Case for Private ownership of Natural Resources – I

The ownership of land resources.

It’s actually very funny that people think having private ownership of something publicly owned means having to pay for it when previously it was free. Let me start with Murray Roth bard’s quote on private ownership and people’s prejudice against it. “If the government were the only producer of shoes, most people would be unable to imagine how the market could possibly produce them. How could the market accommodate all sizes? Wouldn’t it be wasteful to produce styles for every taste? What about fraudulent shoes and poor quality producers? And shoes are arguably too important a good to turn over to the vicissitudes of market anarchy.” Let me explain how private ownership of natural resources is actually the best way to conserve them.

 
Lets take two copper mines, one is in People’s Republic of Bureaucrashia (an India/US style democratic state), and another one is in Congress of Free Courts (a government-less territory of free people run by Courts). The first mine in Bureaucrashia is owned by the government, people of this country want the mines to be conserved, so they take the most common sense approach, and have a Dept of Minerals established to overseer the extraction of the copper. Basically, the bureaucrats give a 5 year contract to companies to extract a specific amount of copper. Extraction of copper more than the prescribed limit is a punishable crime.
On the other hand in Congress of Free Courts, the copper mine is fully owned by its owner. There is no limitation to how much copper the owner wants to extract. If the owner wishes he can extract the full copper out of the mine in one year, or if he wishes he won’t extract anything forever.

Now if the question is asked to an average citizen of a democratic state, which one of the two mines will be more conserved, and will last long? Most people would answer the mine in People’s Republic of Buraeucrashia. Reason being that the bureaucrats will ensure that no company will mine more than a specific amount of copper, the amount will be determined on the basis of the need of the nation. In Congress of Free Courts the profit seeking owner will mine the full copper in one year to make maximum profit, because profit-seekers don’t care about environment.

How true is the above conclusion? Lets see, a copper mine owner in Congress of Free Courts has to keep many things in mind before he decides the quantity to extract. There is a specific demand of copper every year. There is no incentive for the Market to mine more copper than the demand in the market. Every copper mine owner will have a market share. If he mines more copper than demand to him, he will lower down the prices of copper thereby actually reducing the profit rather than increasing it. On the other hand if he mines less copper than demand, either someone else will fulfill that demand (which means he will lose market share), or high prices of copper will attract investment in substitutes of copper (Like Steel, or something else). Also the mine owner has to keep one thing in mind, he cannot empty the mine, and he also has to keep the future value of the mine in his mind.
For example, if he uses up all the copper now, and five years from now, new uses of copper is discovered (or simply because of increase in population the demand of copper increases which is mostly the case) then he won’t be able to sell the mine at a profit, or make profit by selling copper. The profit at that future date is definitely more than the profit made today but selling the same quantity of copper.

Now in which case he would be tempted to mine the copper completely? Well if someone finds out a complete and cheap substitute to copper and copper is not useful anymore, and then all the copper mine owners will have good incentive to mine all the copper as soon as possible. Or if the prices of copper are too crashed, then they might as well just shut down all the copper mines.
Let’s consider what will happen in People’s Republic of Buraecrashia. First of all, any company who is given a contract to mine a specific amount of copper has no incentive to mine less copper, in fact if they mine less copper, either they will make loss, or since the demand of the country is not met, the prices of copper will go high, people will complain to the government about high copper prices, and the Bureaucrat will cancel the contract of the company on the grounds of inefficiency and give the contract to someone else.

So every company will try to mine all the copper they can, if they follow law completely, then they will mine exactly to the limit, if not then they will bribe the bureaucrats, mine more, report less.
The contracted company has no incentive to worry about the future value of the mine; all they are concerned with is to mine as much copper as they can, because if they mine less, then they are just leaving that copper to be mined by the next company which gets the contract after them. This value is called as Capital value of the mine.
In America, the Forest Services of U.S. Dept of Agriculture owns the forests and leases annual rights to cut timber. This causes massive devastation of trees, on the other hand the private forests, like owned large lumber firms like Georgia-Pacific and U.S. plywood scientifically cut trees and reforest the trees to maintain the future supply of the forest’s capital value.

2 comments for “Case for Private ownership of Natural Resources – I

  1. Pranay
    May 20, 2008 at 4:32 pm

    wow! this was perhaps the most intellectually sound post i have come across since a long time..
    it was almost an eyeopener…
    i am amazed at how beautifully u explained and packed in so much knowledge in a single post.
    You, have not only addressed an exclusive issue, but have actually went on to try and form an intelligent public opinion. Excellent.
    I wonder if i’ll ever be able to write something with such expertize and grasp over the issue…
    well done brother.. u deserve a pat on the back.
    i’ll read the next part and then comment on what i thnk of the issue..

  2. Pranay
    May 20, 2008 at 5:59 pm

    oops.. sorry for that ‘brother’ bit.. i just got into the flow.. and wrote it without bothering to enquire abt ur gender!!! :p

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