The Competitiveness of Nations in a Global Knowledge-Based Economy

Joe Bain

Industrial Organization

Conservation Performance

2nd Edition, John Wiley,1968, 425-427

For any of a group of industries whose operations involve extraction of natural resources (mining, petroleum production, agricultural cultivation, lumbering, commercial fisheries) a significant dimension of the market performance of the firms engaged involves how well they do in the matter of “conservation” of resources.  To paraphrase the popular literature on this matter, conservation in an economic sense of course does not mean non-use or simple deferment of use, but “wise use” of the resources being exploited.  In technical terms, good conservation requires a choice of technique of exploitation, time pattern of production, and time pattern of investments and other costs, which together yield an optimal net social benefit relative to costs over all future time periods in which society is interested.  In determining this optimum, dis­


tant future benefits and costs should be appropriately discounted by whatever rate of “time preference” society wishes to assign in assessing the relative importance of current as opposed to future benefits and sacrifices.  And conservation performance is poor to the extent that enterprises deviate from this abstract ideal.

An adequate operational definition of ideal conservation performance is extremely complex and next to impossible to apply fully in the evaluation of actual performance.  Using the definition just given as a guide, however, it is possible to identify certain types of gross departure from good conservation which would have to be censured under any acceptable criterion.  These include:

1. Exploitation of resources by a technique that raises both present and future costs above the obtainable minimum while reducing or not increasing the amount of resources ultimately recovered, or the amount of use obtained from resources over time.

2. Unduly rapid or intensive current use of resources which has the result of impairing (or eliminating) future use of the resources to a degree not compensated by current additions to output.

3. Pinching on current costs or investments in the use and development of resources in a way that curtails future use or raises future costs of use to a disproportionate degree.

What of the actual performance of industries in regard to conservation?  Of course, only a minor proportion of all industries are sufficiently involved in extraction to make conservation an issue, and for these we do not have highly organized, systematic information on which to base an overall appraisal.  However, a broad scattering of evidence on individual cases suggests that, among extractive industries, conservation performance is or has very frequently been poor.

Thus we observe in petroleum production in the United States a history of gross elevation of recovery costs coupled with a substantial reduction of ultimate recovery of available petroleum, attributable largely to the selection of techniques in the context of competitive exploitation of individual oil pools by antagonistic interests.  In both lumbering and commercial fisheries, and in some agriculture, we find that a serious long-run depletion of resource productivity has resulted from overintensive immediate rates of extraction or exploitation of the available resources.  In much of agriculture, a history of pinching on current costs for or investments in the preservation of the land (against erosion or reduction in fertility) has resulted in long-run losses in soil productivity.

These deviations from reasonably good conservation performance seem in large part attributable to four things: (1) antagonistic exploita-


tion of resource deposits by competing interests, in which a competitive race to capture the resource or its output before others do results in a disregard of long-run yield considerations; (2) an inherent “sort-sighted-ness” of firms engaged in exploiting resources - firms that attach much less importance to distant future production than society would, or than they do to immediate profits; (3) competitive conditions which bring about such low returns to firms in some extractive industries that they cannot afford to invest in the long-run maintenance of resource yields; and (4) stupidity.  Whatever the cause, poor market performance in the matter of conservation has evidently been chargeable against firms in many extractive industries.  It is encouraging, in the light of this, that in the past twenty or thirty years there has been a rapidly increasing body of governmental regulations designed to encourage or require better conservation performance on the part of these industries.