22 Mar 2013

We do fishin right!

SS sent this article on fishing, sustainability and markets. I found it to be very weak on analysis and rather hopeful on bashing markets and bad economic reasoning, so I left this comment:
This article is indeed trying to create a "big bad capitalism" image with repetition of "winners and losers." Everyone loses when a fishery collapses.
  1. It's true that catch limits are sufficient to establish environmental sustainability, but catch shares are a useful way to reduce "effort" (e.g., boats, men) such that the fishery is economically sustainable.
  2. Small guys like Collins probably got excluded b/c shares were grandfathered to the largest fisherman, and he was "too small" to administer. (It's obvious that they could have given him 1 share worth 50*200lbs=10 tons along with everyone else, if only as a means of preventing these claims, but what about the 100lb/week guy? And so on...)
  3. The WHOLE POINT of catch shares (as well as catch limits) is to reduce the number of boats and fishermen. Lost jobs = success in an industry that's over capacity.
  4. The attempt to link funding to results, even while admitting that lots of "govt funded" studies support catch shares, is a fishing expedition that makes the author look biased. Pity.
  5. Thanks for writing this. I will blog it as an example of journalism that pushes an agenda over policy analysis and misses the big picture of a economically and environmentally sustainable outcome.
My much more careful and knowledgeable colleague, Josh, gave this opinion:
This nicely shows the complexity of causation around catch shares and their ecological effects (I personally don't believe it is catch shares that are primarily responsible for rebounding of fisheries, notwithstanding Costello's paper -- it's mostly just better monitoring of quotas which might be a bit easier under catch shares and the ensuing consolidation). It also shows how a really nice solution to improve economic efficiency in fisheries is in danger of being scuttled due to inattention in program design to distributional aspects in the transition from the overcapitalized, inefficient system to a more efficient one. There are very real losers created by catch shares who have had their previous de facto property rights devalued in the initial allocation. We have to think of ways to make the Kaldor-Hicks compensation more than hypothetical or we are going to end up throwing the baby out with the bath water. There is no reason why catch shares MUST create these dramatic distributional consequences.
Bottom Line: Sustainable fishing is not just a question of imposing markets, but markets ARE compatible with sustainability, economic efficiency AND equity. Just ask an economist how to do it right.


Anonymous said...

David and Josh, I am a little troubled by your promotion of industry consolidation for the financial benefit of the remaining participants. I'm wondering what you believe are the net economic benefits of these systems when you account for the welfare costs resulting from lost jobs, wealth concentration, and the forcing of individuals away from their preferred occupation? Are there other industries where you'd promote the active removal of competition and the prevention of new enterprises in order to economically enhance the industry? What aspect of fisheries are "economically unsustainable" without catch shares, and why don't we let markets settle on the economically feasible rate of participation. Are you aware of the fact that catch share systems typically result in higher capitalization of the industry and no real reduction in the fishing capacity of the fleet, just a reduction in number of participants? I have studied catch share systems for years and think that they are better characterized as a monopoly based approach to fishery management than a market based solution. Through analogous economic reasoning, we could turn the right to participate in any industry into a marketable commodity, forcing consolidation in the industry and increasing the profitability of the remaining participants. I think it's difficult to argue that this would somehow be a better world.

David Zetland said...

@anon -- consolidation helps those to exit when they sell their catch shares. They can, of course, choose to stay in as active participants or as passive "fishlords" renting their shares.

Your other points do not jibe with economic thinking. i.e., "lost jobs" are NOT a welfare loss in an industry that's over capacity (think school administrators), there's no problem from wealth accumulation in market activities (that's resolved by taxing and redistributing income/wealth, not jobs), and nobody is forced to retire with catch shares. The use of catch shares to reduce competition is a typical solution to a tragedy of the commons that we see in groundwater overpumping, the current glut of unprofitable shale gas drilling, etc. You need to look further into the problems of open access goods and how the individual pursuit of profit leads to losses for all (start here).

Catch shares are SUPPOSED to increase capitalization, as that's the right mix of labor and capital. Nobody fishes with hand lines because it's too expensive in human terms (That's why we use machines instead of shovels to move dirt in developed countries, for example).

You're right that they are a "monopoly" (more correct, a cartel), but the goal is sustainable business, not competition. I suggest that you expand your studies to the Alaskan halibut and Australian abalone fisheries to learn how shares made for a better world for fish, fishermen and consumers.

Anonymous said...

David, thank you for the response; I appreciate your insight.

I'm actually posting from Alaska and am quite familiar with the catch share program here which is widely considered to be a failure. I'm not sure how you define "overcapacity," but catch shares often don't reduce fleet capacity, as I mentioned earlier, it just reduces the number of participants and beneficiaries of the resource. Consider the studies of the Icelandic catch share program that concluded that the fleet capacity actually increased by 15% when using a metric that accounts for the size and fishing capabilities of active boats. Catch share programs certainly don't help fishermen, as reduced wages, impossibly high entry costs, and lease fees means a substantial reduction in revenue and profits for actual fishermen. And of course, catch shares do nothing for the consumer, since the costs of fleet inefficiency are not passed on through fish pricing as harvesters accept market value for their product regardless of their costs. (Keep in mind that the increase in product quality is due to the pre-allocation of catch, not the secure transferable aspect of that allocation.) But the costs of increased unemployment and reduced industry surrounding the fishing fleet does hit a population beyond just the fishing fleet. And finally, catch shares don't help fish, as these systems don't alter the number of fish removed from the water. Consider the studies at the University of Washington over the last few years that concluded that catch shares, when compared to other fisheries managed by output controls, do not lead to healthier fisheries or increased biomass, and that despite the eradication of "overcapacity," fish stocks typically go largely unchanged when they transition to catch shares.

So, who, ultimately, is the beneficiary of these programs?

I think that the most overlooked aspect of these programs, one that actually affects consumers and economically inhibits the industry, is that these programs inhibit innovation and progress in the seafood industry as a whole. By protecting the financial success of the larger participants upon initiation of these programs, the lack of access to the resource and industry makes it nearly impossible for new entrants enter and explore the potential of new products and markets. Imagine if the overcapacity of the dotcom industry had been preemptively solved using similar rationale. We probably wouldn't be searching the web on google using our i-phones and ordering books though online retailers. Instead we'd probably hear "you've got mail" every time we opened our IBM computers. Catch shares substantially inhibit growth opportunities through free enterprise and may ultimately cost then industry more in lost innovative opportunities, than it gains in financial security. Again, why not let normal market conditions determine the right capacity for the industry if it doesn't affect consumer, ecosystems, or fishermen?

In your original posting you said that "over capitalization" was one of the problems that catch shares were supposed to solve, but based on your response you must have meant "overcapacity."

David Zetland said...

@anon -- thanks for your substantial comment. On the one hand, I am sure that we'd agree on many things in a conversation. On the other, I do not agree with you, either in terms of theory or practice (even taking your personal observations into account). 1) Most important -- fisheries are not the same as telecoms markets, so the competitive dynamics are different. 2) Overcapacity (too many fishermen, too many boats) is on par with overcapitalization. 3) Entry is easy when you buy catch shares. If you assume that NO fishermen will sell ANY catch shares at any price to outsiders, then you can also assume that none would retire from an open access fishery. 4) Yes limits on total catch are more important than catch shares, but then how do you allocate catch among fishermen? First in time first in right? Then you're back to overcapitalization, racing, accidents, etc. 5) Impacts on communities are always important but a limited fihery is better than no fishery at all. Just ask the people who no longer fish cod or salmon.

BL: Limit catches and then find a way to reward productivity.

Anonymous said...

@David, thank you for the response.

