The problem with fish stocks has been that they are a common-pool resource. The Common Fisheries Policy of the EU maintains the problem instead of solving it....
Although in most countries except Iceland the fishery is a negligible sector of the economy, it has an enormous potential. The seven seas cover seven-tenth of the earth’s surface, while their utilisation is still in the hunting-gathering stage, as was the utilisation of land before the agricultural revolution which basically started civilisation some thousands of years ago. But until recently, the ocean was, as John Locke remarked in his Treatise on Government, the ‘great and still remaining common of mankind’. The problem with a common is of course that after the proper technology has been introduced it will be over-utilised. What is owned by all will be cared for by nobody. Few are going to cultivate gardens which cannot be fenced off and not with their fruits being reserved for the cultivators. This is the ‘tragedy of the commons’, as Garrett Hardin called it. Economists alternatively describe it as the common-pool or open-access problem.
This is precisely what happened in world fisheries in the twentieth century. In earlier times, technology was not sufficiently advanced to harvest much of the fish stocks offshore, some of them immensely fertile, for example in the Icelandic waters or in the Grand Banks of Newfoundland. But with modern fishing gear you can basically harvest at will. This means, as the pioneers of fisheries economics demonstrated, that under open access the fishing effort (for example the number of fishing vessels) was going to increase until possible profit in the fishing sector had fallen to zero, or in other words when revenue equalled cost. But this meant that much more capital was utilised in harvesting fish than would have been necessary. The possible rent, or special income from the fertility of fishing grounds—similar to the special income from the fertility of different plots on land—was dissipated in excessive effort. In brief, in a small fishery sixteen boats were harvesting even less total catch than eight boats could have brought onshore. Too many boats were chasing the fish.
An important step to resolve the common-pool problem was taken when the principle of a 200 miles Exclusive Economic Zone, EEZ, in the fisheries gained international recognition in the 1970s. The pool was divided up between different states. The access was limited. This enabled Iceland for example to start managing her fisheries sensibly. Two factors made this especially urgent for the Icelanders. First, the fishery was by far the most important sector of the Icelandic economy, and secondly, the Icelanders had seen the herring almost disappear in the Icelandic wates as a result of overfishing in the 1960s: the spectre of overfishing was haunting them. In 1975, the authorities for the first time set a total allowable catch, TAC, in the herring fishery and allocated equal shares in the TAC to the fishing boats (which were mostly of roughly equal size). Soon, the owners of fishing boats were allowed to transfer their shares, or fishing quotas, between different boats which made their operations more flexible and efficient. Four year later, similar principles were adopted for the other pelagic species important in Iceland, in the capelin fishery, where the quotas were eventually also made transferable. (Pelagic fishes are mostly found in big schools near the surface of the ocean, roaming over wide areas, unlike groundfish.) The positive results in those two fisheries led the authorities, after difficult negotiations and some missteps, to adopt in 1990 a similar system in the economically much more important demersal fisheries, harvesting groundfish such as cod, catfish, plaice, flounder, and haddock.
The Icelandic system of individual transferable quotas, ITQs—which was developed simultaneously and independently in New Zealand—works quite well. The authorities set a total allowable catch, TAC, in each fish stock, and owners of fishing vessels hold transferable shares, the quotas, in the TACs. Initially the quotas were allocated on the basis of catch history in the years prior to the adoption of the system: if you had previously harvested 5 per cent of the total catch in a species, then in the beginning you received a quota for 5 per cent of the TAC. Over time, of course, almost all the quotas have changed hands. The system has been in place in the pelagic fisheries for 45 years, and in the demersal fisheries for more than thirty years. Since the quotas are transferable, nowadays it is essentially the market that allocates them.
The two keys to the efficiency of the system are exclusivity and transferability. There is no longer open access to the Icelandic waters. Only those who hold quotas can harvest fish there. This means that they can plan their operations in the certainty that nobody else is going to snatch the fish away from them and they are therefore not tempted to over-invest in vessels and fishing gear. Others are excluded, although this really only means that they have been deprived of the opportunity of harvesting fish at zero profit, as would happen in an open-access fishery. The transferability means that the more efficient fishermen can gradually buy out the less efficient ones. Fishing effort will gradually fall down to what is economically efficient. To return to the example of a small fishery: In the beginning sixteen boats were harvesting fish. Over time, the eight more efficient bought out the eight less efficient; the number of vessels went down from sixteen to eight; profit replaced rent dissipation; excessive cost was eliminated. Importantly, also, under an ITQ system the mindset of the fishermen will change, as we have observed in Iceland. They become shareholders in the fish stock in which they hold quotas, concerned about its long-term profitability. Indeed, the Icelandic fishing community has strongly supported responsible decisions by the authorities about TACs in different fish stocks. It is after all their livelihood which is at stake.
