From the Department of Self Promotion…

Here is an article on The Katoomba Group’s Ecosystem Marketplace, The Innovator: Can Lars Christian Smith Take Protected Areas to Market?

Dress for success

We have previous mentioned the current predicament of the Hadza. Here is an article in the Daily Mail, Face to face with Stone Age man: The Hadzabe tribe of Tanzania.

Ah, journalists. The Hadza don’t live in the Stone Age. “Hadzabe” is the feminine plural of “Hadza”; this usage is usually considered redundant in English, so we speak of the “Swahili”, not the “Waswahili”. The journalist writes,

I introduced myself and Naftal translated my words into clicks and whistles to an older Hadza called Gonga (Good Hunter in Swahili).

He smiled warmly, revealing surprisingly well-kept teeth.

The Hadza language, like many language in Southern Africa, use clicks as consonants, but no whistles.

There is a picture of the journalist in the article. He has surprising well-kept teeth for a British journalist.

What is interesting about the picture is that the young Hadza man is dressed up for the tourism business. Hadza men don’t usually use animal skins for clothing, and they certainly don’t use hoods. A hood makes no sense in the environment in which the Hadza live. There are photographs of the Hadza dating back to the 1930s, taken by Ludwig Kohl-Larsen, and there are later photographs taken by James Woodburn and others.

It is clear that increasing use of skins and also beads is a response to tourism. The Hadza are now on the tourism circuit. They put on their faux-traditional outfits for the benefit of tourists, and take them off when the tourists have left.

If that provides more income, why not? One danger is that government officials will find it embarrassing that there are people walking about in hides and skins, and will do little to help the Hadza with the biggest problem they face, loss of control and ownership of their lands.

Infant industry protection

Ha-Joon Chang writes that almost all rich countries got wealthy by protecting infant industries and limiting foreign investment.

Once upon a time, the leading car-maker of a developing country exported its first passenger cars to the US. Until then, the company had only made poor copies of cars made by richer countries. The car was just a cheap subcompact (”four wheels and an ashtray”) but it was a big moment for the country and its exporters felt proud.

Unfortunately, the car failed. Most people thought it looked lousy, and were reluctant to spend serious money on a family car that came from a place where only second-rate products were made. The car had to be withdrawn from the US. This disaster led to a major debate among the country’s citizens. Many argued that the company should have stuck to its original business of making simple textile machinery. After all, the country’s biggest export item was silk. If the company could not make decent cars after 25 years of trying, there was no future for it. The government had given the car-maker every chance. It had ensured high profits for it through high tariffs and tough controls on foreign investment. Less than ten years earlier, it had even given public money to save the company from bankruptcy. So, the critics argued, foreign cars should now be let in freely and foreign car-makers, who had been kicked out 20 years before, allowed back again. Others disagreed. They argued that no country had ever got anywhere without developing “serious” industries like car production. They just needed more time.

The year was 1958 and the country was Japan…

Read the article here.

Ha-Joon Chang is the author of Kicking Away the Ladder: Policies and Institutions for Economic Development in Historical Perspective and the forthcoming Bad Samaritans—Rich Nations, Poor Policies and the Threat to the Developing World. 

The Myth of Inevitable Progress

A review of Indur M. Goklany’s The Improving State of the World: Why We’re Living Longer, Healthier, More Comfortable Lives on a Cleaner Planet by James Surowiecki.

The core message of Goklany’s book is that economic growth and technological change are the keys to improving people’s lives. But the success of China and India suggests that no one really knows how to bring these achievements about, which makes Goklany’s wide-eyed optimism about the future seem misplaced.[...]

The fact that every country’s experience is different does not mean that there are not deeper truths to be uncovered by looking at the experience of the world as a whole. But the truths thus far uncovered are relatively few in number and often limited in impact. So, yes, free trade is a good thing, subsidies to agriculture and official corruption are bad things, and so on. And policymakers should be aggressive in implementing those practices and policies that there is a good reason to think will work. But they also need to be cautious about taking theoretical pronouncements for reality, and they should be pragmatists rather than evangelists. After decades of misplaced certainty, it may be time to recognize the limits of our own knowledge — at least if we want the state of the world to continue improving.

