What the Hobbit can teach us about self-governance

This year’s Christmas blockbuster looks likely to be the first part of the Hobbit trilogy, which is released this week. JRR Tolkien’s prequel to the Lord of the Rings follows the story of Bilbo Baggins, plucked from his comfortable life in the Shire to accompany treasure-seeking dwarves on an adventure.

Tolkien became a cult figure among hippies in the 1960s, for whom LOTR worked on a number of levels: peace-lovers versus warmongers; military-industrial complex versus local smallholders; the lust for power versus individual freedom. These days he would have celebrated the victory of the people of Totnes in their campaign to keep a branch of Costa out of their town, says The Guardian.

Yet those who believe in a small state and self-regulated markets could also claim Tolkien as one of their own. The Shire had hardly any government: families, for the most part, managed their own affairs and the only real official was the mayor, who oversaw the postal service and the watch.

Hobbits enjoyed a pipe and a mug of ale: it is unlikely Tolkien would have been a fan of smoking bans and minimum unit prices for alcohol. Like Elinor Ostrom, he might even have been invited to deliver the Hayek lecture at the UK’s bastion of free-market thinking, the Institute of Economic Affairs (IEA).

Ostrom, who died this year, became the first woman to win the Nobel prize for economics in 2009. Her work on the governance of common-pool resources, such as forests and fisheries, was based on studying communities to see what worked rather than on highly complex models. She concluded there was no “one right” way to do things but, in the main, the best solutions were where communities developed their own approach to managing common resources.

This was a message that went down well with those on the left for whom what has become known as the “tragedy of the commons” in the developing world is the result of privatisation, which has allowed companies to deplete resources in pursuit of short-term profitability.

But Ostrom was no great fan of big government either. She considered the EU’s common fisheries policy an unmitigated disaster, viewing with horror the attempt to have one set of rules from the Mediterranean to the Baltic. This went down rather well with economic liberals, and helps explain why the IEA is publishing a monograph based on Ostrom’s Hayek lecture. This explores whether there is a way of managing the commons that avoids the perils of market failure and of government regulation. Interestingly, it contains commentaries both from free-marketeers such as Mark Pennington of King’s College London and from Christina Chang of the Catholic aid agency Cafod.

Ostrom would have been pleased by this rare meeting of minds across the political spectrum. She talked about the “panacea problem” – policymakers’ belief that there was a “best way” of doing things. “For many purposes, if the market was not the best way, people used to think that the government was the best way. We need to get away from thinking about very broad terms that do not give us the specific detail that is needed to really know what we are talking about,” she said.

Governance systems that worked in practice were not those that stemmed from a theory of what ought to work but had, on the contrary, evolved from local conditions. “There is a huge diversity out there, and the range of governance systems that work reflects that diversity. We have found that government-, private- and community-based mechanisms all work in some settings.”

While careful not to fall into the trap of saying community-based systems always work best, Ostrom says there are many examples of local solutions that have husbanded resources carefully and avoided ecological damage. Her work suggests community-based approaches work best when there are clear boundaries to the resource – the pasture contained in a Swiss Alpine valley, for example – and where the local people draw up rules they deem appropriate, police them, and have an accepted mechanism for settling disputes and punishing those who transgress.

Self-organisation tends to work if there is a high level of trust and if the communities are allowed to develop their own rules. They then tend to be concerned about ensuring that the resource still exists for future generations, thus avoiding over-exploitation. Local monitoring is crucial, Ostrom she suggests. “The local people pay attention to what is happening in the forest if they have some rights to collect.”

It is easy to see why Ostrom appeals to those on the left who believe in localism and collective solutions to problems that are not administered by the state. What is less obvious is why a body like the IEA should be excited by her work. The answer, according to the thinktank’s editorial director, Philip Booth, is that “in no sense do Professor Ostrom’s ideas conflict with the idea of a free economy”.

“To the left, perhaps, the community management of a resource is the acceptable face of a free economy like a mutual bank or co-operative retail outlet, but it is no less free for that,” he adds. If there is a congruence of thinking between left and right exemplified by Ostrom, it is in the concern about “bigness” in all its forms. Her message is that policies that go with the grain of local communities tend to work, while those that rely on the restraint of multinational corporations or the wisdom of officials tend not to.

In the question-and-answer session at the end of her lecture, Ostrom was asked whether it was possible to adapt an approach that worked for the management of fisheries and forests to tackling climate change. While the commonly held view is that global warming can only be handled effectively by governments, Ostrom said this was a mistake and it was important to encourage action at the local level. She welcomed the fact that 1,000 mayors in US cities had signed an agreement to start working on ways to reduce greenhouse gas emissions, adding: “I am very nervous about just sitting around and waiting and making the argument that the rest of us can’t do anything at all.”

Let’s be clear. For the most part, the world is not run along the lines suggested by Ostrom. It is overfished, increasingly deforested, ravaged by those who care nothing about resource management and local communities, dominated by dogmatists who think they know best. But there’s something heartening about an economist who doesn’t claim to have all the answers and who suggests there is a different way of doing things.