Public Lands and Private Incentives

Mr. Bolick, attorney with the Mountain States Legal Foundation, presented this paper at a conference sponsored by the Political Economy Research Center in Denver. It is published here with their permission.

Ours is a nation rich in natural splendor. The very same geological forces that created the awesome beauty of America also provided us with a vast reservoir of resources.

The environmental movement has attempted to convince us that government is the only line of defense preventing rapacious developers from attaining the wholesale destruction of our land. Every acre added to the public store, continues this line of reasoning, is an acre saved from bulldozers and oil drills. So it is that one-third of all of the land area of the United States is owned by the federal government.

But the reality is that every parcel which is fully withdrawn from productivity is enormously costly. The inevitable trade-off that occurs whenever resources are unavailable to commerce is that goods or services that could otherwise be produced are not, thus driving up their prices. While certainly there are real benefits in preserving land, the decision to withdraw lands from production rarely includes a sound evaluation of the opportunity costs. Moreover, where government opts to permit development, it often does so in a manner that is woefully inefficient. Government’s very nature as a political entity, immune from private incentives, dictates such inefficiency.

The environmental movement’s disdain for private control of land as well as productivity on public lands is based on flawed premises. Private ownership is not irreconcilable with environmental objectives, and is in fact harmonious with efficient, rational use of natural resources. The market provides strong incentives to facilitate multiple uses of property and to avoid waste. And since private profits are derived from satisfying the wants of others, the market encourages responsiveness to public demand.

As the owners of the public lands, it is time we reevaluate these premises. If our goal is conservation—the sound, optimal development of natural resources with due concern for our environment—we must consider whether the public sector is indeed suited to the task. The evidence demonstrates that it is not, and that a rational policy can only be achieved by turning to private alternatives and incentives whenever possible.

Public Lands: The Wealth of a Nation

At latest count, the federal government controls 734 million acres of land. In the Rocky Mountain region, federal lands encompass 86% of the land mass of Nevada, 66% of Utah, 64% of Idaho, and large portions of other states.

Much of the land is rich in natural resources, although it is impossible to determine the full extent of these resources since much of the land is off limits to exploration. It is estimated that the Department of the Interior alone controls 85% of the nation’s crude oil reserves, 40% of its natural gas, 80% of its oil shale, and a vast portion of its coal. The agency also controls prime grazing land, which sustains two million head of cattle and 2.3 million sheep and goats.

The established national policy favors multiple use and an accommodation of the various interests which compete for public lands. The Mining and Minerals Policy Act of 1970,[1] for instance, states that it is the “continuing policy of the Federal Government in the national interest to foster and encourage private enterprise in . . . the orderly and economic development of domestic mineral resources, reserves, and reclamation of metals and minerals to help assure satisfaction of industrial, security and environmental needs.”

Despite such policies, nearly 70% of the federal lands are unavailable for development or are heavily restricted, designated as wilderness, endangered species habitats, recreation areas, or in other ways that restrain productivity.[2] Legislation recently passed by Congress will increase by 20-30 million acres the total of designated or actual wilderness land, which already is equal to the area of California, Nevada, and Arizona combined. These enactments remove from reach likely deposits of oil, gas, gold, silver, zinc, molybdenum, chromium, and platinum.

Given our dependency on foreign supplies of important resources, it is difficult to comprehend any sound reasons underlying the frenzy to lock up domestic resources. Only in a system of government control, removed as it is from practical considerations, could the enormous opportunity costs of completely removing re-source-rich land from development be countenanced. Unfortunately, the burden of such an inefficient allocation of benefits and costs is borne by the citizenry itself—the intended beneficiaries of public control.

Public Control: Disincentives to Efficiency

It is not particular policy-makers who are responsible for inefficient decision-making, but rather the public nature of the system itself. The public lands system, along with all government bureaucracies, is burdened by intrinsically inefficient characteristics, such as the following:[3]

1. The federal lands are “owned” by 220 million Americans. However, few citizens have the time or resources to inform themselves about general policy issues relating to public lands, let alone day-to-day management concerns. Neither can the public reasonably be expected to attempt to influence every such decision. As a consequence, management decisions are necessarily in the hands of a comparatively few individuals, far removed from the interests of the owners.

2. This results in a critical distinction between the public and private sectors: the separation of authority from responsibility. Whereas the market system allocates costs directly to those making the choices, government decision-makers are largely immunized from the consequences of their decisions. Similarly, government officials are motivated not by the quest for profit—which can be obtained only by satisfying the desires of others—but by political concerns. Efficiency may not be the principal political goal at any particular time.

