It is basic Economics 101. Competitive markets create better outcomes than monopolists. Monopolists restrict supply and charge higher prices. Dynamically, monopolists face fewer incentives to create new products or improve how their products are made. In fact, creating new technologies or processes could undermine a monopolists current market dominance.
What is true for the marketplace is also true for the regulations governing the actions of the marketplace. An interesting example of this principle is afforded by a current controversy over forestry certification programs.
While consuming timber products requires the harvesting of trees, many consumers, if not the vast majority, value forests and want their timber products harvested responsibly in a way that sustain our forests.
A sustainable forest is broadly understood as one that conserves biodiversity, protects endangered species, is vibrant, is capable of regenerating, and is managed responsibly. Maintaining a sustainable forest also ensures that the economic needs of the timber industry and its consumers are also fulfilled.
Sound forestry management must balance out all of these competing needs that may, and often do, conflict.
It is extremely difficult, if not impossible, for consumers to know whether the timber was harvested responsibly by examining the final product. Forest certification programs encourage both private and public landowners to manage their forests responsibly and communicate this information to consumers and businesses empowering them to purchase wood products knowing that the timber has been harvested in a responsible manner.
Due to the multiple and competing needs, multiple certification programs have arisen. Each program balances the conflicting needs in timber production differently. Many environmental groups accuse one standard (the SFI standard) of weighing economic needs too heavily. Many forest landowners, however, find another standard (the FSC standard) to be impractical, due to the many differing standards more than 30 worldwide and the economic costs created by strict application of this programs approach in the United States.
As reflected in an April 22 Huffington Post article, environmental groups preach that the FSC standard should be the only regulatory standard advocating that a single overall regulatory structure should replace the current competitive landscape. The FSC standard does not have any special insights regarding how to balance the many competing needs though. And, should the FSCs standards not correctly balance all of these competing needs, adverse consequences will result.
The FSC standard weighs economic considerations lightly, and consequently creates significantly higher costs for those landowners that adhere to its principles in the United States. The higher costs of producing under the FSC standard are, ultimately, priced into the costs of the products.
More problematic, the price premiums associated with FSC-certified wood do not necessarily correspond with an environmentally-friendly product because FSCs standards vary throughout the world. U.S. foresters end up facing high, costly benchmarks for certification, while their counterparts in Russia and China (among many other countries) can more easily obtain FSC recognition.
Back in the United States, if the costs created by the FSC standards exceed what consumers are willing or able to support, then requiring all domestic forests to adhere to the FSC standards will discourage people from purchasing timber from domestic forests. The consequences for the U.S. economy would be income and job losses. The adverse impacts would not be just economic, however.
U.S. policies that favor FSC wood create incentives to purchase timber from environmentally questionable regions and countries. The consequences from these purchases, though unintentional, are a reduction in the health of global forests and excessive global forest degradation compared to the more environmentally sustainable practices that consumers would support under more balanced U.S. forestry standards.
Here is where competitive Forestry Certification Programs can provide benefits. Striking a balance across all of the competing interests is complex. Imposing a monopoly-like regulatory standard across such a diverse and complex industry ensures a regulatory system that will be rife with inefficiencies and could create adverse economic and environmental consequences by forcing small and large landowners to choose a program thats not suited for their land.
Competitive forestry standards avoid this problem by encouraging multiple standards to compete against one another. Just as market competition forces producers to be more responsive to consumers, competitive forestry standards can ensure that regulations are responsive to current and future needs. As a result, the ability to strike the right balance between the interests of consumers and producers is enhanced, as is the ability to maintain vibrant and healthy global forests.
It is this give and take that strikes the right balance between competing interests and ultimately leads to the most benefits for all parties involved. The benefits generated by competition should not be foregone simply because one group believes one standard is better. As any Economics 101 Professor will attest, encouraging competition for the hearts, heads, and wallets of all interested parties is the most efficient way for any market to function.
*Donald Rieck is Executive Director of the Statistical Assessment Service (STATS); Wayne Winegarden is a contributing editor to EconoSTATS at George Mason University and a senior fellow at the Pacific Research Institute.