics.
We question these arguments, not by challenging their intrinsic validity, but because of their distributive consequences.5 Our starting point is essential resources, access to which is vital or a condition for the individual’s ability to live a decent life. These resources, we argue, cannot be considered solely as ingredients in the general quest for economic efficiency. Nor would it be morally right to simply postulate that economic efficiency (the source of economic growth) shall ultimately benefit all members of society, thanks to the benevolent ʻleft hand’ of the State, whose redistributive policies will ensure that even the poorest will reap part of the general gains. Such redistribution does not work at the global level, which lacks a central authority to engage in re-distributional policies. Even at the domestic level, accepting such a postulate would not be realistic in many polities today. Such a compensatory approach also underestimates the non-economic value of certain essential resources, such as land or water. Continued access to them is a source of resilience in times of crisis for the poorest communities, and a condition of social inclusion. In many societies it is also a component of social citizenship and cultural identity.
Two global trends reinforce our scepticism about allocation and distribution of essential resources through Western-style property rights and the market mechanism. First, essential resources, in particular drinking water and arable land, are becoming ever more scarce. Humankind may face absolute scarcity of essential resources in the foreseeable future, if levels of consumption continue to increase in proportion to rising incomes. Second, human-made constraints, including legal institutions and social practices create (quite purposefully) scarcity for some even as others continue to enjoy them in abundance. Property rights are the most obvious example of an institution that creates relative scarcity. Nation-states and other jurisdictional boundaries create entry barriers to resources inside these boundaries. Paradoxically, opposite arrangements – the removal of barriers to the free flow of goods, services and capital – often compounds such scarcity. This is the case, for instance, where the superior purchasing power of some actors excludes others from access in the increasingly globalised markets for land and water.
The market mechanism has become the preferred mechanism for allocating scarce and even essential resources, not only on efficiency grounds, but also for its seemingly neutral operation. The smooth functioning of the market in turn depends on legal arrangements that facilitate exclusion, thereby setting the stage (without further interventions) for pricing out those without sufficient purchasing power. Denying people access to essential resources they cannot afford is not a market failure: it is the logical outcome of market forces.
We question precisely such a neutrality. We note that jointly these trends already exclude the most vulnerable members of humankind from access to essential resources and threaten to leave more behind as scarcity increases. We therefore suggest that the governance of essential resources should rely on other forms of governance that embrace normative principles. Indeed, posing the question of governance is, in and of itself, already a subversion, for it shifts emphasis from the goods or resources in question to the ability of individuals and groups to partake in deliberation and the design of distribution mechanisms. Satisfying the need to access essential resources cannot simply be a technocratic, top-down process, but requires involvement of the people affected. Indeed, unless greater attention is paid to the question of governance – to inputs in decision-making, rather than simply to the outputs understood as the satisfaction of basic needs – the default solution will remain the promotion of economic growth in the hope that all boats will be lifted. That this cannot possibly be a viable solution in the long run is suggested by the slow recovery from the great financial crisis. More profoundly, no bounded system can possibly expand forever.
We also suggest that exclusive reliance on the pricing mechanism challenges the foundation of democratic self-determination. The pricing mechanism is a useful indicator for scarcity that forces people to adjust their behaviour, cut back on waste and manage a resource more effectively. Yet, prices reflect the demand of those with purchasing power, not those with needs: the richer you are, the more votes you have in influencing the allocation of resources. As noted by Scitovsky, the marketplace is analogous to a ploutocracy: it is “the rule of the rich”, he wrote, “where each consumer’s influence on what gets produced depends on how much he spends”.6 It prices out people without sufficient bargaining power. While this may be acceptable for many goods, it is not acceptable when it comes to essential resources.
This then raises the question, whether there are any alternative to the pricing mechanisms, especially in contexts where political organisations are weak or lacking. We argue that Voice and Reflexivity should be relied on as normative principles to guide the governance of essential resources. Voice captures the ability of all members of a group, community or society to claim their share in resources that are essential to their survival. Reflexivity is the correlate of voice; it stands for the capacity to question one’s preferences as these may be shaped by context.
Voice is central to all approaches to development and poverty reduction that value participation. However, it presents one major weakness: simply registering what the poor and marginalised say about their condition, and about the changes which would be most important to them, is not enough. Their “Voice” may simply be ignored. Moreover, it risks accepting the evaluation of marginalised groups who may well have internalised the prevailing social norms. As behavioural and social research has demonstrated, there is a psychological tendency to adapt one’s preferences to one’s situation, or to the (possibly limited) range of possibilities the poor imagine for themselves. Focusing on Voice alone for overcoming the limitations of efficiency-based solutions would therefore be naïve. To take account of the fact that individual preferences are context specific and a function of institutions that facilitate collective action and norm contestation, we insist on Reflexivity as the second pillar for governing essential resources. This concept captures the need to question preferences that are formed by baseline expectations and calls for exploring opportunities beyond existing institutional arrangements.
Voice and Reflexivity complement each other. Whereas Voice stands for the right to participate and to be heard, Reflexivity imposes an obligation to find mutually beneficial solutions. Moreover, the search for such solutions should move beyond the realm of existing rights and institutional constraints and to imagine solutions that can strike an appropriate balance between conflicting interests that pays due consideration to those most in need. This puts a burden especially on the ‘haves’ who will have to redefine their own preferences. Reflexivity may therefore sound utopian. Yet, humans are social creatures and there is ample evidence that social groups are quite capable of governing resources in ways that are both inclusive (ensuring limited access for all) and sustainable (avoiding a depletion of the resource in question). Nor is dealing with competing claims that do not stand in a clear hierarchical fashion to one another new to social practice or law. Common pool resource management, as studied by Elinor Ostrom and her collaborators, offers many examples.7 We hope that the collection of essays in our book will be seen as strengthening this case further.
About the Author
Olivier De Schutter is a professor at the University of Louvain (Belgium) and at SciencesPo (France) and currently a visiting professor at Yale Law School. He served from 2008 to 2014 as the United Nations Special Rapporteur on the right to food and he is since 2015 a member of the UN Committee on Economic, Social and Cultural Rights. His publications are at the intersection of human rights, international economic law and the theory of governance.
Katharina Pistor is the Michael I. Sovern Professor of Law at Columbia Law School and director of the Center on Global Legal Transformation. She has published widely on transition economies, comparative corporate governance, law and finance and the limits of property rights and is the recipient of the Max Planck Research Award (2012).
1. Demsetz, Harold. 1966. “Toward a Theory of Property Rights.” American Economic Review, 57(May), 347-59.
2. Hardin, Garrett. 1968. “The Tragedy of the Commons.” Science, 1962, 1243-48.
3. De Soto, Hernando. 2000. The Mystery of Capitalism: Why Capitalism Triumphs in the West and Fails Everywhere Else. New York: Basic Books.
4. Coase, Ronald H. 1960. “The Problem of Social Cost.” Journal of Law and Economics, 3, 1-44.
5. De Schutter, Olivier and Katharina Pistor eds. 2015. Governing Access to Essential Resources. New York: Columbia University Press.. A free online version of the book is available here http://cupola.columbia.edu/governing-access-to-essential-resources/
6. Scitovsky, Tibor. 1992. The Joyless Economy. The Psychology of Human Satisfaction. New York and Oxford: Oxford University Press.
7. Ostrom, Elinor. 1990. Governing the Commons – the Evolution of Institutions for Collective Action. Cambridge: Cambridge University Press.