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Bastiat Scrolls

Elinor Ostrom – A Case Against Free Markets?


Elinor Claire “Lin” Ostrom (1933-2012) became the first woman to receive the Nobel Prize in Economics, in 2008. She achieved this great feat through a lifetime of research into the development of efficient systems to manage common resources. Lin always found it unacceptable that the academic world of economics and political science moved ahead with a binary view of the world. It was always a case of Perfect Markets vs Perfect Governments

Her approach was a breath of fresh air to the field of social sciences, which was dominated by methodological individualism and rational choice theory. Listed below are the principles that Lin Ostrom discovered to be absolutely necessary for effective common pool resource (CPR) management:

1) Clearly defined boundaries

2) Proportional equivalence between benefits and costs

3) Collective choice arrangements

4) Monitoring

5) Graduated sanctions

6) Fast and fair conflict resolution

7) Local autonomy

8) Appropriate relations with other tiers of rule-making authority (polycentric governance)

which means…

1) that members knew they were part of a group and what the group was about (e.g., fishermen with access to a bay or farmers managing an irrigation system).

2) that members had to earn their benefits and couldn’t just appropriate them.

3) that group members had to agree upon decisions so nobody could be bossed around.

4) that there is a system which neutrally evaluates all the players in the system

5) that disruptive self-serving behaviors could be detected and punished.

6) that the group would not be torn apart by internal conflicts of interest.

7) that the group had the elbow room to manage its own affairs.

8) that everything regulating the conduct of individuals within a given group also was needed to regulate conduct among groups in a multi-group population.

There are some people who claim that Ostrom’s work as the ultimate proof that libertarians are wrong in their vocal support for more privatization and free-market policies. This is a result of the false perception/understanding they have of libertarianism, as well as a misunderstanding of Ostrom’s work.

Believing in the value of liberty and the power of markets doesn’t make people isolated islands. It doesn’t mean that they can’t understand the importance of cooperation and compassion between human beings. Libertarians are the champions of voluntary human interaction and cooperation, instead of having a top-down dictate from a governing body. Lin Ostrom’s work establishes that individuals in a community can resolve common resource based issues more efficiently if the community is smaller, people are free to change communities, the governing body is as local as possible, and if there is communal agreement (consent). 

The beauty of free markets is that they empower any single person or group on the ground to create systems and innovate in order to tackle any problem faced by their community. This is because they will have the necessary local knowledge for incentivizing cooperation among members of the community. They know exactly what each person in the community expects. These systems were viewed as very chaotic by many academics, but I believe that Elinor Ostrom successfully established that these are systems of spontaneous order achieved by rational, educated, vision-driven individuals working within a framework of consent. The consent in terms of common resources is much easier to achieve because this generally entails commodities or services that are hard to privatize (as a for-profit venture) or hard to efficiently run as a public good (run by a central government).The work of Elinor Ostrom is something every libertarian should disseminate and celebrate! Bastiat certainly would have!

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