The collapse of Newfoundland and Labrador’s cod fishery in 1992 really put the “tragedy” in the tragedy of the commons.
Decades of overfishing placed the region’s ecosystem under enormous pressure, pushing 35,000 fishers into unemployment and crippling an industry that was–and in many ways continues to be–a defining element of Atlantic Canada’s identity. Several experts had warned of a catastrophic scenario, but measures that restricted fishing within 200 nautical miles of the coast had mostly been in vain–fish, so the saying goes, do not recognize borders. Regulators and fishing firms were like a starry-eyed John Cabot, proclaiming the fishery to be “enough to feed our kingdom until the end of time.”
Many factors contributed to the collapse of Atlantic Canada’s cod fishery, spanning from the advent of dragnet trawlers to greater offshore competition that fell outside the purview of Canada’s regulatory regime. Yet, these were merely symptoms of the perverse incentives at the root of the collapse. The “common pool” nature of the fishery meant that individual fleets did not bear the full cost of their catch, such that they caught more than they “should” have, while effective lobbying kept quotas relatively timid. In the end, inshore fishermen bore the brunt of the cost.
Next time you go out to dinner with a group of friends, try this simple experiment: stipulate, from the outset, that no one pay for their own meal and, instead, opt to put all of the meals on one bill and divide it evenly. All of a sudden, the $35 “Surf and Turf” looks more appetizing. Unfortunately, this very same dynamic contributed to the collapse of Atlantic Canada’s cod fishery: if the cost of one person’s action is borne by everyone else, one cannot expect that person to be prudential.
The politics of government spending are a lot like the economics of Atlantic Canada’s fishery: the budgeting process controls the level of government spending in the economy in the same way that fishermen collectively determine the annual catch. However, there is no reason to expect the level of spending, or its composition, to be ideal.
Far from acting in the public interest, it is the job of all elected-officials to represent the interests of their constituents. The average politician who successfully lobbies for a government-funded project is fishing from a common pool of tax revenues and does not have a reason to match the project’s benefits with its fiscal costs. This dynamic allows them to spend more than they would otherwise.
A recent example of this dynamic is the reinstated Yarmouth-to-Portland Ferry. Yarmouth constituents see the ferry as a means of bringing American tourists to southwest Nova Scotia, and so lobbied for the province to fund the project. The $21 million seven-year fund has run out in under a year of service. This was hardly a surprising outcome given that an expert panel calculated start-up costs alone to be upwards of $35 million. It formerly cost roughly $9 million annually to fund the ferry before cancellation.
It’s hard to imagine voters in Yarmouth being as eager to reinstate the ferry had they been liable for the full cost, which would have amounted to nearly $1,000 per man, woman, and child in the county. Instead, all taxpayers in Nova Scotia absorb the project’s cost. Similar projects exist throughout Nova Scotia, and in many instances, the benefit does not exceed the cost. In aggregate this leads to an unmerited level and composition of government spending.
The tipping point in the case of government spending is fiscal rather than ecological, and much easier to forestall. Nevertheless, net public debt in Atlantic Canada is $15,000 per capita–$15,691 in Nova Scotia–and growing annually. Avoiding a catastrophe will require greater public recognition that government spending cannot “feed our kingdom until the end of time” unless those responsible for the province’s finances consume them with their eyes looking toward sustainability.
Samuel Hammond is an AIMS on Campus Student Fellow who is pursuing a graduate degree in economics at Carleton University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies