FREE THE FORESTS: PRIVATIZE THEM!

By Paul Geddes

The forests are often credited with being the major engine of economic activity
in British Columbia.  Forest lands cover 45% of the province and a good
proportion of BC's employment comes from logging, manufacturing wood products
and otherwise servicing this sector (transportation, trade and other business
services).  Lumber, pulp & paper comprise 50% of BC's foreign exports.

As in many other jurisdictions, in BC many hard working
entrepreneurs and seemingly independent and vibrant business organizations are
dependent on the whims of government policy for their prosperity.  With one big
exception.  In most other
jurisdictions, government doesn't own the resource that is the basis for the
private economy.  Currently, title to 95% of the forest lands of BC are held by
the provincial government.

The numbers are similar in other Canadian provinces.  BC may have the more
productive forest lands but these only account for about a fifth of Canada's
forests.  Across Canada, 94% of forests are owned by the government.  Among the
major wood producing nations only the USSR topped us in percentage of forest
lands owned by government (recent events suggest this will like change soon).
Even pre-Wall-destruction Eastern Europe had a higher percentage of private
ownership of forests.  And in Sweden, the much envied paragon of socialist
virtue, 74% of forest lands are privately owned.

The consequences of this large share of government ownership is often alluded to
in the myriad of government commissions and reports on the forestry sector in
BC.  The Pearse Royal
Commission (1976), Economic Council of Canada Report (1984) and the BC Forest
Resources Commission (1991) all alluded to the vast dissipation of valuable BC
forest rents.  Because of our form of ownership, potentially efficient changes
(that could add net benefits to all) have little chance of success.  Many people
have different demands on the forest resource but with public
ownership, the only way to get your use is through politics.  Rather than
competing with other uses by offering bids (best estimate of the discounted
future net benefits), in BC too many forest use decisions are made on a basis of
who can mobilize the most political pressure.

As landlord, the BC government chooses to earn its revenue mostly through
"stumpage fees".  Private companies pay stumpage for the volume of trees they
harvest.  Setting these fees at the right level is difficult and the government
also has to decide who is allowed to harvest which trees at that price.  Most of
the forest lands are placed under the control of private organizations with one
of two types of tenure or grant of exclusive right to
harvest.  The "Forest Licence" created by 1979 Forest Act covers about
two-thirds of BC's forests.  Private organizations are given to guarantee for a
certain volume of wood in return for a promise to meet minimum standard of
reforestation and other
duties.  The cost of such operations are credited against the stumpage payable.
Another fourth of BC forests are covered by the often controversial "Tree Farm
Licence (TFL)".  Under a TFL, the private organization is given more freedom to
manage their area.  They are entitled to harvest as much timber so as to
maintain a sustained yield of timber.

There is much debate among economists and other forest watchers about whether
either type of tenure gives tenants the incentive to manage the resource to
maximize the long term interests of its owner.  Among the problems debated:

How do participants know if the stumpage rates are set at the correct level?
Agricultural land is also variable productivity.  Owners of farmland capture the
rent from richer land by having extra crops to sell.  In the forests, the
private tenant (not the landlord) captures the extra rent from luckily having
more easily harvested trees.

What if timber production is not the best use of land?  What incentives do
forest tenants have to save forests for other uses if hunters and other
recreational users are willing to pay enough not to have an area harvested?

Are adequate resources being devoted to reforestation?  Tenants do not have
exclusive harvest rights in perpetuity.  Licences can't be sold without
government interference and some licences have been rescinded and altered.  It
is not surprising that many forest companies have been accused of only supplying
the minimum reforestry required to maintain their tenancy.  Private owners would
likely invest differently.

The solution, as every libertarian knows, is to turn forests as quickly as
possible to private ownership.  Ownership is the human institution devised to
allow people with different ideas about the uses of resources to have a peaceful
manner to resolve
conflicts in the marketplace.  The self-interest of owners will tend to make
sure that resources aren't wasted, but used where they please the most
consumers.  Private property rights also encourage dynamism by allowing those
who come up with new ideas to bid resources from less valuable uses.  No one
claims that a world of more constant and stable property rights would have no
problems, but compared to our present world, many efficiency gains (in the
broadest sense of this term) are possible.

So how can we get private ownership of BC's forest resources?  For private
property rights to work, they have to be seen as legitimate.  Otherwise so much
resources will have to be devoted to exercising you control over what you think
is yours in law, that it won't be worthwhile.  A good plan must be politically
acceptable.  We should be able to adapt variations of the
programs used by the current governments of Eastern Europe as the face a similar
problem in trying to liberate their economies from government's deadly control.
After settling native land claims, some of the best forest lands could be sold
at auction (the
capitalized value to of future stumpage rates could be
substantial enough to retire much of the government debt).  Other forest lands
could be divided into smaller units and given to the public (eg: conservation
groups, etc - RKC).  One interesting option would be to have citizens
(foresters, hunters, hikers or wild animal lovers) compete for the available
forests with
government-given vouchers.  Each group should be able to outbid others for at
least some of the forest lands.

If most citizens make some gain from taking the forests out of government
control, future property rights should retain
legitimacy and make defence of property cheap enough for all of us to make great
gains from a much vitalized forest resource.

Further Readings:

David Haley, "The Forest Tenure System as a Constraint of
Efficient Timber Management: Problems and Solutions" Canadian Public Policy
1985.

David Friedman, The Machinery of Freedom: A Guide to a Radical Capitalism 2nd
ed., 1989.