By James L Huffman, J.D.
Cascade Policy Institute
July 2004
The problem we face in the Klamath Basin, as in every environmental controversy, is the allocation of scarce resources. We have a limited supply of water, but potential uses for that water exceed the available supply. This issue is crucial not only for those associated with the Basin, but also for the world at large.
As the Earth's population continues to grow, the demand for water will continue to increase until we face a worldwide situation that is similar to the Klamath Basin. What are we to do? While private property rights are not the entire solution, they should be a large part of the answer.
Generally speaking, there are four approaches we might employ to apportion the water. First, we could declare that the water is available for any and all uses. Second, we might declare water a public resource and have the government decide how best to use the water. Third, we could recognize private rights and let individual rights holders decide how to use the water subject to government regulation. Fourth, we could recognize private water rights and not allow government interference.
Allowing unlimited access will probably lead to a "tragedy of the commons," where everyone has an incentive to use as much as possible and no one has an incentive to manage and protect the resource. In a very real sense, we had a commons in the American West during the 19th century. But in the case of water, individual users quickly claimed rights.
With the creation of Yellowstone and a growing number of forest reservations, federal policy began to favor government ownership of resources. This policy has since resulted in roughly one third of the nation's land being owned and managed by the federal government. So, ours is a mixed system of public and private lands. This mix has an inevitable impact on markets in land and other resources. It creates powerful incentives for private interests to influence government policies in ways that will benefit those interests.
Those of us who live in the West have witnessed the expansive public ownership regime of the federal public lands. Most would agree that the results have been mixed. The problem is that public management is by definition political management. Political institutions are just not designed to make day-to-day decisions that are responsive to the rapidly changing world.
We have also resorted to regulation of private property in the name of public interest. All regulations affect resource allocation. Indeed, the point of regulation is to produce an allocation different from that produced by an unregulated market. For some, the need to regulate is rooted in market failures that result in external costs and benefits. For others, the need to regulate is centered in a belief that private property and free markets lead to the concentration of wealth and a self-interested exploitation of others–not to mention exploitation of the environment.
Regulation as a political process suffers from shortcomings, however. In theory, the legislature can set regulatory standards and leave it to apolitical agencies to implement the regulations. But regulation poses similar problems to those faced in public management.
The global experiences of the last century should confirm that planned economies do not work and can have devastating consequences for the environment. The alternative to a planned economy is a market economy, but without property and contract rights a market economy is not possible. Property and contract are the necessary infrastructure of a market economy.
The Framers of the Constitution understood property to be the foundational right that made all other liberties secure. They also saw private property as essential to the prosperity of the community. James Madison stated,"In civilized communities, property as well as personal rights is an essential object of the laws, which encourage industry by securing the enjoyment of its fruits."
This historic commitment to property as a right foundational to liberty and prosperity did not mean that the use of private property was without limits .But it was not until the Great Depression and New Deal that ours became a regulatory state. Property rights began along and steady decline from the most revered liberty to one of the least protected .What made this possible was the drawing of a distinction between personal and economic liberties. Both personal liberties, like free speech, and economic liberties, like property, were put to the test. Personal liberties were given special standing under the constitution, requiring important reasons for limiting individual liberty, but economic liberties suffered as the courts deferred to legislative interventions.
So what does all of this have to do with the Klamath Basin? First, we must note that the real world is never as simple as the theories suggest. In the Basin, we need to consider several hundred irrigators, three tribes, two states,six national wildlife refuges, the Bureau of Reclamation, the Forest Service, the Bureau of Land Management, hydropower, outdoor recreation, several communities and a bunch of endangered species. We have a water rights adjudication that has been ongoing since 1975, federal project and natural flow water users, federal and tribal reserved rights, and state mandated in stream flows.
There can be no simple solutions to a situation so complex, which is precisely why it is important to underscore the positive role property rights and markets can play. The tendency in difficult situations is to look for a single solution that will eliminate the complexities. Simple solutions are always"top down solutions," because someone has to be in a position to mandate what will be done. Markets are bottom up and thus seldom part of a grand design.
Without a system of rights to provide a basis for negotiation, we have only political power to rely upon. The better course is to create a private rights system that includes all water uses, makes rights freely transferable and enforces those rights. If there are market failures even after getting the legal system right, we may be able to correct those failures through regulation or eminent domain. If some are precluded for reasons of wealth, we might choose to subsidize on a means tested basis. But the default approach should be a system of property rights that will allow markets to assure that water is allocated to the highest value uses.
I am not here to claim that property rights and markets are the solution to every environmental and resource allocation problem and that there is no place for public ownership and regulation—there are appropriate situations for both. But on the Klamath, a strong property rights system is clearly the best approach.
James L. Huffman, J.D., is dean and professor at Lewis & Clark Law School and an academic advisor to Cascade Policy Institute. This article is adapted from his June 8 presentation at the Klamath Falls conference, Resolving Conflicts in the Klamath Basin through Markets and Property Rights, organized by the Property and Environment Research Center located in Bozeman, Montana.