The Nature Conservancy buys wilderness land

The Nature Conservancy buys a chunk of the Adirondacs in New York State, 161,000 acres to be more precise, with a loan from the Open Space Conservancy.

Story in New Your Times here. It is an impressive deal, and so is the speed with which it was done. The option of selling the land was first raised only six weeks ago.

Left Libertarian Reading List

Memo to self: Chris Dillow’s useful left libertarian reading list is here.

Hadza hunters-gatherers under threat

The Washington Post reports on the Hadza hunter-gatherers,

50,000 Years of Resilience May Not Save Tribe

Tanzania Safari Deal Lets Arab Royalty Use Lands

YAEDA VALLEY, Tanzania — One of the last remaining tribes of hunter-gatherers on the planet is on the verge of vanishing into the modern world.

The transition has been long underway, but members of the dwindling Hadzabe tribe, who now number fewer than 1,500, say it is being unduly hastened by a United Arab Emirates royal family, which plans to use the tribal hunting land as a personal safari playground.

The deal between the Tanzanian government and Tanzania UAE Safaris Ltd. leases nearly 2,500 square miles of this sprawling, yellow-green valley near the storied Serengeti Plain to members of the royal family, who chose it after a helicopter tour.

A Tanzanian official said that a nearby hunting area the family shared with relatives had become “too crowded” and that a member of the Abu Dhabi royal family “indicated that it was inconvenient” and requested his own parcel.

The official, Philip Marmo, called the Hadzabe “backwards” and said they would benefit from the school, roads and other projects the UAE company has offered as compensation…

The long-run threat to the Hadza is habitat loss. Tanzania has for many years had one of the fastest growing human populations in the world, and the Hadza have lost land from encroachment by farmers and the destruction of woodlands. Ironically, what caused the destruction of one forest was the demand for charcoal from the neighboring Ngorongoro Conservation Area.

The actions of the Abu Dhabi royal family may or may not threaten the Hadza’s livelihood, but obviously some Hadza believe it does. What the Hadza need are clear and well-defined property rights to their land, including rights to charge tourists and hunters.

Here are a few photos.

Buy ‘em, Trade ‘em, Protect ‘em

From the Dep’t of Self-Promotion: here is an article in Conservation Magazine about cap-and-trade for protected area visitor permits.

Protected areas can suffer from too much love. In the Galapagos Islands, tourism has brought invasive species and overuse. But it has also boosted the local economy. So the question is, how can we protect biodiversity without shutting down local tourism industries?

A new proposal based on the cap-and-trade concept now used to curb pollution emissions could help solve the problem. It would treat protected-area visitor permits as tradable commodities, limiting their number while raising capital through the sale of quotas.

The Privatization of the Oceans

Rögnvaldur Hannesson’s The Privatizations of the Oceans (MIT Press, 2006) is short, clear, and written with a certain wry humor.

It is the best exposition of the development of property rights in the world’s fisheries that I have seen, and it is a real pleasure to read.

Peak fish

Source: FAO, The State of World Fisheries and Aquaculture, 2006.

At the end of the Paleolithic our ancestors encountered “peak hunting and gathering” and started farming. The same is now happening with fisheries.

We are encountering “peak fish” now, and fish farming is taking off. Fish capture is stagnant or declining, but aquaculture is growing rapidly and is already or will soon provide more than half of the tonnage of fish caught in the wild.

Are farmed fish as tasty as wild fish? No, wild salmon is better that farmed salmon, just as wild boar is tastier than farmed pig. There is some decline in quality, but farming guarantees the survival of the farmed species and makes it possible for people who could not previously afford to consume them to do so.

Employee ownership

On Stumbling and Mumbling, Chris Dillow discusses alternatives to the traditional limited liability company.

