European Fish, the Commons, and Business

The sea and its denizens have long been fertile subjects for myth and metaphor. That tradition continues in The Economist, December 15-21, “A Fishy Tale”.

Excerpts:

The [EC’s] Court of Auditors recently found that the European Union’s Common Fisheries Policy does not work…A survey found 81% of fish stocks to be dangerously over-exploited.

…the commission proposes quotas that are larger than those recommended by its scientific advisers. National ministers then expand the quotas once again [by about 50%]. And then national fishing fleets break even these higher quotas.

To most Eurocrats, the problem is selfish national interests, and the solution is tougher EU-wide controls…but if countries parceled out the fish among themselves there would be none left, says one official…some fishermen quietly discard lots of fish so as to pack their holds only with the most valuable.

Many fishermen cheat because they believe the scientists are wrong, or because everyone else is, or because they cannot make a living otherwise.

And so it goes.

Economists know this as “the tragedy of the commons,” based on the problem a few centuries ago of sheep overgrazing the town lands held in common. The problem is that people’s individual search for economic self-interest ends up, paradoxically, destroying everyone’s self-interest.

The airline industry knows this dilemma well. Any given airline on any given route is incented to have a plurality of available-seat-miles. This leads to endemic over-capacity, hence lower profitability for all. The only sure-fire route to airline profitability is not clever marketing, a la Southwest Airlines—it’s domination of routes, something Southwest also knows a thing or two about.

But back to fish. Issues of the commons show up first in government, later in business, because government by default gets the un-economic propositions. But the issues are increasingly not unique to government.

The business world has its own version of the commons. When every company seeks to gain sustainable competitive advantage, maximizing its own shareholder value, driving that logic into every transaction, you end up with systemic suboptimal results.

Example: mortgages. In the old days, savings banks held the loans, lived in the community, knew the borrowers; the borrowers kept the house, and kept the mortgage company. Inefficient, yes; but the common interest was enforced.

Today, we got efficiency—but at the cost of a common interest. The players in the subprime mortgage game ended up just like Portugal, Britain and Poland duking it out over declining fish stocks. The only losers were the fish. Until the fish disappear.

Business is diving headlong into certain practices—the slicing and dicing of business processes, the slicing and dicing of securities into finer and finer tranches of ownership, the rapidly diminishing time of ownership, and the establishment of myriad markets where ownership and time can be freely exchanged.

Lots of markets, lots of efficiency—and very little overlap of the common good.

The ideology of competitive separateness is precisely the wrong ideology in a world of increasing interdependence.
Ironically, since the “commons” problems first show up in government, it is government that must provide examples for business to follow—yet we are saddled with an ideological bias that says business has nothing to learn from government, only the reverse.

The Economist’s conclusion about fish is as right as it is predictable: Europe needs to “ponder the example of one of the EU’s few uncontested triumphs, the single market, and apply its lessons to the seas. That would be rational. It might even be good for the fish.”

And for business at large. It’s difficult to believe that a global economy built on the theory of sustainable competitive advantage is going to solve the energy problem. Or the health care problem. Or the immigration problem. Or the trade problem.

We need an ideology of trust. A set of beliefs that link, rather than divide.