The Hindu Business Line : Privatisation is at sea, let's push it to the ocean

FROM the heights that privatisation was taken to, we now see it wallowing in the chasms of uncertainty. Thus, privatisation of airports may never take off. How about The Privatisation of the Oceans? Before knives are drawn and stones pelted, let me clarify that what I have on hand is Rögnvaldur Hannesson's book, published by The MIT Press (http://mitpress.mit.edu).

This is about economic institutions and their development in world fisheries, states the author in the intro. But why fisheries, you may wish to ask. Because they illustrate better than many other industries "the consequences of weak or absent property rights."

You may be a votary of such rights, but "fish do not respect any boundary lines on charts, and they cannot be branded and individually monitored by their presumptive owners." Much blood has, however, been spilt over fish; for instance, the English fought three wars with the Dutch "partly over the fisheries issue."

Tracing history, the author notes how the three-mile limit for the width of national boundaries at sea prevailed for long; it was based on a Dutch idea — "that the territorial sea should be based on the shooting range of a land-based cannon."

However, in the aftermath of World War II, reacting to Harry Truman's provocative proclamation — that all resources on and underneath the seabed on the continental shelf of the US were the property of the US government — Iceland, Argentina, Panama, Mexico, Chile, Peru and Ecuador too lay claim to resources off their shores. While Iceland's claim extended to 200 metres, many of the South American countries claimed jurisdiction stretching 200 nautical miles from the coast. "Thus was born an idea which later developed into the 200-mile exclusive economic zone that we are familiar with today."

The origin of the limit is `somewhat bizarre', explains Hannesson: "The 200 miles have been alleged to be derived from an inaccurate map published in a Chilean magazine, Semana Internacional, in January 1940, indicating that the neutrality zone was about 200 miles wide off the coast of Chile."

A form of exclusive use right found quite popular is ITQ, short for individual transferable quota. "An ITQ is a right to catch a specific quantity of fish from a given stock within a given time period," explains the book. "Quota holders have incentives to maximise the value of the catch they are allowed to take and to minimise the operating costs for taking it." And transferability of quotas ensures that they will "end up with those who can pay the highest price for them, which normally are those who can utilise them most effectively."

Suddenly, it may seem as if we are discussing national governance where ministerial berths move from one to the other as easily as quotas, and for similar reasons; but no, we're talking not about politicians fishing among people, but about fishermen going fishing. ITQ has its own accounting problems: One, there is incentive for the quota holder to cheat and not to report his catch; and two, he may throw away less valuable fish at sea to make room for still more valuable fish within a given quota. So, if you're sitting on the coast to add up the catch and arrive at the change in stock as ``surplus stock growth minus catch'', statistics may go wrong.

Environmentalists have become increasingly engaged in fisheries issues, points out the author. "Their crusades against seal and whale hunting are famous, or notorious, depending on how one looks at it. Their arguments derive less from any concerns about harming the yields from these stocks than from sanctity of certain forms of marine life, be it super intelligent whales or cuddly seals."

Thus, biodiversity is more important than material utility, but quota systems are more driven by the latter.

The book presents evidence to show how privatising fish resources can be difficult "even in countries that base their economies on private property rights and market processes." Yet the author favours ITQ because of its effect of reducing uncertainty in fishing — a business that is `highly risky', an industry `with the highest fatality risk in the world', and a task that `depends critically on forces of nature over which humans have no control'.

Are governments interested in enhancing the efficiency of the fishing industry? Hannesson is doubtful, because "in most countries fishing industry is such a small part of the economy that it hardly matters one way or the other"; so "the effect on the GDP of eliminating waste in the fishing industry would hardly be visible."

Yet, he wonders why coastal states of the world that put so much emphasis on establishing the 200-mile zone as a part of international law, show little interest "in promoting economically efficient utilisation of fish resources inside their zone." That may happen only when the industry has a voice of its own, with an ability to then command appropriate policies from elected representatives.

In conclusion, the author cautions forcefully not to experiment with socialism: "Some people see fisheries as a common resource that should be open for all, in the name of fairness and equity, and are oblivious to the fact that this may be the surest way to common ruin."

Another caution may sound harsh to the green brigade: "The greatest threat to fisheries in the future may not be overfishing and depletion of fish stocks but rampant environmentalism."

So, let somebody go tell the Minister and get privatisation that is at sea back on sail to head off to the oceans, even as you fish the book out of the economics rack.

Economics@TheHindu.co.in