Maintaining the commons

The mineral resources rent tax and the commons

Montaintop mining destroys the commons JW Randolph

In “The tragedy of the commons”, Garrett Hardin argues that when natural resources can be openly accessed by all, over-exploitation results. For example, an open access pasture will be over-exploited by each farmer because the benefit of an additional animal accrues privately but the cost (soil degradation) accrues to everyone and therefore only partially to the farmer. Each farmer reaches the same conclusion and ruin results. Similarly, our energy resources (coal, gas etc) are commons and these too would be over-exploited if left open to all.

Hardin asserts that privatising the commons or allocating the right to enter will solve the problem (although he finds this “objectionable” in the case of national parks). In the case of pasture, each farmer uses the resource to maximise the stream of future profits from their private land, and hence will avoid over-exploitation. As in Adam Smith’s “invisible hand,” individuals acting in their own interests with respect to their private property also maximise social welfare.

However, the perfectly competitive markets, non-existence of external costs, perfect information and zero transaction costs underlying Hardin’s conclusion are assumptions rather than reality. Instead large, multinational resource companies own our energy commons and over-exploit them for profit, invariably producing environmental destruction that can hardly be in the social interest. One has only to look at West Virginia (shown below) to see the kind of destruction that results from private ownership of natural resources.

An image from space of the Hobit mine in West Virginia. NASA

This tragedy of private property is exacerbated by the fact that we, and future generations, hardly receive anything in compensation. This is why the recently passed Mineral Resources Rent Tax is, in principle, a good thing, but in practice, does not go far enough. The aim is to share the wealth from the mining boom. Instead, it could aim more generally to share the wealth from over-exploiting the commons with current and future generations. Such policies exist elsewhere.

In the state of Wyoming, U.S.A., a proportion of all mining taxes (a mere 2.5%) goes into the Permanent Mineral Trust Fund which currently aggregates to USD 4.5 billion providing interest revenue equivalent to one ninth of the state budget which is used to improve education, roads, and other infrastructure.

In Alaska, the Alaska Permanent Fund receives 25% of all royalties and lease rentals from oil and gas exploration and distributes the dividends through a semi-independent fund corporation to Alaskan residents.

In both cases, there is recognition of the duty owed to future generations for the exploitation of the commons. If the commons must be exploited at all (and I do not believe they need to be), current and future generations must get something substantial for it.