3. While the wishes of the vast majority of citizens are diluted in the political process, some people do have sufficient direct interest in the outcome of policy and management decisions to invest heavily in influencing those outcomes. Unlike the market system, in which buyers and sellers are responsible for the consequences of their own decisions, the political system can be exploited to allocate costs to one group and benefits to another. For instance, when land is removed from development for recreational or aesthetic purposes, those directly receiving the benefits rarely shoulder the full costs. Instead, their wishes are subsidized by taxpayers in general, thus effectuating a “transfer payment” of sorts.

4. Another result of the lack of a profit motive is the absence of a tangible, objective measure of efficiency. Output is frequently substituted for efficiency, as in the five-year-plans of the Soviet Union. This is manifested perhaps most clearly in timber harvesting on public lands. As Baden and Stroup have observed, the Forest Service “systematically supports inefficient timber production. Instead of investing in the nation’s resources where the marginal returns are highest, the Forest Service is influenced by political considerations only haphazardly related to site productivity.”[4]

5. Bureaucratic inertia is often so entrenched that decision-makers cannot respond to changed conditions. For instance, although the National Forest Management Act of 1976[5] mandated the creation of a centralized planning process for the national forest system, not a single land management plan was devised after six years, despite $500 million in annual expenditures for that purpose. In a time of national crisis, the bureaucracy’s innate inefficiencies could paralyze its ability to react appropriately.

6. Many policies affect the interests of future generations, but there is no direct political pressure to account for these interests because the beneficiaries are not born yet, and thus can neither vote nor engage in lobbying efforts.

7. Bureaucrats, like all people, are self-interested. The incentives that promote private investment and development do not exist in public land management. More importantly, the measures of success in government have nothing to do with land productivity. Government officials who get ahead often do so by expanding their land bases. This gives them more power, which is the medium of exchange in government. This type of incentive will always foster bureaucratic growth and the accretion of public lands, regardless of whether such expansions are in the public interest. Any gains in productivity which may result are therefore purely coincidental.

Efficiency Advantages

These are the costs inherent in placing property rights in the hands of government. These problems are exacerbated when public lands are insulated completely from market forces. Again, there are occasions in which the public may prefer such an outcome, but it is indeed misleading to assume that such an option is without enormous costs. And it is also far from certain that such choices always represent the wisest allocation of our precious resources.

The movement to increase public ownership and control of land is premised upon a misconceived view of the market system as wasteful and self-destructive. This viewpoint erroneously assumes that the private sector has no interest in conservation, whereas the converse is actually true.

As earlier noted, a private owner can derive a profit from land only by satisfying the desires of others. The owner can create a short-term profit by removing all value from the property and selling it as a service or product, but in so doing the owner will have diminished the value of the land itself. The most rational, long-term strategy for a private owner is to preserve or renew the resource to the maximum possible extent, to assign multiple uses wherever feasible, and to develop and carefully maintain the property itself so as to enhance its market value. The Potlatch forests are prime examples of well-preserved, multiple use property in the private sector.

The most significant difference between public and private ownership of land is the commonality of authority and responsibility. Benefits and costs are not severable. Thus, the owner is impelled to seek the optimal use of the property. If a private owner wastes resources or chooses to utilize them in a manner which is not their highest value, the costs cannot be passed along to taxpayers.

There are degrees of ownership interests, and the incentive to waste the property decreases as the degree of ownership increases. Consider the case of a homesite within a national park. A person renting the property for a week has little direct interest in preserving the property. In fact, a renter achieves a maximum return on the investment by extracting as much value as possible during the finite rental period. A leaseholder, particularly with an expectation of renewal, or a holder of a life estate, has an incentive to preserve the asset for a much longer period—but also an incentive to remove as much value as possible before the period expires. A person who owns full title to land, however, will realize maximum profit only by preserving and developing the land. Public land management can thus be enhanced by increasing, rather than eliminating, market incentives and by removing decision-making from the political sphere.

Alternatives to the Status Quo

A. Privatization. Presumably the most radical proposal for reform is the privatization of public lands. Such an alternative would simply add to the 2/3 of all real property that is presently owned—and generally well-managed—by private individuals.

