Great Texts Revisited: Cutting-Cost and Governing the Commons: A Look at Elinor Ostrom’s Classic Study

What do all these groups have in common?

They are the embodiment of that long-neglected middle-ground between state ownership and individual private property which Nobel Prize winner Elinor Ostrom devoted much of her life to studying: The “commons.”

In business, as in government, we often do not see waste as waste, because we assume it is simply the price of doing business. Nowhere is this more apparent than in resource management. The perils of micro-management may be widely acknowledged, but how much of our lives are still taken up by unnecessary, top-down bureaucracy?

Ostrom, who earned her PhD from UCLA in 1965, challenged conventional wisdom on collective resource management. Her work earned her the 2009 Nobel Prize in Economic Sciences—the first and, so far, only woman to receive the award.

Her 1990 book, Governing the Commons, remains influential across disciplines, from environmental policy to digital platforms, demonstrating that, under the right conditions, communities are largely capable of managing themselves. In an era plagued by fears around resource depletion and run-away spending, her insights are more relevant than ever.

Breaking Old Models

Conventional wisdom understands resources as having to fall under private or state ownership. For Ostrom, this sets up a false choice. It misses out on the socially-stabilising and long-term sustainable resource-management that can be reaped from local communities.

Ostrom’s insights begin where others' theories fall short. Garrett Hardin’s infamous “tragedy of the commons,” for example, held that common resources open to all members of a community—fisheries, forests, grazing lands, etc.—were doomed to overuse unless they were privatised or centrally regulated.

People are selfish, and they will overexploit if they can. So goes the conventional thinking.

Ostrom, however, found plenty of cases where this simply wasn’t true.

Built to Last

The point of CPRs is not that they are always better than other arrangements, but better at some things, and as such can complement private and state ownership.

As Ostrom notes, in the “alpine region of Switzerland,” for example, “farmers use private property for agricultural pursuits and…common property for the summer meadows, forests…”

While successful management depends on tailored-rules and trial and error, Ostrom does identify design-principles that allow CPRs to succeed.

It begins with boundaries: a division between legitimate resource-users (who use and have a say on a CPR) and outsiders. Common resources have to be used within certain limits, of course, depending on local realities like climate, average rainfall, and so on. There must also be a way for the community’s members to debate and change these rules if needed.

Obviously, a monitoring system must oversee rule-compliance, sanctioning violations, and there must be conflict-resolution mechanisms. Sometimes, “private benefits are allocated to those who monitor…In the Spanish huertas, a portion of the fines is kept by the guards; the Japanese detectives also keep the sake they collect from infractors: [But] all of the formal guard positions are accountable...” None of this can function without a favourable legislative environment, some state recognition of communities’ right to self-manage.

Finally, in order to make use of economies of scale and integrate complex supply chains, CPR systems can consist of “nested enterprises,” or “multi-layered governance.”

The promise of Ostrom’s work is that, when communities craft and enforce their own resource-management systems, they often outperform both bureaucratic control and unregulated markets.

Financial Sustainability

CPRs may not yield high returns, but they can be remarkably stable. The Japanese “kumi”, consisting of several households, was the “distributional unit related to the commons” during a period when “population growth was extremely low (0.025% for the period 1721-1846), and ownership patterns within villages were stable.”

Thus, commons are not appropriate for export industries (although they could be, if organised into “nested enterprises”), but foster broader social and political stability that can make a country more resilient to economic shocks, and help sustain economic activities beyond the local commons themselves through positive externalities.

The Pay-Off

The key is to use CPRs where appropriate. Policymakers can help communities design effective governance by investing in monitoring and enforcement agencies with reliable data gathering and by passing legislation on enforcement mechanisms.

Businesses can also profit from these principles. Where small-scale systems work well, they can be reinforced, rather than replaced, cutting down on bureaucracy and unnecessary top-down expenditure, as well as avoiding overcentralisation, which can stifle local innovations that could turn out to be economically competitive.

From fostering social and political stability and resilience, to saving money on top-down management structures and cultivating local innovations that can potentially be reproduced elsewhere, the commons represent an underutilised paradigm with tangible economic (and other) benefits waiting to be tapped.

Statement

Elinor Ostrom revolutionised resource management by challenging the assumption that common-pool resources must be either privatised or state-controlled to ensure their sustainability. Her 1990 book, Governing the Commons, demonstrated that communities have successfully managed local resources for generations. Ostrom extracted specific design-principles and favourable conditions that allow for this, which both business and policy-makers can benefit from today.

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