Here is one employee owned firm, SAIC. No, they are not tree-huggers, SAIC is a bona fide member of the military-industrial complex.

Here is forthcoming book about SAIC.

The Beyster Institute at the University of California at San Diego, named after the founder of SAIC, promotes employee ownership.

Chumbe Island Coral Park Ltd.

From the comments, Sibylle Riedmiller of www.chumbeisland.com replies to a comment on this post:

Answering Peter Gottesman: welcome to check out Chumbe Island Coral Park Ltd (CHICOP) in Zanzibar/Tanzania:… it took a lot of struggle and investment, but it works! See our website for details and a summary below…

Environmental “Control Frauds”

From the comments, William K. Black on this post:

“Control fraud” has specific implications useful to the study of conservation finance. Both public control frauds (”kleptocracies”) and some private control frauds pose special dangers to the environment. Kleptocrats loot “their” nation. The direct effects of kleptocracy on the environment are severe. The head of state (and often his cronies) will approve developments that enrich him regardless of the harm to the environment. The government he controls will help the cronies evade any domestic or international laws designed to protect the environment, e.g., by issuing false certificates of the origin/nature of products. Kleptocrats are also autocrats, so the leader will use the state to suppress environmental protests.

The indirect effects of kleptocracy also harm the environment. Kleptocrats’ policies lead to widespread poverty, endemic corruption among lower-level government officials and reduced social trust and cohesion. Indeed, kleptocrats often follow the old colonial practice of “divide and conquer” — favoring one ethnicity or region over others. This can produce chronic armed conflicts that harm the environment. Even if there is no armed conflict the indirect effects mean that there is no effective environmental protection and increased pressure by poor citizens to exploit resources even when doing so overwhelms resources that could have been renewable.

Private control frauds often target the environment. Whenever a company can gain a competitive advantage by acting in an unlawful manner, e.g., by disposing of toxic wastes in a river instead of in the appropriate (but far more expensive) toxic waste disposal center a “Gresham’s law” style dynamic arises. (Gresham’s law: “bad money drives good money out of circulation” during hyperinflation. Note: George Akerlof used this metaphor appropriately in his seminal explanation of “lemon’s markets.” Note that examples he gives in that article are all variants of another type of control fraud — those that target the consumer.) Thus, environmental control frauds have two victims — the public and honest competitors. Unless the government effectively detects and punishes environmental control frauds the dynamic can ultimately lead to environmental control fraud becoming endemic. In the case of international disposal of toxic wastes, companies search for nations with weak regulation or kleptocrats). National and international regulatory/enforcement efforts are essential to reduce this perverse economic incentive to engage in environmental control fraud.

William K. Black
Executive Director, Institute for Fraud Prevention
Associate Professor of Economics and Law, UMKC

Control Fraud

James Galbraith mentions in a comment the very useful concept of “control fraud” introduced by William K. Black, see e.g. When Fragile becomes Friable: Endemic Control Fraud as a Cause of Economic Stagnation and Collapse (pdf),

Individual “control frauds” cause greater losses than all other forms of property crime combined. They are financial super-predators. Control frauds are crimes led by the head of state or CEO that use the nation or company as a fraud vehicle. Waves of “control fraud” can cause economic collapses, damage and discredit key institutions vital to good political governance, and erode trust…

Economic theory about fraud is underdeveloped, core neo-classical theories imply that major frauds are trivial, economists are not taught about fraud and fraud mechanisms, and neo-classical economists minimize the incidence and importance of fraud for reasons of self-interest, class and ideology.

Neo-classical economics’ understanding of fraud is so weak that its policy prescriptions, if adopted wholly, produce strongly criminogenic environments that cause waves of control fraud. Neo-classical policies simultaneously make control fraud easier and more lucrative, dramatically reduce the risk of detection and prosecution by maximizing “systems capacity” problems, and encourage crime by making it easier for fraudsters to “neutralize” the social and psychological constraints against deceit and fraud. Thus the paradox: neo-classical economic triumphs produce tragedy…

William K. Black is also the author of the book The Best Way to Rob a Bank Is to Own One.