Advocates of privatization argue that rational land management can be advanced by assigning the rights to anyone in the public sector. Such an assignment would ultimately attract high-valuing users, with whom the private owners would be free to transact. Baden and Stroup, for example, have suggested that public lands be given to environmental organizations such as the Sierra Club.[6] In order for such groups to preserve the lands for aesthetic purposes, the property must be self-supporting. For instance, the Rainey Wildlife Sanctuary, a 27,000 acre Louisiana wildlife preserve owned by the Audubon Society, also sustains natural gas wells and private cattle herds. The Nature Conservancy is renowned for its ownership and preservation of lands in multiple use contexts. Similarly, there is no reason why government lands cannot be sold with deed restrictions mandating preservation and public access.

Professor Steve Hanke lists the following benefits of privatization:[7]

•       productivity would increase and costs per unit on the land would decrease;

•       consumers would be served more efficiently, since property owners would be free to serve them;

•       federal revenues would be generated;

•       negative and low-yielding government assets would be eliminated;

•       state and local tax bases would be enlarged; and

•       land use decisions would be de-politicized, and individual freedom and responsibility enhanced.

President Reagan, recognizing the prospects for reducing the national debt through sale of surplus public lands, embarked upon a limited privatization program by issuing Executive Order No. 12348 in 1982. The Order instructed agencies to review real property holdings, improve management, and sell unneeded property.

B. Increased Private Incentives. Private uses of public lands, consistent with the government’s stewardship responsibilities, should be expanded. Indeed, the Federal Land Policy and Management Act of 1976 calls for such an approach, but bureaucratic mismanagement has frustrated progress to date. In any event, when such uses are permitted, property rights should be assigned to private users to increase efficiency incentives.

Grazing permits provide a prime example. Under the existing system that allocates permit preferences for public grazing lands to adjacent ranchers, there is little de facto distinction between the public and private interests. The permits are transferable along with the base ranches, and are reflected in the value of the ranches for borrowing and sale purposes. As a result, ranchers frequently make sizable private investments on public lands for fencing, pipelines, wells, and so on.[8]

But despite these incidents of private ownership, the permits are nonetheless legally treated as mere “privileges,” subject to casual revocation or reduction,[9] often at the whim of local bureaucrats. Indeed, grazing permits are essentially the only significant government benefit to which the rights of due process of law do not attach. The Supreme Court abolished the distinction between rights and privileges in 1970,[10] but procedural protections such as the right to a hearing, to present evidence, and to cross- examine witnesses have not yet been extended to permit holders.

C. Administrative Reform. Reforms that induce public land managers to behave like their private counterparts could marginally improve efficiency. Perhaps the most meaningful reform would be to tie agency budgets to returns from the lands supervised. Requiring bureaucrats to pay their own way to some degree could induce market-sensitive management and the sale of non- revenue-generating properties.

Federal stewardship responsibilities mandate responsiveness to the public interest. Specifically, a balance of important interests, such as resource development, grazing, recreation, and preservation, is required. Unfortunately, it is the nature of bureaucracy that it is more responsive to special rather than general interests.

Conversely, it is market rather than political incentives that lend themselves to fulfilling the long-term interests of the public. Yet the present trend is to remove rather than encourage private incentives. Efficiency will be enhanced in proportion to the degree of market forces allowed to operate. Government itself is an impediment to sound land management. Meaningful reform can be achieved only by limiting government’s role and enhancing private property rights. Far from adding to the already vast supply of wilderness lands, we should place in private control those lands best suited to efficient development.

1.   30 U.S.C. § 21a.

2.   R. Terrill, “Minerals Policy and the Public Lands,” in R. Holwill, ed., Agenda ‘83 (The Heritage Foundation, 1983), p. 191, 193.

3.   See R. Stroup and J. Baden, Natural Resources: Bureaucratic Myths and Environmental Management (Ballinger Publishing Co., 1983), p. 23-26.

4.   Ibid., at 111.

5.   16 U.S.C. § 1600, et seq.

6.   J. Baden and R. Stroup, “Saving the Wilderness: A Radical Proposal,” Reason, July 1981, p. 28-36.

7.   S. Hanke, “Land Policy,” in Agenda ‘83 (note 2), p. 181, 181-82.

8.   G. Libecap, “Economic Interests of Grazing Permittees,” in J. Smits, ed., Privatizing the Public Lands (Public Lands Council, 1983), p. 53, 55-57.

9.   See 43 U.S.C. § 315a and 16 U.S.C. § 1508, stipulating that permittees acquire no interest or title in federal law.

10.   Goldberg v. Kelly, 397 U.S. 254 (1970).

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