Profit-Driven Entrepreneurial Approaches Can Protect and Produce Environmental Quality
NOVEMBER 01, 1998 by DON LEAL, TERRY L. ANDERSON
Filed Under : Entrepreneurship
Terry Anderson is a professor of economics at Montana State University and executive director of the Political Economy Research Center in Bozeman, Montana. Donald Leal is a senior associate of PERC. This article was adapted from chapter one of their book Enviro-Capitalists: Doing Good While Doing Well. Copyright 1998 Rowman & Littlefield.
“We have our idealists, inventors, innovators and organizers
all around us, and in a vast mechanism of economic and
social change there is work for all kinds to do. . . .”
—Jonathan Hughes, The Vital Few
In his book The Vital Few, Jonathan Hughes describes the entrepreneurs of the late nineteenth and twentieth centuries who unleashed America’s industrial power. Names like Rockefeller, Vanderbilt, Carnegie, Ford, and Morgan lead the cast of characters. In some cases these “vital few” invented new products or production techniques, but mostly they amassed capital, contracted with other input owners, and developed marketing strategies that lowered the cost of products and increased profits. In recent times, industrialists may have fallen from the list of the vital few, replaced by electronic-information gurus like Bill Gates or media moguls like Ted Turner, but the required entrepreneurial skills remain basically the same.
It is impossible to predict the frontiers on which the next wave of entrepreneurs will leave their mark. One possibility is the environment.
It is worth asking what it takes to be a successful entrepreneur in the environmental arena. If we were to compile a list of the vital few from the environmental history books, it might be headed with names like Audubon, Leopold, and Muir. As entrepreneurs, these men recognized the value of the natural world at a time when most people saw nature’s frontier as a wilderness to be tamed. Of these early entrepreneurs, however, only Aldo Leopold saw the importance of linking the conservation movement to entrepreneurship, with all the trappings of finance, contracting, marketing, and even profits.
Unfortunately, many of today’s environmentalists have not picked up where Leopold left off. His entrepreneurial spirit has given way to political opportunism. Instead of business acumen, the vital few in the environmental movement understand politics, lobbying, and fund-raising as the tools to achieve their political objectives. The headquarters for most major groups are located in Washington, D.C., and the personnel spend their time in the halls of Congress rather than in the wilds of nature.
The campaign to “save” the African elephant illustrates how political and financial agendas can overtake environmental realism. Though more than one million elephants roam southern Africa, environmental leaders of groups such as the Humane Society of the United States and the World Wildlife Fund declared elephants an endangered species and instituted fund-raising campaigns, publicized with vivid pictures of slaughtered elephants, tusks removed by chain saws. They raised millions of dollars to promote a ban on trade in ivory, although many African conservationists believed this would only further drive up the price of ivory and increase poaching. Rather than channeling their efforts into the direct protection of elephant habitat, these leaders politicized the elephant issue and motivated politicians and bureaucrats to ban trade in elephant products through CITES (Convention on International Trade in Endangered Species). They gave little consideration to the incentives faced by African natives who directly bear the costs of living with the elephants. These people, many of whom live at subsistence levels, are being asked to preserve habitat, let their crops be destroyed, and perhaps even be killed to save elephants because Westerners living in comfort thousands of miles across the ocean think it is a good idea. These political entrepreneurs demand the protection of elephants but place the burden of their protection on the backs of those who can least afford it. In the end, the campaign to “save” African elephants by banning trade in ivory filled the coffers of Western environmental groups. Unfortunately, it reduced the potential for Africans to live in harmony with elephants because it prevented the indigenous population from profiting from good stewardship.
There is an alternative approach—enviro-capitalism—that begins when environmental entrepreneurs discover new opportunities for improving environmental quality and then figure out how to produce it in the private sector. Enviro-capitalists are entrepreneurs using business tools to preserve open space, develop wildlife habitat, save endangered species, and generally improve environmental quality. These entrepreneurs are meeting the growing demand for recreational and environmental amenities. To do this, enviro-capitalists must invent new products, attract venture capital, contract with resource owners, and market their products. The enviro-capitalist encourages fee hunting to reward landowners for bearing the cost of providing habitat for wild animals; buys endangered-species habitat instead of lobbying for regulations that restrict the use of private lands; and leases water to increase instream flows, rather than seeking legislation to limit water use by irrigators. In meeting each of these human demands, enviro-capitalists also benefit the environment.
People are beginning to realize that markets can be a powerful force in the environmental movement. Market-based incentives have become a common approach in both the private and public sectors. Corporations are searching for ways to increase profits in environmentally friendly ways. Policymakers are facing the reality that a cleaner environment comes at an increasingly higher cost. By harnessing market forces as enviro-capitalists do, we can achieve environmental ends at a lower cost.
