There are few legal and business practices which have caused as much controversy and public outcry, as privatization of forests. Other than the Ocean, forests are maybe the most important system to sustain life on this planet. Forests regulate weather, neutralize ecosystems and sustain life to the cellular level. So why would anyone privatize forests? In a nutshell, proponents of forest privatization argue that the resources are not being fully exploited. They argue, many neighboring nations and people are living in poverty and could achieve higher level of living with appropriate resources to unlock the full potential of Forests.
In the following pages, we will identify the unique legal circumstances that allow this to happen, and look the issue of Forestation more in depth. If Forests such are to be managed in a way that not only makes the locals better off, but creates growth opportunities for the government and private enterprises, why not go ahead and do it? Critics claim this is all bogus. They claim that by opening up the possibility of private business, this is all about the bottom line of the elite, and getting rich of something that belongs to everyone.
Truth is that the reason privatization of forests is gaining steam across the world, is because there is now enough evidence to sufficiently conclude that productive deforestation is not advancing at a fast enough pace. (Brown C, Valentine J. 1992) Deforestation (defined as “the permanent destruction of indigenous forests and woodlands for either productive or non-productive use”) by staying in most government entities (with a few exceptions such as New Zealand) is actually doing more harm than good by not achieving its potential. Forests have essential economic and ecological benefits within themselves.
They offer opportunities to extract wood, wood products and ecotourism among others. These commercial products and opportunities come side by side with employment prospects and chances for the local population to thrive. Forests also have benefits that go beyond the scope of materials which include creating a wonderful habitat of species, diverse and rich. The issue at hand however is that preservation, management and rehabilitation of forests has its costs. The opportunity costs that go along with development have to be subsidized by real capital from a source.
If the capital from these private enterprises backs positive deforestation, in a regulated manner, then the pros certainly outlast the cons. The Legal Process Based on precedent, the first part of the privatization process of Forests, as it regards to law is create institutional enterprises. The Establishment of an institutional enterprise, founded by the government; serves the purpose of adequately establishing what the best use is for the forests in question, and for how much it could potentially be sold. Should the forests be sold as individual blocks?
Combinations? These are decisions that the Government enterprise has to decide. Forest privatization since the late 1980’s, when the highly successful New Zealand privatization took place (Brown C, Valentine J. 1992) has concluded that the best revenue stream for governments and private entities are accomplished by selling more than one single forestry estate. Based on precedent, the bidding for forest privatization is unique in that it allows the Government to tailor the forest land as to better suit the needs of potential investors.
Why is this good for the Government and the local people? It allows the locals to gain profit that normally would be reserved to restructuring and later parts of the deal. (Ambec, S Hotte, L 2003) An important issue to keep in mind is the legal importance of the government maintaining a piece of the forestation puzzle. Several nations have implemented a clause in which Government maintains at least 20% ownership of the forests. This has been successful because it prevents monopolies and the buyers from massively manipulating the way they conduct business down the line.
Important legal elements have been provided in these contracts to enhance Government transparency as well, and they have heavily contributed to the success of past sales and operations. Privatizing a natural resource like Forests not only brings external change in business, it also translates to new operating environments within government. Usually, government arms in regards to forests have more to deal with administration, now they have a business interest that needs to be transparent.
Now that we have dealt with the basics of Forest privatization, it’s time to deal with the inevitable controversial legal clauses. Although locals and endogenous populations surround said forests benefit greatly in many economic and intangible ways, there is the clause of losing physical access. (Ambec, S Hotte, L 2003) By privatizing forestry resources, by definition means an outsider (anyone not involved in the transaction) is off limits and by crossing the territory would by definition be involved in trespassing.
Needless to say though, enforcing access to a body of land which in many cases can be as big as 2 million square miles is as difficult or impossible as it comes. Enforcement therefore lies in efforts of different entities combined, the local village authorities (working with the government), the national forest service (Government alone) and the business handling the forest. The reason why this is such a big issue, especially to the parties who have economic interests vested is because illegal trespassing can actually create a hit on the company’s bottom line. Ambec, S Hotte, L 2003) An example is the case of an Indonesian forest whose profitable timber venture was severely disrupted by the local trespassing. The local trespassers in effect, created an underground timber economy. As for enforcement? How does one enforce penalties on such a varied population of individuals, some of whom live under extreme duress? The severity of the punishment in this Indonesia case varied, and those folks who have lower outside opportunities received lesser penalties. In contrast however, those in the higher hierarchy of the ‘underground timber businesses do indeed receive stricter penalties.
Once this ‘middle’ hierarchy are prohibited and eliminated from the equation, those at the lower end of the tier benefit the most since the added productivity falls directly to them. The Case for Fully Privatized Forests (And The Clause That Allows It) There is a loud contingency of critics against forestry owned by the Government, even if it’s partially owned as we discussed above. Critics argue that private enterprises have a higher interest in a fully functional (profitable) resource such as this one. They cite examples such as the poorly run Forestry Commission, which was created by Margaret Tatcher in the UK as example 1. Mason, D -1991) In it, the resource eventually turned inaccessible, ugly and actually not turning a dime of profit in its first 75 years of existence. On the flipside, South Africa’s Government decided to divide its private owned company (Safcol) and its 330. 000 acres to five different private companies in order to enhance competition and efficiency. (Smith, A – 2002) . Efficiency is crucial when so many products are available and so much at stake from right optimization. The chart below shows the uses of Hungary forests alone after privatization: [pic] Nechay, G – Ministry for Environment – 1995) The most successful private enterprises have been achieved in instances like the New Zealand case. In this case, the Government, although allowing private companies full control, decided to leave a Local Employment Clause. This crucial clause, and which since then has been emulated by many countries ensures that a certain number of locals (No less than 30%) are employed by the firms. This clause alone has made a tremendous difference in the way these companies balance their local responsibilities and their bottom lines. Smith, A – 2002) Contract Lengths Based on the privatization case studies of New Zealand, The UK forestry commission, South Africa and Indonesia, the contract lengths provided by the Governments are almost always contingent upon performance. A good performance that benefits local employment and community enhancement normally results in 10 or 15 year contract extensions. Sources (Brown C, Valentine J. 1992) The Process and Implications of Privatization For Forestry Institutions: Focus on New Zealand. Techtrend. http://www. fao. rg/docrep/t3350e/t3350e04. htm (Ambec, S Hotte, L 2003) The Distributive Impacts of Natural Resource Privatization – 5/6 http://bit. ly/12b67W7 (Mason, D -1991) Wood for the Tress – UK Forestry Commission (Adam Smith Institute) http://www. adamsmith. org/pdf/forests-for-the-people. pdf (Smith, A – 2002) Out of The Woods – Sale and Leasing of State Forests http://www. adamsmith. org/80ideas/idea/75. htm (Nechay, G – Ministry for Environment – 1995) Monitoring of Biodiversity http://enrin. grida. no/biodiv/biodiv/national/hungary/fafaj. jpg