Less Government, More Governance- Market Instruments for Efficient and Sustainable Natural Resources Management
As a researcher in environmental economics, I feel that both state- and community-based management of natural resources in India have been ineffective so far, mainly because of monetary constraints and complications associated with religious, caste, and gender issues at the micro-level. While international literature has several examples of successful market creation for the benefits extracted from natural resources, Indian examples are rare. The recent seminar entitled “Making Governments Govern Better” that was jointly held by VSEP and O.P. Jindal Global University had me contemplating how the conditional privatisation of natural resources and the subsequent creation of markets for environmental services could lead to long-term benefits for all the stakeholders.
Natural resources such as water, land, forests, and minerals provide the foundation for human well-being and economic development. However, these resources face adverse consequences due to mismanagement, overexploitation, and degradation, which greatly challenge their long-term availability. Indeed, as per the Coasian solution, assignment of property rights allows privatisation to create a good incentive for the efficient use of these natural resources. Whenever these resources are privately owned or privately managed, the owners have a vested interest in maximizing the long-term value of these resources. In contrast, in the case of government ownership, the incentives to conserve resources are likely to be undermined by the absence of direct adverse financial consequences on the government arising from inefficient management of resources.
“Tragedy of the commons” is a common phenomenon for government-run natural resources, where individuals or entities withhold themselves from acting in the larger good and therefore exploit common-pool resources to their degradation. Lack of equitable benefit-sharing is another challenge. This incident could exacerbate wealth inequality through privatisation, especially where larger corporations and rich individuals exploit resources to the marginalisation of local communities or smaller stakeholders. Thus, it becomes important to ensure that local communities benefit from privatised management of resources. Property rights and profit-sharing arrangements, land leases, or community partnerships could help ensure that benefits from resource exploitation are broadly shared.
Conclusively, privatisation can incentivise efficient and sustainable management of natural resources. However, privatisation should be planned and implemented in order to avoid adverse social and environmental consequences. Strong regulatory frameworks with effective monitoring mechanisms and the active involvement of local communities in decision-making can ensure that natural resources are managed sustainably, efficiently, and equitably for the benefit of present and future generations. Privatisation shifts the cost of overuse onto the resource owner, thereby creating a strong incentive for sustainable management. On the other hand, state control is usually slow in responding to changing conditions; therefore, privatisation will secure market-driven allocation. Prices in a market will signal the scarcity value of resources and thus provide the incentive for their rational use and efficient allocation. For instance, the privatisation of water resources would allow for the establishment of a water pricing mechanism that incorporates both scarcity and real costs of water. In addition to providing dynamic adjustment in accordance with supply and demand; therefore, private property holds vested interests in increasing efficiency to accommodate changes in resource availability with time.
Privatisation has many positive aspects, which include better approaches for natural resource management, but it also tends to bring with it negative approaches. One of the grave problems regarding this is that private enterprises normally have little incentive to sustain environmental integrity in the management of their resources. Lack of adequate regulation and oversight can sometimes lead to the privatised resource management being overexploited or destroyed environmentally; therefore, the maintenance of strong regulation is a must. Governments should set up a regulatory framework that obliges private companies to take sustainability into consideration and be accountable for their environmental and social ramifications. Some of these may include limits on the amounts of resources to be extracted by the private sector, standards on the kind of technology to be used, and penalties for non-compliance of such standards