With rising incomes, the demand for environmental amenities grows. The question is who will meet those demands, politicians or enviro-capitalists.
More Than Paper Profits
Tom Bourland, wildlife biologist and entrepreneur, preaches that the market can be wildlife’s best ally. He believes that the growing demand for wildlife and recreation provides landowners with powerful incentives to produce more wildlife habitat and more recreational opportunities. And he should know, having turned wildlife into a money-maker for International Paper (IP), one of the largest timber producers in the United States.
In the early 1980s, Bourland became a wildlife manger of 1.2 million acres of IP’s timber-producing land in its mid-south region, including parts of Texas, Louisiana, and Arkansas. When he joined the company, its wildlife and recreation program was not designed to generate income but rather to keep neighbors happy, appease environmentalists, and stem the rising tide of government regulations placed on private timber owners. Bourland was hired as a token wildlife biologist to operate within this agenda, but he was quickly frustrated—the bottom line on the financial statement was driven by timber production.
Recognizing the importance of the profit motive, Bourland locked his entrepreneurial radar onto the relationship between wildlife and IP’s financial statements. He noted the growing demand for hunting, fishing, and recreation, as well as the consumers’ willingness to pay for quality experiences. But he also saw that the company was receiving nothing for the use of these amenities. Bourland’s environmental agenda had to give way to new realities. To respond to these realities, the company’s wildlife and recreation program had to earn its way by charging user fees of those enjoying the amenities on IP’s lands.
Charging fees for recreation represented a bold move for a timber company because it was bucking tradition. In the rural townships of Louisiana, Bourland’s home state, local people were accustomed to hunting, fishing, and camping for free on IP’s lands. Some did not take kindly to having to pay. Indeed, some regional managers at IP worried that they would be the ones facing the wrath of a disgruntled public. According to IP’s then-chairman and chief executive, John Georges, “There were times when some executives were asking, ‘Is it worth it—should we be doing this?’”
Despite local objections, IP proceeded with the change, spurred by several factors. Besides evidence of growing recreational demand, increasing abuse on IP’s open lands was costing the company dearly. Litter, arson, and off-road traffic were major problems. Also, wildlife populations were declining from years of poaching and excessive legal hunting. Hunters were complaining about too little game and too many people.
Bourland and other supporters of fees at IP argued that revenues from wildlife and recreation would more than offset the additional costs of monitoring IP’s lands and improving conditions for wildlife. They believed that fees for land use provided an effective strategy that would create stronger incentives for users to care for the land. A major part of the fee program included selling multiyear land leases to hunting clubs. Under the lease arrangement, clubs have a personal stake in stewardship of “their” areas. Bourland believed that clubs would monitor land use, limit hunting pressure, and cooperate with wildlife managers, all of which would add to the members’ enjoyment of the recreation on IP property and lower the company’s costs.
IP had already made substantial investments in experimental wildlife management programs and knew the potential for integrating wildlife management with timber programs. In 1957 the company established its 16,000-acre Southlands Experimental Forest near Bainbridge, Georgia. This forest served as a proving ground for management techniques that harmonize timber production and the needs of wildlife while earning profits from recreation. Exemplifying the innovative techniques pioneered at Southlands were experiments with prescribed burning.
Fire is an important tool in the management of southern pine forests. Because the pines are fire-resistant, periodic burning reduces competitive undergrowth and thereby enhances timber production. Prescribed burning also benefits wildlife by promoting the growth of browse essential to white-tailed deer and bobwhite quail. Prior to the Southlands burning projects, deer, turkey, quail, and rabbit populations in the experimental forest were low. By the early 1980s, however, prescribed burning had dramatically increased populations of these species. After visiting Southlands, outdoor writer Richard Starnes concluded, “Experiments with whitetails, turkey, quail, dove, rabbits, and a host of other game and nongame species are proving that it is practical—and profitable—to manage continuous-yield tree plantations in a way that ensures the healthy proliferation of wildlife.”
Hunting Club Leases
Under Bourland’s direction, IP launched its fee-based wildlife and recreation program in 1983, emphasizing three sources for revenues: hunting club leases, daily-use permits, and seasonal family permits. By 1986, the program had made dramatic strides. Revenues from recreational sales in Arkansas, Louisiana, and Texas had tripled to $2 million, and corresponding profits were an impressive 25 percent of total profits in IP’s mid-south region. Fourteen hundred hunting clubs had leased one million acres of IP lands, more than double the amount leased by the end of 1983. The results convinced the skeptics.
