Business World, 9 July 2012


No, this is not the name of a fancy light bulb, although a light bulb might well convey the sense of revelation evoked by the idea she pioneered. Elinor Ostrom won the Nobel Prize for Economic Sciences in 2009 and is to this day still the only woman to have gained that recognition – a remarkable achievement, especially for a non-economist. That work by a political scientist is celebrated in mainstream economics only shows how much closer the topics and concerns of the social sciences have drawn together in the last three decades. (Even earlier, the psychologists Kahnemann and Smith also won the prize in 2002.)

Before Ostrom, economists were wont to divide goods casually between “private goods” and “public goods”, depending on whether goods were consumed privately, or “collectively” by groups (or even the entire society). This pat dichotomy fit into a policy mind-set that assigned the provision of goods to either markets or the state: hence, Coke and rice should be left to the market’s purview, while national defence, roads and bridges are best provided by government.

Ostrom’s great service was to show that many cases actually fell between the cracks, and that many goods and services could not be efficiently provided or managed either by government or by markets. Just think of the problems of Laguna de Ba-i, of the country’s forest cover, or of Manila’s esteros. On the other hand, there are many examples of collectively consumed goods that are provided privately, from toll expressways, to cable TV, to country clubs. In short, counter-examples abound that constantly tested the rule.

Ostrom clarified the two principles involved in classifying goods: first was the customary distinction whether the consumption of a good or service by one person reduced its availability to another (which Ostrom called “subtractability” or “rivalry”). My drinking a soda reduces one-for-one the amount you can consume, but the street lighting I enjoy remains equally available to you. The second characteristic was whether it was easy or difficult to prevent others from gaining access to a good or service, or the characteristic of “exclusiveness”. It’s easy to prevent others using your laptop, for example, but difficult to fence off an entire mountain range or a whole lake.

Ostrom noted that markets were good at providing private goods (subtractable and exclusive), while governments were probably best suited to providing truly public goods, i.e., non-subtractable and non-exclusive goods. Examples are defence against foreign invasion, or warding off planet-threatening asteroids, urban roads, and, yes, street-lighting.

The biggest problems are presented, however, by goods that are both subtractable and non-exclusive, for which Ostrom popularised the term “common-pool resources”. Access to Laguna de Ba-i (literally a “pool” of water), for example, is fairly open and easy. Yet clearly the various uses for this resource—as fishing grounds, as tourist attraction, as navigable waterway, or as industrial or residential sewer—are in fierce competition with each other. And the miserable result – progressive deterioration – is there for all to see and replicated in many other situations faced by developing countries: rivers and esteros, urban sidewalks, air and water pollution. Bottom line: open access plus competing uses spells trouble, which neither the market nor the government is always well positioned to solve.

Two factors are relevant. The first is population size (hello again, RH bill!). Most of the resources mentioned were perfectly able to accommodate varied and repeated uses many years ago—as long as the populations using them were small. Esteros, for example, were at once navigable, recreational, and serviceable for occasional use as disposal service. (Manila was known as the “Venice of Asia”.) An increasing population, however, leads to more intensive use beyond a resource’s carrying capacity, congestion, hence “subtractability”.

The second, subtler factor is institutions. Ostrom—who unlike many Nobel economists actually bothered with fieldwork—noted that many traditional communities were able to manage common-pool resource problems by thrashing out rules to govern their use. She adverts to numerous historical and contemporary experiences of communally determined fishing rights and irrigation systems, including the sanjeras of Ilocos and of the Ifugao rice terraces. Part of the awkward problems of development, however, is the inevitable erosion of the homogeneity and cultural integrity of traditional communities. This process erodes the traditional rules that formerly governed and restricted the use of the commons and it frequently leads instead to the free-for-all promoted by impersonal and individualistic systems. Say good-bye to exclusiveness and hello to open access.

While the rule of broader impersonal law is gradually supposed to supplant traditional rules, this process is not straightforward and typically stalls when the state is fiscally weak and politically challenged. Population growth and modernisation meanwhile have eroded traditional resource-management systems without providing an effective alternative. The result is an awkward institutional middle-income country trap, where the old traditional rules have faded but new laws have not taken root or are only weakly enforced. Ostrom’s work raises important and difficult questions for governments and peoples of developing countries. It presents them the challenge of developing institutions and organisations to adequately address problems of common-pool resources in a contemporary setting.

Can the state, if only properly equipped and provisioned, still serve as such an institution? Or, taking a cue from the past, must new organisations of lower order than the state but larger than individuals play that role? How can public action be mobilised for local goals in a modernising context based on the spread of anonymous exchange and impersonal relations? What is the future role, if any, for culture and social solidarity? Are there creative ways of fostering cooperation between smaller organisations and the state in resolving common-pool problems, between formal law and informal norms and customs?

While she has helped raise these questions, Elinor Ostrom will unfortunately not be able to help with the final answers. She died on the 12th of last month, at age 78.