This enables us to see what is wrong with the Common Fisheries Policy, CFP, of the European Union. The fatal error lies in the word ‘Common’. It was a positive step when in the 1970s individual countries appropriated large areas of the ocean, the 200 miles EEZs, because it was a move towards exclusivity, as it had been the open-access or common-pool nature of the resource which had been the problem. But when the EU introduced the CFP, it took a step backwards, in practice recreating a ‘tragedy of the commons’. Since then, it has tried, with little success, to manage the fisheries. The TACs in different fish stocks have only recently been set in a responsible way by the EU authorities, and instead of enabling the fishing communities in various countries to reduce fishing effort themselves by the transfer of quotas between individual quota-holders, the EU has in effect long subsidised an increase in the fishing fleet. The huge and non-transparent EU bureaucracy has been trying to do what should be left to the fishing communities themselves. But bureaucrats cannot replace stakeholders. The EU should never have re-introduced a common pool: this was the problem, not the solution. Instead, each EU country should have kept her EEZ and managed it as she best saw fit. This would undoubtedly have led many countries to adopt a system in the fisheries similar to that which has been developed in Iceland, as some of them are slowly doing now, but with the EU hovering over them and without full exclusivity and transferability.
The CFP was introduced literally hours before the United Kingdom, Ireland, Denmark, and Norway applied for membership in 1973 of what was then the European Economic Community. The existing member states wanted to gain access to the immense fishing grounds belonging to the applicant states. This was the reason Norway eventually withdrew her application. Hopefully, therefore, the United Kingdom will stand firm in reclaiming her EEZ when she leaves the EU. Why should landlocked countries like Luxembourg and Austria participate anyway in decisions about offshore fisheries? Moreover, the CFP is clearly in conflict with the subsidiarity principle which should be the lodestar of the EU: to make decisions at the lowest, nearest and most appropriate level. Decision-making should not have been moved from London to Brussels: instead, it should have been moved from London to Brixham, Fleetwood, Grimsby, Lowestoft, Newlyn, Whitby and Kingston upon Hull, with the authorities only setting the TACs in different species and monitoring harvesting, like they do in Iceland. It is a different matter that adjustments to the present situation should be made gradually rather than abruptly, and that the United Kingdom and the EU should part peacefully, through negotiations in good faith, not in a mutually harmful conflict.
The system of individual transferable quotas in the fishery is by no means perfect, as I have argued. The quotas are extraction rights rather than complete property rights. But because of their exclusivity and transferability they partake of many of the advantages of complete property rights to natural resources and mostly resolve the open-access or common-pool issue. The potential of the fishery lies not only in the fact that if harvesting can be done at half the present cost then it releases a lot of capital for productive use elsewhere. Nor in the fact that fish is an indispensable part of a healthy and nutritious diet. The introduction of certainty, profitability and long-term planning in the fishery also encourages explorations by entrepreneurs of new possibilities, as Daniel Hannan perceptively points out. For example, in Iceland, what was previously often thrown away is now being utilised, such as fish livers, roes, heads, intestines, bones, and scales. Private companies flourish besides the traditional fishing firms. Hannan mentions some: Zymetech extracts fish enzymes for use in medicines; Genis turns shrimp shells into pharmaceutical products; Primex turns them into cosmetics; Kerecis uses fish skins and fatty acids to treat wounds and control infections.
In an intriguing recent development, Iceland’s largest producer of fish oil Lysi has been testing a new product: it seems that fish oil to which free fatty acids have been added destroys viruses in an effective way, including the coronavirus. Of course such explorations would be conceivable without an ITQ system in the fisheries. But it is fair to say that profitable fisheries facilitate them, not least by providing capital for the necessary research and development. Industries which utilise seven-tenth of the earth’s surface certainly need not, and should not, be negligible.
Ulderico de Laurentiis • 22.06.2021.
Ulderico de Laurentiis • 22.06.2021.