Community forest enterprises as entrepreneurial Firms: Economic and institutional perspectives from Mexico
Introduction
Community market-oriented enterprises, particularly those based on a common property natural resource, are historically rare birds. However, a large community forest enterprise (CFE) sector in Mexico that emerged in the last three decades, and currently emerging CFEs elsewhere in the world, highlight the importance of understanding the theoretical implications and empirical impacts of this rather dramatic rearrangement of traditional community institutions. CFEs as productive organizations have unusual institutional and economic features that force a reconsideration of theories of the firm, highlight the varieties of possible institutional arrangements over stocks and flows of the natural resource, and may have special importance in delivering both economic equity and environmental protection. However, in most times and places, it would appear that the costs of collective action in mounting market-oriented enterprises administered by communities, particularly impoverished communities in less-developed countries, are greater than any perceived benefits. This would appear to be particularly the case with community forest enterprises dedicated to the commercial production of timber. Commercial timber production at its simplest requires substantial investments and the administration of complex industrial processes. Despite these daunting challenges, Mexico presents a still little-known case where there are hundreds of such CFEs (Antinori, 2000, Bray).
The potential significance of CFEs is large when one considers the current worldwide trend toward devolution of forestlands to local communities (White & Martin, 2002). Communities managing forests for timber production would seem to be the next step that could help alleviate poverty, promote economic development, and provide incentives for forest preservation (Wunder, 2001). Clusters of CFEs are emerging in many different places in the world (Cortave, 2003, Gill, 2002, Nolan, 2001, Scherr). There is also a much older, but little documented sector of community-managed commercial forests in Europe (Jeanrenaud, 2001). Given the challenges in the sector, there are also increasing accounts of failed CFEs (Irvine, 2000, Smith, 1996).
Mexican common property, community forestry, and CFEs have three unusual features. First, the Mexican common property system may be unique in the world in that it is a massive, state-directed and regulated system that has emerged and been consolidated since the third decade of the 20th century (Bray & Merino-Pérez, 2002). With varying rhythms throughout most of the 20th century, large transfers of natural forest assets were made to local communities from state and private hands (Klooster, 2003), leading to a democratization of ownership of natural assets (Boyce & Shelly, 2003). This transfer laid the foundation for the emergence of Mexico’s community forestry sector. In the course of the 20th century, Mexican forest communities and urban allies, alternately hindered and supported by official policy, have had to struggle against logging bans, concessions, and corruption to achieve more autonomous management of their forests, with CFEs emerging as a significant, initially state-supported sector in the mid-1970s (Bray and Wexler, 1996, Klooster, 2003). Given the demands of the CFE organization, they were seldom entirely “self-organized,” but depended heavily on state and civil society support (Bray and Merino-Pérez, 2002, Ostrom). Second, well over 50%, possibly as high as 80%, of Mexican forests belong to communities as a result of agrarian reforms (Bray et al., 2003), the second highest percentage in the world after Papua New Guinea (White & Martin, 2002). A new national study is underway to document how many communities in Mexico have logging permits and thus some form of CFE (Antinori, Magaña, Torres Rojo, Segura, & Bray (ms)). Third, the Mexican experience is showing that CFEs can combine community governance traditions and enterprise forms to successfully compete in international markets, and that neither traditional culture nor common property are necessarily a hindrance in doing so (Bray and Merino-Pérez, 2002, Bray).
Most experiences in community management of natural resources have focused on individual subsistence or small-scale market production using the common property resource and, in forest situations, on nontimber forest products (NTFPs) (Arnold, 1998, Ostrom, 1990). As well, a worldwide trend of devolution is paralleled by another forestry trend away from large-scale industrial forestry to landholder-based and community forestry that encompasses more multiproduct based objectives and smaller-scale timber production (Harrison, Herbohn, & Niskanen, 2002). These tendencies occur at a time when doubts have been raised about the degree to which NTFPs and payments for environmental services can alleviate poverty or promote economic development (Richards, 2000, Wunder, 2001). This convergence of new research and policy trends has placed more attention on the real and potential role of communities in producing timber, since as Wunder (2001) suggests, “rents in the timber business can be large, so if decentralization and devolution of property rights to communities succeeded in redistributing just a minor amount, poverty-alleviation potentials could be significant.”
Communities gaining access to forestlands, as de jure or de facto common properties, for commercial timber production raises the virtually unexplored issue of communities forming enterprises based on a common property natural resource asset, that is, the community becoming a type of business (Antinori, 2000). As the new global alternative of CFEs emerges, it becomes important to understand how they arise and how they function as possibly unique economic institutions. Given the historical evolution of Mexican CFEs, the large amounts of forest resources under their control, and a state-regulated common property system, an analysis of Mexican CFEs sheds light on key questions with global implications: Do community forestry operations combine democratic participation and economic efficiency? Do they have advantages in achieving multiple objectives such as poverty alleviation, economic equity and development, and effective environmental stewardship? Can they survive and even prosper within a market economy predicated on conventional capitalist firms?
