Public Good and Private Gain

The idea that property is best protected through private ownership is one of the central pillars of capitalism.  As Adam Smith explained: 

"The proprietor of land is interested, for the sake of his own revenue, to keep his estate in as good condition as he can, by building and repairing his tenants’ houses, by making and maintaining the necessary drains and enclosures, and all those other expensive improvements which it belongs to the land-lord to make and maintain."

                 The same logic applies to the owner of a ship, a factory or any other property that can be used to make money.  The property owner will only be motivated to make repairs if he or she has a financial interest in maintaining the property in working order.  According to this notion, no one would invest in maintaining communal property unless they could expect some sort of return.  Rather each individual would try to extract as much benefit as possible from a communal resource with the minimum investment—thus depleting the resource.

Even if we accept this rather bleak view of human nature, this notion fails to consider a number of factors.  For example, it may have worked well in the late eighteenth century when most business owners managed their properties themselves and often passed their businesses down in the same families for generations.  However, most major companies today are owned by investors who may not be aware of what corporations they own.  Since shares of stock can be bought and sold in a single day, they have no long-term commitment to the corporations.  Their only interest is in obtaining the maximum short-term profit possible even at the expense of the long-term health of the company.

This was the fate of the Pacific Lumber Company.  In 1931, Pacific Lumber adopted a policy of selectively cutting trees in order to maintain a sustainable yield based on a hundred year plan.  It was exactly the sort of enlightened maintenance of a profit-making property that would have had Adam Smith grinning from ear to ear.  However, it didn’t last.

Source: CA Dept. of Forestry & Fire

Protection; Pacific Lumber Co.

In 1985 Pacific Lumber was taken over by Maxxam, Inc. in a highly leveraged buyout that left Maxxam heavily in debt.  In order to pay its investor, Maxxam began to clear cut the forest while reducing costs by laying off workers and shipping more raw materials rather than finished goods.  Ironically, in defiance of Adam Smith’s prediction, 60,000 acres of the forest were saved by environmentalist and the Bureau of Land Management who purchased the land and converted it into a national park, thereby removing it from commercial use.  The land was preserved by converting it to communal property.

As Pacific Lumber continued to practice clear cutting, regulations were enacted to limit its destruction of the forest.  People with no financial interest in the forest saw more value in preserving the property than its owners did.  Pacific Lumber was prevented from consuming all of its resources, but it was too late.  In 2007 the company filed for bankruptcy.

The town of Scotia, California was a company town, wholly owned by Pacific Lumber Company, and all of the residents were company employees or their dependents.  A town that had survived an earthquake, a fire and the Great Depression was reduced to half its former size, and the workers who were laid off were forced to leave the area in order to find new jobs.  They lost their homes along with their incomes.

A company that could have lasted a century was brought down in fewer than twenty-five years, families were left unemployed and homeless and thousands of acres of redwood forest were reduced to barren fields of shrubs and stumps.