October 29, 2009 | Read Time: 5 minutes
Elinor Ostrom, the Indiana University scholar who is the co-winner of the 2009 Nobel Memorial Prize in Economic Science, was not well known, even to economists, before the award was announced this month. It is probable that few scholars or people who work in the nonprofit world had ever heard of her. Until now, no reference to her work has appeared in The Chronicle of Philanthropy.
Yet, throughout her career, her research has been building a case for the importance of voluntary associations in solving a wide range of public problems. And if better known in the philanthropic world, her findings could prove fruitful in thinking about efforts to care for the environment, assist developing countries, and deal with other issues of concern to nonprofit organizations.
Her Nobel award is not an endorsement solely of her personal accomplishments, but also of the idea that people can — and do — act cooperatively without government direction.
The question that Ms. Ostrom has spent her lifetime studying is how societies deal with what are called “common pool resources,” or commodities such as water or forests, fish in the sea or broadcast frequencies in the air, which no one owns, many people want, and when consumed diminish in supply. As a result, everyone has an incentive to use those resources before others do, leading to what one economist called “the tragedy of the commons”: the unnecessary depletion of goods that could be better used if they were properly shared.
Scholars have traditionally suggested two ways to deal with that problem: One is to look for ways to treat those resources as if they were private property and let their owners buy and sell rights to use them in the marketplace. Proposals to trade pollution rights embody this approach: The idea is to persuade companies that produce large amounts of waste to make deals with companies that do not in order to keep overall pollution of the air or water within acceptable levels.
The second way is through government regulation. By allocating shares of “common pool resources,” a regulatory agency could control how much is used and for what purposes.
In theory, at least, the public’s interests would be reflected in such decisions and the resources more efficiently used.
Ms. Ostrom won her Nobel for documenting a third way: voluntary agreements among the parties affected by the use of the resources.
Drawing on numerous, in-depth case studies, she discovered that people from the basins of Southern California to the highlands of Nepal were creating a variety of organizations, some for-profit, others not (e.g., cooperatives), to manage water usage, agricultural land, and other kinds of “common pool resources.”
Moreover, through rules and procedures that evolved over many years (and which were enforced through careful monitoring as well as legal and social sanctions), they produced results better than those of market-like or regulatory approaches, not only in resource use, but also in public satisfaction.
In short, Ms. Ostrom showed that people in a wide range of situations were able to keep their self-interest in check and learn how to work together, even act altruistically when required.
Bolstering those arrangements was the widespread acceptance of the idea of reciprocity — the belief that one ought to act toward others as one would want them to act in return — which had a powerful effect in moderating the incentive to exploit resources for one’s own benefit. Also important was the development of trust, an outgrowth of social relationships, which made cooperation more or less likely. Much of Ms. Ostrom’s current work seeks to identify the particular conditions under which these “moral sentiments” — to use Adam Smith’s term for them — develop.
For the philanthropic world, reciprocity and trust are important too, underpinning giving and volunteering, which are also ways of cooperating to deal with problems that affect the public. That is one reason Elinor Ostrom’s efforts to analyze the roots of such behavior for using natural resources should be better known to those who work in health care, social services, education, and other fields of interest to nonprofit organizations.
In addition, Ms. Ostrom’s research has a number of implications for specific areas of philanthropic activity. Although she acknowledges that government intervention is sometimes necessary, her studies of environmental management, economic development, public safety, and other issues demonstrate that top-down efforts to promote improvements are likely to be less successful than those that start at the grass roots, empowering the people who have the most at stake. This is not a novel insight by any means; both conservatives and liberals have long argued that community groups are better than government in accomplishing a variety of tasks. Ms. Ostrom’s work provides an extensive and empirically rigorous demonstration of that proposition, which organizations as diverse as the World Bank and neighborhood-beautification groups should find useful.
A related finding: Governance counts. In many of the cases Ms. Ostrom studied, efforts at cooperation were either helped or hindered by how property rights were determined, jurisdictions defined, liability established, and additional “rules of the game” set, typically through policies, laws, court decisions, and similar official acts. These have often been overlooked by philanthropy, which has typically seen its role as identifying what works in education, curing diseases, or other activities, but has not paid as much attention to the political and institutional challenges of carrying out its ideas.
That may be changing; the Bill & Melinda Gates Foundation, for example, now has an official in charge of “public policy foundation operations,” whose responsibilities include helping staff members deal with obstacles to their efforts erected by government rules. Ms. Ostrom’s findings should cause other grant makers to pay more attention to such matters.
Not least important, Ms. Ostrom’s work underscores the ability of people to avoid “tragedy” by working together to solve seemingly intractable problems. In an era in which many of the problems philanthropy seeks to address often seem overwhelming, the work of this year’s Nobel winner in economics is a welcome reminder that they need not be.
Leslie Lenkowsky is professor of public affairs and philanthropic studies at Indiana University and a regular contributor to these pages. His e-mail address is llenkows@iupui.edu.