“Managed fee hunting programs are gaining acceptance among hunters seeking exclusivity, safer conditions, and abundant game,” Bourland said. He pointed out that the hunting clubs are an integral part of wildlife management because they “can provide wildlife protection, control harvest pressure, and accomplish habitat improvements to a degree not generally possible through other arrangements.” In addition, a new partnership, or “contract,” between recreational users and the company was being formed among a growing number of clubs that gave new meaning to wildlife management. At a club’s request, company biologists provided members with wildlife-management guidance, survey assistance, harvest analysis, and food-plot material. In return, club members restricted their hunting techniques, recorded harvests, and followed company-imposed restrictions on harvests. By 1986, new contracts had been adopted by nearly one-third of the clubs that leased IP land.
The company also began experimenting with other recreational packages. At the upper end of the scale, IP opened the 3,000-acre Big Oak Club in East Texas. In 1986, hunters at the club paid $200 per day for lodging and guides and for the opportunity to take one buck and two doe white-tailed deer. Farther down the price scale was the 1985 opening of the 4,000-acre San Patricio Bowhunting Area. Bowhunters using the area paid $200 per season or $100 for a three-day hunt and enjoyed a success rate of 61 percent. Services provided by the company included a walk-in cooler and campsites furnished with electricity, water, tables, grills, and bathroom facilities.
Most importantly, as revenues from IP’s recreational program grew, regional forest managers began managing their forests differently. In 1988, speaking to congressional staff members in Big Sky, Montana, Bourland described the new behavior of the timber owners: “Because the status of wildlife affected the bottom line, the landowner bent over backwards to provide habitat for white-tailed deer, wild turkey, fox, squirrel, and bobwhite quail, as well as endangered bald eagles and red-cockaded woodpeckers.” They left corridors of trees 100 yards wide between harvested areas through which wildlife could travel safely. They left clumps of trees uncut while younger stands next to them grew, thus creating greater age diversity. They reduced the size of cut areas and made their perimeters more irregular and therefore more attractive to a greater variety of wildlife. They did not harvest large strips of trees and shrubs along either side of streams, and they planted food plots.
These and other efforts have paid big dividends to wildlife as well as stockholders. Ten years after the inception of the program, game surveys showed that populations of deer, turkey, fox, quail, and ducks had increased substantially. Eastern wild turkey and white-tailed deer had exhibited the largest gains, increasing tenfold and fivefold, respectively. According to company biologists, the main reasons are better habitat and less hunting pressure. Nongame populations have also benefited. Company biologists carry out an assortment of projects to improve habitat for these species, from putting up bluebird boxes to protecting heron rookeries. Even though nongame species have no explicit market, hunters, campers, anglers, and hikers are willing to pay more for a diversified recreational experience. IP’s biologists continue to explore other options that would provide additional revenue for nongame species.
The 1990s have been a time of change and continued success for the program. Bourland has left IP to form a flourishing business, providing wildlife and forest management consulting for private, nonindustrial (that is, small) timber owners in the South. In this new venture, Bourland is helping hundreds of private forest owners benefit from the years of wildlife research carried out at IP. Meanwhile, IP’s wildlife and recreation program continues to grow. Nearly two-thirds of the company’s more than 6 million acres in the United States are now managed profitably for wildlife and recreation. Revenues from the program reached $10 million in 1990 and are expected to double rapidly. Thirty-five thousand hunting and recreational customers now use IP lands in Arkansas, Louisiana, and Texas, and another 25,000 pay to use IP lands elsewhere in the country. On the company’s timber lands in northern Maine, for example, the public pays daily fees of $3 to $6 and seasonal fees of $15 to $90 for camping, hiking, fishing, and canoeing. In the Adirondack region of New York, people lease cabin sites, paying $700 to $1,000 per year.
The International Paper Company’s wildlife and recreation program indicates a growing trend. In the South and the East, where most of the land base is privately owned, fee-based wildlife recreation is becoming firmly established. In addition, environmental entrepreneurs are coming up with new products and services to meet new markets. Texas ranches such as the King Ranch near Corpus Christi, the Fennessey Ranch near Baytown, and the Selah Ranch near San Antonio are providing nature hikes and bird-watching tours. In the West, where there is so much free access to public lands, it is tougher for the private landowners to compete, but the fee-recreation market is beginning to develop even there. Enviro-capitalists such as Tom Bourland are leading the way for new land management techniques.
This example illustrates how entrepreneurial skills can be successfully used to improve the environment. Entrepreneurial approaches that capitalize on profits in the marketplace offer an important alternative for producing environmental quality in a world where acrimony and tight budgets dominate most policy debates.