Another Nobel for market economics Elinor Ostrom, winner of the 2009 Nobel Prize in Economic Sciences, is not your average Nobel winner, writes Julie Novak.

he announcement that It is notable that the founders of Elinor Ostrom was the Austrian economics were men such as co recipient of this year’s Hayek and Ludwig von Mises, so no Free market Nobel Prize in Econom- ‘girl power’ is needed there to add real- ic Sciences attracted ism in economic analysis. Nobel Prize Tconsiderably greater attention than The Age newspaper stated that Os- Winners winners in previous years. trom’s win, based on her original re- Yet some of the popular press cov- search on the management of common erage misrepresented what Ostrom’s property such as fisheries, forests, wa- Elinor Ostrom 2009 work means for the time tested ideas ter basins and other natural resources, Oliver E. Williamson 2009 of market capitalism. was ‘highly topical … amid efforts to Edward C. Prescott 2004 For a start, Ostrom was the first tackle climate change.’ Vernon L. Smith 2002 female winner of the prize placing her Indeed, Elinor Ostrom’s views on Myron Scholes 1997 in an elite band of economic thinkers the climate change issue are highly topi- such as Friedrich Hayek, Milton Fried- cal but perhaps not in a direction that Robert Lucas Jr. 1995 man and James Buchanan. some readers of The Age might prefer. Robert Fogel 1993 In the National Times the self After all, she once stated that Douglass C. North 1993 styled ‘econogirl’ economics writer Jes- ‘when asked whether easy solutions are Gary Becker 1992 sica Irvine, praised Ostrom’s ‘tradition- likely to be achieved for problems in- Ronald Coase 1991 ally female approach she has applied to volving large, amorphous groups that studying systems of economic gover- face significant problems of commu- Harry Markowitz 1990 nance.’ She took economics’ tradition- nicating, such as the overuse of ocean Merton Miller 1990 al rational man, or ‘homoeconomicus’, fisheries or global warming, I always James Buchanan 1986 and refreshed him to better resemble respond in the negative.’ George Stigler 1982 real humans. Other media reports have at- Theodore Schultz 1979 In saying this, Irvine overlooked tempted to leap on Ostrom’s win as the century long refinement of the somehow representing another telling Milton Friedman 1976 Austrian economics school which blow against economic freedom in the Friedrich von Hayek 1974 eschews the unrealistic neoclassical global financial crisis age. economic agent model. The Austrians However, even the idea that the favour more realistic settings where intellectual output of Elinor Ostrom humans seek to discover their prefer- represents the latest permutation of ences, leading to economic coopera- anti-market thinking is a gross misrep- tion and market growth, in real time, resentation. To appreciate why this is and with limited knowledge. the case, one must consider her work carefully. One of the modern orthodoxies Julie Novak is a Research Fellow at the in economics is the idea that valu- Institute of Public Affairs. able common-pool resources that no single person technically owns will be 34 IPA Review | December 2009 www.ipa.org.au AAPImage | Ryan Dorgan | Ryan AAPImage

Elinor Ostrom in October 2009, having just won the Nobel Prize in Economics

consumed at a rapid rate by individu- ments are meted out for inappropriate als who strive to get their share of the use, and how genuine conflicts should resource before it is depleted. be managed. To prevent this so-called ‘tragedy To be certain, not all voluntary of the commons’, most economists solutions to resolving common pool re- have presumed that government in- sources exploitation are successful. By tervention is needed to establish rules the same token, Ostrom states there is governing the rights and responsibili- a risk that externally-imposed rules, in- ties of users of the resource. cluding from distant governments, will In other words, bureaucrats and have less legitimacy in affected com- politicians are somehow required to munities and are likely to be violated. stop free riding on the resource, en- The collective, yet non-state, in- couraging its long term preservation. teractions that Ostrom analyses are a The genius of Ostrom was that subset of the rich arena of economic she demonstrated the need for govern- freedom that includes private markets ment involvement in managing these with codified property rights. resources is far less than supposed by Indeed, classical liberal authors many economists and policymakers. have long been acutely aware of the Based on decades of fieldwork advantages of people voluntarily and empirical analysis, Elinor Ostrom grouping together to resolve collective found numerous cases of individuals action problems such as the manage- voluntarily banding together to set out ment of public goods, provision of their own rules, including monitoring social services such as education and and enforcement procedures, about health care and, in Ostrom’s case, the how to manage fishing grounds, for- appropriate use of vast tracts of natu- ests, pastures and other resources. ral resources. Ostrom found that successful self Ostrom provides a powerful argu- governed common pool resources in ment that freedom of association can the real world were managed by simple deliver beneficial economic outcomes. rules codifying who gets what amount This is a view that classical liberals and of resources, who is responsible for libertarians will find comforting. monitoring resource use, what punish- R www.ipa.org.au