The state of the ocean fisheries

Professor Rognvaldur Hannesson discusses the fishing industry’s outlook on Tom Keene’s Bloomberg on the Economy (scroll down to Feb. 27 to listen), and calls the introduction of Individual Transferable Quotas (ITQs) a success.

Hannesson is the author of The Privatization of the Oceans.

You have two cows…

Mark Gilbert adapts the old jokes about having two cows under communism, capitalism, etc. and explains the wonders of modern finance (via Paul Kedrosky),

Carbon-Emissions Trading

You have two cows. They produce 1.2 tons of methane gas per day. After a hefty donation to the re-election campaign of your local representative, the government gives you enough emission permits for six cows. You sell three permits, buy another cow, and apply for a European Commission grant to build a methane-gas power station.

Interest-Rate Swaps

You have two cows. You pledge one of them to me as collateral in a swap for some of my pigs. I pledge the cow to my neighbor as collateral in a swap for some of his sheep. He pledges the cow to his cousin as collateral in a swap for some of his cousin’s goats. Better pray the livestock market doesn’t crash and we have to try and round up that cow.

Paul Kedrosky’s take on venture capitalists,

Venture Capital

You have two cows. One is male, and one is female. Mike Moritz says he loves both cows and will buy 35% of the pair for $100. After the deal is signed he tells you to kill your female cow, and then says your male cow must produce a baby cow within three months or you’re fired. Three months and one day later he fires you, takes your remaining cow, and transfers it into a milking machine company which then goes public on Nasdaq, earning him $10,000,000. Citing a lactation preference in the term sheet, however, he keeps all but $0.10 of the proceeds. “No hard feelings,” he says, “and be sure to come back the next time you have cows.”

The China carbon loophole

But who is responsible for this multi-billion dollar rip-off? From Financial Times,

Billions lost in Kyoto carbon trade loophole

Billions of dollars are being wasted in the international carbon trading system owing to a loophole in the Kyoto protocol, according to a study to be published on Thursday in the journal Nature.

The Financial Times revealed last month [link added] that a few Chinese factories and carbon traders were making large profits by exploiting the regulations in the protocol surrounding a potent greenhouse gas, HFC-23.

By installing cheap equipment, the companies could gain “carbon credits” which they could sell for hundreds of millions of dollars.

According to the study, about €4.6bn ($5.9bn, £3bn) could have been saved through closing this loophole, and instead spending €100m on a simple measure that would eliminate large quantities of the gas…

Micro carbon trading

On Globalisation and the Environment, a reference to the company Celsias, which calls itself “the world’s first online community for households and businesses to get paid for reducing the carbon emissions from their everyday energy usage”.

A noble endeavour, no doubt, but the devil is in the details. Compliance is going to be a real problem. It will be interesting to see how they will handle it.

Are they also, for example, going to allow tree-planting offsets? (See e.g. this BBC story; “Planting forests to combat global warming may be a waste of time, especially if those trees are at high latitude”).

They mention “our patent pending service “. Is that a software patent, or yet another business method patent? We shall see.

Rival and nonrival goods

The history of an idea. Very nice article by David Warsh,

The rival/nonrival distinction apparently was introduced by Harvard University economist Richard Musgrave in the course of a wonderful conference in Biarritz, on the Basque coast of France, in 1966.

For a graphic illustration, see here.

More problems with carbon credits

A couple of articles from a very good journalist, Fiona Harvey, Environment Correspondent with the Financial Times,

Chinese plants and carbon traders exploit loophole

Factories in China and carbon traders are exploiting a loophole in climate change regulations that allows them to make big profits from greenhouse gas emissions trading…

Concern as carbon traders scoop billions

Companies offsetting their greenhouse gas emissions by purchasing carbon credits on the international carbon markets have been warned to verify that their investments are going towards genuine projects to reduce emissions…