Filed under: commons, economics, Speculation, sustainability | Tags: commons, Elinor Ostrom, markets
This isn’t my original idea. I’m reading John Michael Greer’s The Wealth of Nature: Economics as if Survival Mattered (Amazon link), and he makes the assertion that a free market, “in which buyers and sellers are numerous enough that free competition regulates their interactions,” is a form of commons, a resource that should ideally be free to all in a society. He goes on to point out that this is in contrast to those who think that all commons should be eliminated in favor of private ownership. The issue he’s getting at is that free markets cannot exist without regulation, something recognized even by Adam Smith, who noted in the Wealth of Nations that “people of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or some contrivance to raise prices” (reference).
I can see a long argument about how true this is, because it’s a provocative concept. Markets and commons are traditionally diametrically opposed in capitalist thinking, it’s hard to consider that they have anything in common. I’m happy to have that discussion, but there’s another related issue that, to me, is even more interesting: Can markets be managed as commons?
We don’t have any data on this, but the late Elinor Ostrom won the 2009 Nobel in economics for her studies of how commons are successfully managed. She found, through studying both successful commons (water districts, community forests, and the like) and unsuccessful commons, that there were eight “Design Principles” that distinguished the successful commons from the failures (Amazon link to reference).
Here are Dr. Ostrom’s eight design principles, as rewritten by David Sloan Wilson in The Neighborhood Project (Amazon link). I’m using Wilson’s version since it’s more general than the original.
1. Clearly defined boundaries. Members of the group should know who they are, have a strong sense of group identity, and know the rights and obligations of membership. If they are managing a resource, then the boundaries of the resource should also be clearly identified.
2. Proportional equivalence between benefits and costs. Having some members do all the work while others get the benefits is unsustainable over the long term. Everyone must do his or her fair share, and those who go beyond the call of duty must be appropriately recognized. When leaders are accorded special privileges, it should be because they have special responsibilities for which they are held accountable. Unfair inequality poisons collective efforts.
3. Collective-choice arrangements. Group members must be able to create their own rules and make their own decisions by consensus. People hate being bossed around but will work hard to do what we want, not what they want. In addition, the best decisions often require knowledge of local circumstances that we have and they lack, making consensus decisions doubly important.
4. Monitoring. Cooperation must always by guarded. Even when most members of a group are well meaning, the temptation to do less than one’s share is always present, and a few individuals might try actively to game the system. If lapses and transgressions can’t be detected, the group enterprise is unlikely to succeed.
5. Graduated sanctions. Friendly, gentle reminders are usually sufficient to keep people in solid citizen mode, but tougher measures such as punishment and exclusion must be held in reserve.
6. Fast and fair conflict resolution. Conflicts are sure to arise and must be resolved quickly in a manner that is regarded as fair by all parties. This typically involves a hearing in which respected members of the group, who can be expected to be impartial, make an equitable decision.
7. Local autonomy. When a group is nested within a larger society, such as a farmers’ association dealing with the state government or a neighborhood group dealing with a city, the group must be given enough authority to create its own social organization and make its own decisions, as outlined in items 1. and 6. above.
8. Polycentric governance. In large societies that consist of many groups, relationships among groups must embody the same principles as relationships among individuals within groups.
What’s interesting about these rules is that, superficially, it looks like these would be great rules for free markets as well. Look at the complaints such rules would solve:
— markets should have boundaries. People get really uncomfortable when everything is for sale, whether they want it to be or not. There’s a general idea that some things should not be for sale, while markets are the appropriate venue for other things. Similarly, not everyone wants to participate in “the marketplace” and the outsiders resent being forced in.
–Markets should be fair, the fabled level playing field. Most would agree that people should get special privileges only so that they can exercise special responsibilities, not because they have special connections. Similarly, corruption and gaming the system should be punished.
–Collective decision making. This one is tough, because everyone wants to constrain the fat cats, whether or not they’re in the market. Still, there are many complaints about top-down rulemaking, and with good reason. This is not to say that markets are all good at self-governing (and here I’m thinking about the body-counts in illegal drug marketing disputes), but to the extent that a market is self-governing, having rules that everyone agrees are fair is not a bad thing.
–Monitoring: this one is a no-brainer. Corruption kills markets, and they always need to be monitored to avoid people gaming the system. Interestingly, monitoring in commons can come either from within, from people hired to monitor the system, or from outside officials. Any and all of these can work, depending on the circumstances.
–Fast and fair conflict resolution: this one is another no-brainer. Things work best when disputes can be settled fairly and quickly, either be a tribunal within the market, or by higher authorities, so long as judgement is fast and fair.
–Local autonomy. This can be somewhat problematic when you think about Wall Street, but it’s the flip side of having collective decision making within a market. If the authorities are going to let a market make their own rules, they need to let the market govern itself. Note, however, that authorities can be intimately involved in both monitoring and conflict resolution, so long as the market grants that this is their legitimate role in the market.
–Polycentric governance: This is the idea that the relationship between individuals and a markets is mirrored between markets within a greater market, if such a hierarchy exists. I’m not sure how this might work, but it does embody the same ideas of group decision making (on the level of member markets), monitoring, fast and fair dispute resolution, and so forth. That’s not a bad way to handle commerce on a large scale.
To me, this is the bigger point: even if markets aren’t exactly commons, it certainly looks like the principles that lead to successful commons might lead to successful free markets. Additionally, it’s not particularly driven by any market ideology: both progressives and libertarians could agree on these design principles. Even the big government proponents tend to agree (in my experience) that the best regulations are the ones that people think are fair and fairly enforced. Trying to get such regulations written can be very difficult, but it’s often a major goal of regulation. What also makes this interesting is that, if you accept that markets may be commons, it’s possible to have a free market under a wide range of conditions—so long as the market is properly monitored and managed according to rules.
A truly free market won’t work, but a market commons may well be viable. What’s sad is how far Wall Street currently is from most of these design principles. Perhaps our financial markets are a lot less successful and sustainable than we might wish for? Perhaps they need (shock, horror) more regulation, not less, to last?
What do you think?
3 Comments so far
Leave a comment