Social costs and common-pool resources

Disposable time as a common-pool resource V — Social costs and common-pool resources

 The basic idea behind common-pool resources also has a venerable place in the history of classical political economy and neoclassical economic thought. In the second edition of his Principles of Political Economy, Henry Sidgwick observed that “private enterprise may sometimes be socially uneconomical because the undertaker is able to appropriate not less but more than the whole net gain of his enterprise to the community.” From the perspective of the profit-seeking firm, there is no difference between introducing a new, more efficient production process and simply shifting a portion of the costs or risks onto someone else, society or the environment. In fact, the opportunities for the latter may be more readily available.

One example Sidgwick used to illustrate this was “the case of certain fisheries, where it is clearly for the general interest that the fish should not be caught at certain times, or in certain places, or with certain instruments; because the increase of actual supply obtained by such captures is much overbalanced by the detriment it causes to prospective supply.” Sidgwick admitted that many fishermen may voluntarily agree to limit their catch but even in this circumstance, “the larger the number that thus voluntarily abstain, the stronger inducement is offered to the remaining few to pursue their fishing in the objectionable times, places, and ways, so long as they are under no legal coercion to abstain.”

Applying the same principle to the context of labour-power, “fishing in the objectionable times, places and ways” manifests itself in the standard practice of employers considering labour as a “variable cost.” From the standpoint of society as a whole, unemployment is simply a way of shifting the overhead cost of labour onto society as a whole. John Maurice Clark discussed this cost-shifting aspect in the 1920s in his Studies in the Economics of Overhead Costs, especially his chapter on “labor as an overhead cost.”