Your assumptions are your windows on the world. Scrub them off every once in a while, or the light won’t come in. - Issac Asimov
Take an example where the assumption of self interest is commonly used - the management of the commons. The commons is the cultural and natural resources accessible to all members of a society, including natural materials such as air, water, and a habitable earth. Unlike private property, the commons are inclusive rather than exclusive – their nature is to share ownership as widely, rather than as narrowly, as possible. For millennia, the commons constituted almost everything on earth.
But over the past 10,000 years, much of the commons has been taken up by the market and the state. It was long unanimously held among economists that natural resources that were collectively used by their users would be over-exploited and destroyed in the long-term. The concept of the commons gained currency with a piece published in the journal Science by American biologist Garrett Hardin in 1968 called 'The Tragedy of the Commons'. Hardin used the term ‘tragedy’ in the Greek sense, to mean a regrettable but inevitable event: ‘Freedom in a commons,’ he said, ‘brings ruin to all.’
Hardin’s paper went on to become the most widely reprinted ever published in a scientific journal. ‘[It] should be required reading for all students,’ declared an American biologist in the 1980s, ‘and, if I had my way, for all human beings.’ Hardin theorized that if each herdsman sharing a piece of common grazing land made the individually rational economic decision of increasing the number of cattle he keeps on the land, the collective effect would deplete or destroy the commons. In other words, multiple individuals, acting independently and rationally consulting their own self-interest, will ultimately deplete a shared limited resource, even when it is clear that it is not in anyone’s long-term interest for this to happen.
Hardin was convinced that there was no way to manage communal property sustainably. At some stage it will be overgrazed and the ecosystem may fail. That risk is not borne by any individual, however, but by society as a whole. The only solution was to remove the communal aspect. Either the commons could be nationalised and managed by the state or the commons could be privatised, divided up into little parcels and handed out to individual farmers, who would then look after their own land responsibly. The idea of a communally owned resource might be appealing but it was ultimately self-defeating.
But perhaps it was Hardin who was the one failing to think deeply enough. The logic of “The Tragedy of the Commons” worked well to frame a class of environmental problems. The problem was that Hardin generalised this model as applicable to all situations without looking at how other, similar-looking problems were being solved, again and again, by communities all over the world. This was noticed by Elinor Ostrom, an American political economist and researcher at a time when universities didn’t exactly welcome women.
She became interested in Hardin's paper because she was convinced that it was wrong. She knew that there was nothing inevitable about the self-destruction of “common pool resources”, as economists call them. Hardin’s article had ignored the complexity with his assumption that all commons were in some sense the same. But they aren’t. Common pool resources could be found all over the planet, from the high meadows of Switzerland to the lobster fisheries of Maine, from forests in Sri Lanka to water in Nepal. Many of these resources had been managed sustainably without Hardin’s black-or-white solutions.
Unlike Hardin, Ostrom had little interest in theoretical models. She wanted to see how real people behave in the real world. While models do bring important insights, it is harmful to claim that models whose assumptions greatly distort the real world are adequate for real-world applications. In her book, Governing the Commons, Ostrom writes: 'The key to my argument is that some individuals have broken out of the trap inherent in the commons dilemma, whereas others continue remorsefully trapped into destroying their own resources.'
Ostrom set up a database to record examples of commons from all over the world, from shared pastures in Switzerland and cropland in Japan to communal irrigation in the Philippines and water reserves in Nepal. She conducted field studies on how people in small, local communities manage shared natural resources, such as pastures, fishing waters and forests. Vincent Ostrom, Elior’s husband, had developed the idea of “polycentricity” in political science: polycentric systems have multiple, independent and overlapping sources of power and authority. By their very nature, they are messy to describe and hard to compare with each other.
Using this idea, Elinor Ostrom showed that the use of exhaustible resources by groups of people (communities, cooperatives, trusts, trade unions) can be rational and prevent depletion of the resource without government intervention. The problem with Hardin’s logic was the assumption that communally owned land was a free-for-all. It wasn’t. The commons were owned by a community. They were managed by a community. These people were neighbours. They lived next door to each other. In time, rules are established for how these are to be cared for and used in a way that is both economically and ecologically sustainable.
Ostrom was able to show that the diverse solutions reflected a smaller number of design principles. She argued that these arrangements were rarely designed or imposed from the top down; they usually evolved from the bottom up. Some of these principles were that, a community must have a minimum level of autonomy, an effective monitoring system, graduated sanctions for those who break rules; and cheap access to conflict-resolution mechanisms. But she stressed that there’s no blueprint for success, because the characteristics of a commons are ultimately shaped by the local context.
Modern economics is founded on the assumption that self-interest automatically leads to collective wellbeing. But Ostrom's work showed that neither central planning nor laizzez fair would work in effectively managing common pool resources. Self-interest often leads to the overexploitation of resources and other problems that make life worse for everyone, not better. When everyone acted as they pleased, there was no invisible hand to rescue the situation. In 2009, Ostrom became the first woman to receive the Nobel Memorial Prize in Economic Sciences.
‘Social Capital’ refers to the wealth of trust and reciprocity that is created within social groups as a result of their networks of relationships. Through these groups, we build norms, rules and relations that enable us to cooperate with and depend upon one another. These connections build social cohesion and help to meet our fundamental human needs such as for participation, leisure, protection and belonging. An economy’s vibrancy depends upon the trust, norms and sense of reciprocity nurtured within society.
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