In this paper, we will take an institutional perspective to suggest how CFEs in general and Mexican CFEs in particular are distinct from other forms of enterprise organizations. By an institutional perspective, we mean an analysis of the pattern of ownership and control rights as manifested under agrarian law and expressed through collective decision-making processes and the distribution of benefits. An institutional perspective differs from neoclassical economics, which focuses on the technological basis for why and where production occurs. In contrast, institutional economics focuses on contractual arrangements and governance modes among buyers and sellers, and owners, managers, and workers within an institutional environment of legal rules and customs. The theory of the firm is a large body of literature within institutional economics which analyzes the internal workings of productive organizations. We apply this theory in an introductory fashion to describe CFEs’ structures for coordinating production and allocating costs and revenues. By laying out the details of its institutional structure, we identify it as a distinct case of enterprise organization. Ostrom (1990) has correctly critiqued the theory of the firm as not providing an explanation for how groups of individuals can solve the collective action problem. Its usefulness for our purposes is in addressing the different but related question of governance in the firm and in CFEs.
We find that the decades of experience of Mexican CFEs provide a rich empirical base to analyze CFEs as a collective organizational effort that combines business with community participation, and as a “social firm” whose features we contrast with more frequently studied production organizations. The emergence of enterprises from a matrix of community governance can create tensions between democracy versus hierarchy, managerial efficiency versus representativeness and traditional customs, and management for conservation versus timber production. It generates a wide variety of locally designed institutional arrangements over management of the stocks and flows of the common property resource to create unique enterprises that can compete in world markets or, alternatively, can result in conflictual situations that lead to the deepening of economic inequities and forest degradation (Guerrero, 2000, Klooster, 2000, Merino). The environmental dimensions of any form of forest management are essential and, although this paper does not focus on that issue, in our conclusions, we will briefly discuss some of the environmental impacts of community forest management.
Thus, our paper is outlined as follows: Section 2 briefly notes the scant attention afforded to collective, community enterprises despite its relevance to research and current trends in development. Section 3 introduces the theory of the firm as a starting point for more systematically understanding the nature and challenges of CFEs. In this section, we offer a definition of CFEs as “social firms.” Section 4 discusses Mexican CFEs’ emergence and current tensions between traditional community governance and enterprise management. Section 5 presents a variety of locally designed organizational choices in the control of resource stocks and flows, while Section 6 describes CFE performance and distribution of benefits. Conclusions on the theoretical and empirical significance of CFEs for economic equity and development and environmental management are given in Section 7.
Section snippets
Communities, enterprises, and common property
Communities are not often analyzed as economic entities outside of the household and small private enterprise strategies pursued by its inhabitants. A recent deconstruction of the concept of community as used in the phrase “community-based conservation” argues for a focus on competing institutions and actors rather than harmonious communities, and proposes federations of communities as a strategic need, but does not recognize the issue of community enterprise formation (Agrawal & Gibson, 1999).
CFEs and theories of the firm
Definitional issues have long been debated in theories of the firm. Coase (1937) and Williamson (1975) treat the firm as a hierarchical authority relationship among managers and workers designed to economize on transaction costs of continuously negotiating, monitoring, and enforcing contracts. Alchian and Demsetz (1972) define a firm as a “nexus of contracts” among individuals rather than as an authoritative scheme, where the manager receives a portion of the residual profits and thus has an
CFE emergence and tensions of community governance and enterprise management
Mexico is rich in indigenous forms of communal organization. These institutions were overlaid and imitated by the agrarian reforms arising from the Mexican Revolution (1910–20) and enshrined in Article 27 of the Constitution of 1917. The resulting agrarian law led to the implementation of two forms of common property, ejidos and comunidades,
CFE organization and stocks and flows
The broad range of different organizational forms and rules enacted by forest communities may be viewed as different ways to address these tensions over ownership and decision making, with distinct impacts on the allocation of stocks and flows of the common property resource (McKean & Ostrom, 1995). In Mexico, access patterns range from extensive individual appropriation of timber to entirely communal appropriation. Examples from specific Mexican communities follow.
The economic performance of CFEs and the distribution of benefits
There has been a tendency to regard Mexican CFEs as constantly teetering on the brink of collapse because of mismanagement, high costs, inefficient sawmills and other industries, and exploitation by outside forces. It has also been argued that capital and labor can more freely shift in the private sector to more profitable sectors while peasant industries do not have that choice (Aguilar, Madrid, Merino, & Gutiérrez, 1990). However, CFEs also have unrecognized strengths. For example, it can
Conclusions
Mexico has been historically in the vanguard in developing a large and relatively mature sector of communities managing their forests for the commercial production of timber (Stone & D’Andrea, 2001). As such, it provides key elements for both a re-conceptualization of theories of the firm and empirical lessons about their institutional characteristics and economic benefits. Mexico, due to its agrarian revolution early in the 20th century, intermittently supportive government policies, community
Acknowledgement
The authors would like to thank the William and Flora Hewlett Foundation and the Ford Foundation for generous support in the elaboration of this article and some of the research behind it. We would also like to thank Skya Rose Murphy and Matthew Zirkelbach, M.A. candidates in the Department of Environmental Studies at Florida International University, for their excellent editorial assistance.
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The authors’ names are in alphabetical order. An earlier version of this paper, authored by David Barton Bray, was presented at the international conference on “Rural Livelihoods, Forests, and Biodiversity” organized by the Center for International Forestry Research and held in Bonn, Germany, May 19–23, 2003.