Nobel Economics: The Relevance of Elinor Ostrom's Win

By Glenn Ashton · 20 Oct 2009

Picture: Courtesy Indiana University

The nomination of Elinor Ostrom for the Nobel Memorial Prize in Economic Sciences is a timely recognition not only of her work but also of the mess that conventional economic theory has landed us in. It is probably safe to say that the awarding of the prize to Ostrom is as close to inciting revolutionary economic activity that the Royal Swedish Academy on Sciences, who decide the recipients, can get.

Not many people outside the rarefied world of academic or developmental economics were aware of who Elinor Ostrom was until she burst upon the firmament of pre-eminent economic thinkers with her joint award of the Nobel Prize.

Not only was this the first woman to win the Economics Prize, but a woman who was splashed across the pages of the worlds media wearing a tie-dyed tee shirt. And the theories which she has fleshed out over her career are as unconventional as her couture.

Elinor Ostrom has long been a known entity amongst progressive thinkers and economists. The fact that she is not an economist but a political scientist may go some way in explaining her relative obscurity as an economic thinker. More importantly this leads us to ask just why her out of the box thinking is so relevant to us, especially given the recent near meltdown of the global financial system.

The failure of 'free market' economics has revealed how conventional neo-liberal economic thinking has resulted in an inherently unstable and destructive system. The dominant market model of unfettered access to markets and movement of capital, minimal regulation and reliance on derivatives, futures and junk bonds has been shown up as a shadow of its Herculean hubris.

Free market economics theory only really remains popular with the top percent of the world's earners, whose incomes have continued to rise while everyone else - middle, working and poor classes alike - has borne the burden of the presumption of the lords of selfish capitalism.

From pre-industrial times, economic centralisation of wealth has held sway because of the benefits it visited upon the ruling classes. An early trend that propelled this concentration of wealth occurred through what has been termed as the enclosure of the commons. Under this, common land – commonage – was increasingly appropriated into private ownership in the name of economic efficiency.

This was, predictably, an unpopular move toward further concentration of wealth amongst the already wealthy, in turn dispossessing the already marginalised, who were relegated to the role of cheap wage labour. Beside the logic, the questionable justice of the enclosure movement was widely protested, as illustrated by this 17th century poem:-

They hang the man and flog the woman,

Who steals the goose from off the common,

Yet let the greater villain loose,

That steals the common from the goose.

The assumptions underpinning the enclosure movement drove colonial expansion, the appropriation of distant commons, just as modern enclosure appropriates traditional knowledge through patents and intellectual property.

In 1968 the ecologist Garret Hardin wrote a highly influential essay entitled "The tragedy of the commons", where he pointed out that natural resources of the world, which are communally owned, will inevitably become degraded because of increased pressure on the limited resources by ever greater numbers of people. Liberal and capitalist thinkers used his conclusions as justification, on the one hand, for further enclosure of the commons to transfer public goods into private hands, and on the other as "free riders" to pollute and exploit those commons that are unable to be enclosed – the oceans, water and atmosphere, for example – as a shared resource, by externalising the cost of these impacts.

Elinor Ostrom has stood all of this on its head. Her lifetime's work, from the perspective of a political scientist, has focused on commonly managed natural and human made resources, or common pool resources as they are termed in modern analysis. She has examined numerous examples around the world, in a manner that is both humanistic in perspective and scientific in rigour.

Ostrom scrutinised First World examples such as local government in California and the size of police precincts in the Midwest, as well as Third World examples such as modern and traditional irrigation schemes in Nepal, as well as various forestry and fishery management methods around the world.

Her conclusions, backed by statistical and empirical evidence, clearly demonstrate that communally owned natural resources can indeed be sustainably managed. What is interesting, and perhaps most relevant to our increasingly overcrowded world, is that these systems operate best within smaller communities. This may seem obvious and is backed by conventional social theory which says that functional communities generally number less than 1000 people, usually far less.

The more people in a community, the more complex governance and management becomes and the more likely that free riders will encroach on the system, destabilising it. Failures can and do occur but Ostrom's work examines why these happen – most commonly because of authoritarian meddling or other external interference.

Ostrom's work is uplifting in that it is a 'crane,' not a 'skyhook'. These terms were devised by the author Daniel Dennett in his book "Darwin's Dangerous Idea." A 'crane' is a system that is built upon a solid foundation to reach its apogee of complexity. 'Cranes' are systems based upon practical implementation.

A 'skyhook' on the other hand is a theory that is built upon trust, like religion, or a miracle, or the theory of trickle down economics. This is why Ostrom's work is arguably of greater importance than that of many economists who have preceded her – because it has practical, real world implications and applications and is not built on conviction alone.

According to the Harvard commentator Umar Haque, her work is also important because it is so different to the abstract calculations of economists. He cites important reasons for the prominence of her work. Firstly, the practical fieldwork upon which her work is based, her 'crane', is in and of itself unusual for economic theoreticians, who conventionally have relied upon arcane quantitative models and not qualitative insights.

In doing so she has shifted beyond conventional economic architecture, conventionally founded upon flawed rational assumptions such as open markets and minimal regulation. Instead she proposes a new system of governance – polycentric governance - where small, medium and large scale democratic units can operate independently as well as interdependently, in order to make and enforce specific rules for a particular geographical area.

This aspect of her work has immense implications and relevance to developing nations such as South Africa or India and provides a useful democratic model that can enhance the dominant centralised western model of governance.

Finally Haque points out that Ostrom's work lacks prescription. Because conventional economic theory describes a perfect world, - even though the real world is far from perfect - it is largely irrelevant in building a better world. Instead of relying on the historical framework of theoretical economics, with all of its flaws, Ostrom has instead examined real world problems that are applicable to real world issues and which can hopefully assist us to arrive at real world solutions.

All of this points toward just why Ostrom's Nobel Prize is both timely and relevant. We face not only a global economic crisis but also many global environmental crises – global warming, overfishing, a water crisis, mass extinctions, rainforest destruction and so on - a depressing litany of woes created primarily by the few who exploit the existing system for their own selfish ends.

Given the crisis of the commons and that our present economic system is bound to collapse, founded as it is on the unfettered exploitation of the natural world for its continued exponential growth, Ostrom's work opens the door to solutions which are relevant and indeed revolutionary.

The Royal Swedish Academy on Sciences has previously rewarded several unconventional thinkers: James Tobin, who suggested a tax on speculative money; Amartya Sen whose work on welfare economics, poverty and gender inequality has shaped progressive economic thought and Joseph Stiglitz, who slated the role of free market fundamentalism, the World Bank and the International Monetary Fund in exacerbating global poverty.

But the award of the Nobel Memorial Prize in Economic Sciences to its first female recipient is ground breaking in many ways. It sparks hope that future economic theory will be built on some of her important concepts. We certainly need to shed some light into the dark corner we seem to have painted ourselves into in this time of economic gloom and ecological doom.

Hopefully Elinor Ostrom's work will be practically applied to the real world on which it is founded so we can shift focus from the pie-in-sky economic theories that have landed us in such profound trouble.

Ashton is a writer and researcher working in civil society. Some of his work can be viewed at Ekogaia - Writing for a Better World. Follow him on Twitter @ekogaia.

Read more articles by Glenn Ashton.

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