1) Although fisheries may not be the same as telecom markets, the competitive dynamics are substantial. The difference between a fish selling for 10 cents a kilo and one selling for $1/kilo, is that the latter is the result of a seller effectively finding a market and creating a product for the consumer. Catch shares substantially inhibit that process.
2) I guess I don't understand your comments about overcapitalization. You mention that catch shares are designed to both increase capitalization yet reverse trends in overcapitalization.
3)Entry is financially impossible in catch share systems if you're a fisherman. This is well documented. The assumption that you make would be valid if it conformed to real world experiences, but that's just not that case.
4)Nope. You initially allocate based on catch history, just like in a catch share system, but you also set aside a small portion of shares for new entrants, and do not allow for selling or leasing of rights. Annual management fees are charged per kilo, uncaught fish are returned to the general pool and redistributed, and seniority is favored annually with allocation. There's no race to fish here, David, because each fisherman still has his own allocation. This way the industry can still benefit from the powers of free enterprise, allow individuals to work in the field of their choice. There's no coastal depression, lost jobs, and there's a higher standard of safety and more of an economic incentive to conserve for the active fishermen.
5)Cod and salmon are at near historically high catch levels around the world. Norway and Russia are dumping 2.2 billion pounds onto the markets this year, and Pacific cod is near historical highs, despite the race to fish. In fact, many areas with substantially reduced cod stocks are managed with catch shares. Atlantic salmon has substantially diminished because they spawn in rivers that run through cities and dams. Same with the US west coast. Look at salmon in Alaska and Russia. It's all caught in the "race to fish" and is as sustainable as ever.

You are still assuming that catch shares end overfishing and preserve fish stocks. This just isn't true. Read Essington, Melnychuck, and Branch.

David Zetland said...

@anon -- I think we're talking past each other b/c your "responses" do not seem to line up with my statements (on 4, e.g.)

Interested in doing a "chat" on fishing, catch shares, sustainability, etc. on google hangout? I am hoping to do a weekly "aguanomics show" with commentary and discussion, and this would be a good place to start. It's google hangout (video call) that will also be an MP3 podcast...

Let me know, and thanks for your comments!

Anonymous said...

Sure, sounds great, as you can tell, I love discussing this topic and have a lot to say!

I guess I didn't express myself clearly in 4) and 5) or missed your points. Let me clarify how I understood your statements and how I responded:

4) I thought that you were saying that with a system of pre-allocated catch, but no transferability of that catch there would still be a race to fish.

My response: Once the catch is pre-allocated to individual fishermen before the fishing season, then they have no incentive to race to fish. It is the pre-allocation of catch that ends the race, not the the lifetime rights to that allocation or the transferabality of those rights. The initial allocation can be the same as in a normal ITQ fishery.

5) You referenced cod and salmon as examples of how commons based fisheries collapse.

My response: I was just demonstrating that this wasn't true for either species and in the cases where salmon did collapse, the issue was more related to the damage to their river ecosystems, where must go to spawn, sometimes thousands of miles up a stream. In general, if you read chu, essington, or Melnychuck, you'll find that catch shares don't end overfishing, and fish stocks typically go unaffected after switching to catch shares. The only exception is when the fishery makes the drastic change from no real management to catch shares, like in New Zealand. Once a scientifically determined catch limit is set, any management regime is equally sustainable, (well, as long it's balanced with gear restrictions, and there isn't just too much effort, as was the case with alaska halibut)

Ultimately, I believe that catch shares are a substantial economic burden to the industry, even though it benefits those who are able to remain in the game, so to speak.

David Zetland said...

@anon -- I agree (I think) w what you're saying, but a hangout is still a good idea, not just to see where we agree or not but also to explore the issue. Available in the week of 22 Apr?

Anonymous said...

Sure, but it would have to be early in the week, since I have trip scheduled for the rest of the week.

David Zetland said...
This comment has been removed by the author.
David Zetland said...

Great. Email me for time/day.

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