Public Laws and Provate Imcentives; C. Bolick

Clint Bolick 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 gov ernment is the only line of defense preventing rapacious developers from attaining the wholesale de struction 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 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 It Is published here with their permission. 438 which is fully withdrawn from pro ductivity is enormously costly.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 ben efits 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 de velopment, it often does so in a man ner that is woefully inefficient. Gov ernment's very nature as a political entity, immune from private incen tives, 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 PUBLIC LANDS AND PRIVATE INCENTIVES 439 ownership is not irreconcilable with environmental objectives, and is in fact harmonious with efficient, ra tional use of natural resources. The market provides strong incentives to facilitate multiple uses of property and to avoid waste. And since pri vate profits are derived from satis fying the wants of others, the mar ket encourages responsiveness to public demand.

As the owners of the public lands, it is time we reevaluate these prem ises. If our goal is conservation-the sound, optimal development of nat ural 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 al ternatives and incentives whenever possible. Public Lands: The Wealth of a Nation At latest count, the federal gov ernment controls 734 million acres of land. In the Rocky Mountain re gion, federal lands encompass 86% of the land mass of Nevada, 66% of Utah, 64% of Idaho, and large por tions 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 fa vors multiple use and an accommo dation of the various interests which compete .for public lands. The Min ing 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 re clamation of metals and minerals to help assure satisfaction of indus trial, security and environmental needs." Despite such policies, nearly 70% of the federal lands are unavailable for development or are heavily re stricted, designated as wilderness, endangered species habitats, recre ation areas, or in other ways that re strain productivity. 2 Legislation re cently passed by Congress will increase by 20-30 million acres the total of designated or actual wilder ness land, which already is equal to the area of California, Nevada, and Arizona combined. These enact ments remove from reach likely 440 THE FREEMAN July 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 sys tem of government control, removed as it is from practical considerations, could the enormous oppportunity costs of completely removing re source-rich land from development be countenanced. Unfortunately, the burden of such an inefficient allo cation 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 ineffi cient characteristics, such as the following: 3 1. The federal lands are "owned"

by 220 million Americans. However, few citizens have the time or re sources to inform themselves about general policy issues relating to pub lic lands, let alone day-to-day man agement concerns. Neither can the public reasonably be expected to at tempt to influence every such decision. As a consequence, manage ment decisions are necessarily in the hands of a comparatively few indi viduals, far removed from the inter ests of the owners. 2. This results in a critical distinc tion between the public and private sectors: the separation of authority from responsibility. Whereas the market system allocates costs di rectly to those maktng the choices, government decision-makers are largely immunized from the conse quences 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 par ticular time.

3. While the wishes of the vast ma jority 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 influ encing those outcomes. Unlike the market system, in which buyers and sellers are responsible for the con sequences of their own decisions, the political system can be exploited to allocate costs to one group and ben efits to another. For instance, when land is removed from development for recreational or aesthetic pur poses, those directly receiving the benefits rarely shoulder the full costs. Instead, their wishes are sub1985 PUBLIC LANDS AND PRIVATE INCENTIVES 441 sidized 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 tan gible, objective measure of effi ciency. Output is frequently substi tuted 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 produc tion. Instead of investing in the na tion's resources where the marginal returns are highest, the Forest Ser vice is influenced by political consid erations only haphazardly related to site productivitY.,,4 5. Bureaucratic inertia is often so entrenched that decision-makers cannot respond to changed condi tions. For instance, although the Na tional 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 pur pose. In a time of national crisis, the bureaucracy's innate inefficiencies could paralyze its ability to react appropriately. 6. Many policies affect the inter ests of future generations, but there is no direct political pressure to ac count 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 de velopment do not exist in public land management. More importantly, the measures of success in government have nothing to do with land pro ductivity. 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 bu reaucratic growth and the accretion ofpublic lands, regardless ofwhether such expansions are in the public in terest. 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 442 THE FREEMAN July premised upon a misconceived view ofthe market system as wasteful and self-destructive. This viewpoint er roneously assumes that the private sector has no interest in conserva tion, whereas the converse is ac tually 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 prop erty 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 as sign multiple uses wherever feasi ble, and to develop and carefully maintain the property itself so as to enhance its market value. The Pot latch forests are prime examples of well-preserved, multiple use prop erty in the private sector.

The most significant difference be tween public and private ownership of land is the commonality of au thority and responsibility. Benefits and costs are not severable. Thus, the owner is impelled to seek the op timal 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 in terests, 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 as set 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 maxi mum profit only by preserving and developing the land. Public land management can thus be enhanced by increasing, rather than eliminat ing, market incentives and by re moving 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 gen erally 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 1985 PUBLIC LANDS AND PRIVATE INCENTIVES 443 an assignment would ultimately at tract high-valuing users, with whom the private owners would be free to transact. Baden and Stroup, for ex ample, have suggested that public lands be given to environmental or ganizations 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 Sanc tuary, a 27,000 acre Louisiana wild life 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. Sim ilarly, there is no reason why gov ernment lands cannot be sold with deed restrictions mandating preser vation and public access.

Professor Steve Hanke lists the fol lowing 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 govern ment 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 pri vatization program by issuing Ex ecutive Order No. 12348 in 1982. The Order instructed agencies to review real property holdings, improve management, and sell unneeded property. B. Increased Private Incen tives. 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 permit ted, property rights should be as signed 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 dis tinction between the public and pri vate interests. The permits are transferable along with the base ranches, and are reflected in the val ue 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.S But despite these incidents of pri444 THE FREEMAN vate ownership, the permits are nonetheless legally treated as mere "privileges," subject to casual revo cation 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 be tween rights and privileges in 1970,10 but procedural protections such as the right to a hearing, to present evi dence, and to cross-examine wit nesses have not yet been extended to permit holders.

C. Administrative Reform. Re forms that induce public land man agers to behave like their private counterparts could marginally im prove efficiency. Perhaps the most meaningful reform would be to tie agency budgets to returns from the lands supervised. Requiring bureau crats to pay their own way to some degree could induce market sensitive management and the sale of non-revenue-generating properties. Federal stewardship responsibili ties mandate responsiveness to the public interest. Specifically, a bal ance of important interests, such as resource development, grazing, rec reation, and preservation, is re quired. Unfortunately, it is the na ture 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 pro portion to the degree of market forces allowed to operate. Government it self 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. -FOOTNOTES130 U.S.C. § 21a. 2R. Terrill, "Minerals Policy and the Public Lands," in R. Holwill, ed., Agenda '83 (The Heritage Foundation, 1983), p. 191, 193. aSee R. Stroup and J. Baden, Natural Re sources: Bureaucratic Myths and Environmen tal Management (Ballinger Publishing Co., 1983), p. 23-26. 4Ibid. at 11I. 516 U.S.C. § 1600, et seq. 6J. Baden and R. Stroup, "Saving the Wil derness: A Radical Proposal," Reason, July 1981, p. 28-36. 'lS. Hanke, "Land Policy," in Agenda '83 (note 2), p. 181, 181-82.

sG. Libecap, "Economic Interests of Grazing Permittees," in J. Smits, ed., Privatizing the Public Lands (Public Lands Council, 1983), p. 53,55-57. 9See 43 U.S.C. § 315a and 16 U.S.C. § 1508, stipulating that permittees acquire no interest or title in federal law. I°Goldberg v. Kelly, 397 U.S. 254 (1970).