Resourcefulness and Responsibility

Resourcefulness and ResponsibilityAuthor(s): Anthony ScottSource: The Canadian Journal of Economics and Political Science / Revue canadienned'Economique et de Science politique, Vol. 24, No. 2 (May, 1958), pp. 203-215Published by: Wiley on behalf of Canadian Economics AssociationStable URL: http://www.jstor.org/stable/138768 .

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RESOURCEFULNESS AND RESPONSIBILITY*

ANTHONY SCOTT University of British Columbia

THE subject of this paper is the economic analysis of the alienation of natural resources, by which is meant not only the disposal of a resource by outright sale but also the disposal of rights, perhaps for a limited period, to exploit, perhaps in a limited fashion, one or more of the natural resources of a specified area. In order to illustrate current procedures and their trends, I begin by describing very briefly the methods by which enterprises obtain rights from the province of British Columbia to exploit resources. (Readers interested

only in analysis may wish to skip this first section.) In the next sections I discuss the contribution economic theory can make to an appraisal of methods of alienation; then, in the light of this discussion, I suggest a few desiderata in

policy. Since provinces are fairly free to make their own policies on alienation,

procedures differ from region to region. Before the procedures followed in British Columbia are outlined, it should be emphasized that the more complete and absolute alienation to private ownership, the more the rights of the

province shrink to the regulation of industry, collection of taxes, and other general powers enumerated in the British North America Act. It should also be kept in mind that the administration of natural gas and petroleum carried across provincial boundaries, of fisheries, and of rivers that cross the international boundary may be affected by both federal and American regulations and laws.

Agricultural land. Some land is alienated by pre-emption but in most cases it is sold on a first-come-first-served basis after survey and some development work by the government. On alienation, the land generally passes into private ownership, though mineral and water rights are reserved.

Fisheries. Anyone may fish, on conditions imposed mainly by the federal government.

Forest land. Some of the most valuable forests were alienated by Crown grants (full ownership) in the nineteenth century. Later, until about 1910, forested lands were leased and licensed to private users, to be retained only until the timber was cut, when, as "wild land," they were to revert to the province. Many of these licences are still outstanding. Since about 1920 forests have been alienated through timber sales, whereby rights to cut the timber on

*This paper was delivered at the annual meeting of the Canadian Political Science Association in Ottawa, June 15, 1957. It was subsequently revised, before the publication of the second Sloan report, The Forest Resources of British Columbia, 1956 (Victoria: Queen's Printer, Sept., 1957), or the almost simultaneous publication of Forestry Tenures and Taxes in Canada, by Milton Moore (Toronto: Canadian Tax Foundation, 1957). Neither of these documents, however, seems to suggest that further revision is necessary. The paper has benefited from the helpful suggestions and comments of Professors J. J. Deutsch and Stuart Jamieson, and of Mr. D. M. M. Goldie, but the responsibility for statements of fact and opinion is my own.

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Vol. XXIV, no. 2, May, 1958



Canadian Journal of Economics and Political Science

specified tracts in the following year are auctioned for "stumpage." Finally, the government may add new, unalienated forest land to Crown grants and

large tracts of licensed land already held by the applicants to form very large "forest management licence" areas. These areas become entirely Crown lands, but are entrusted to single firms for perpetual management. The granting of a forest management licence is a matter for the cabinet to decide, after almost direct negotiation with the company concerned.

Minerals. In the nineteenth century, all minerals except gold and silver were transferred with agricultural holdings. However, the gold-rush law

applying to precious metals has been gradually extended to permit the

separate alienation of almost all minerals as Crown grants with very limited surface rights to timber and access. In 1957 the making of Crown grants was discontinued. New claims may now be held a few years as "retention leases," then, at the minister's discretion, as renewable "production leases" tenable for

twenty-one years. Leases are granted on a first-come-first-served basis. This new system is not unlike the one in Saskatchewan; it limits the ability of

companies to choose their own pace of development. Petroleum and natural gas. Permits to explore large areas may be converted

into licences and leases. In the event of successful exploration two possible systems apply. If a lease is sought for petroleum and natural gas, part of the

permit area is reclaimed by the province. If a lease is sought for natural gas, rights to all petroleum lying below the leased area are reclaimed. The reclaimed rights, known as Crown reserves, may be auctioned or sold by tender. The system is not unlike the one in Alberta.

Water rights. Riparian rights do not apply. Applications to use water are

granted when beneficial use has been demonstrated. In the event of conflict, or of shortage of water, the most beneficial use, according to the statutes and the earliest right granted, prevails. The controller of water rights has broad

powers that enable him to amend, suspend, and cancel licences. Rights can also be granted for the use of water in seasons when there is a flow in excess of the amount needed by those who hold year-round rights.

There are other forms of alienation in addition to these. Larger areas are sometimes allocated to industry on what might be called a regional basis by direct negotiation between the enterprise and the provincial government. Kitimat is a good example; the Wenner-Gren concession may be another; but in both cases the final forms of alienation of particular sites (though not the methods of negotiation) are similar to those described above. It will be observed that the province tends to relinquish its rights only conditionally and

temporarily. Agricultural land is alienated most completely; in the other cases the trend in statutes is to reduce rather than to extend the freedom of action of businesses in exploiting natural resources.

II

At the time of the controversies about the nature of economic rent, the role of natural resources in industrial production was well appreciated. But since that time land has been given less emphasis till it has become for the most

part a topic of special interest only in agricultural economics and in the study

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Resourcefulness and Responsibility

of its use in urban areas.' This comparative neglect is not surprising, or even

deplorable, because there is, as yet, no discernible difference between the

general economic principles applicable to the use of natural resources and those applicable to other assets. Yet it is a pity that Canadian economists, living in an economy that specializes in the intermediate products of wood, wheat, minerals, and fish have for fifty years continued to illustrate their teaching as though Canadian centres were created in the image of Man- chester, Pittsburgh, or the Ruhr.

The topic of this paper illustrates my point. Professor Frank Knight's account of the business man who buys or hires the services of the agents of

production (including land) until he has achieved the best combination in terms of expected costs and revenues probably epitomizes the view of the inception of an industrial enterprise held by most of us. This model's implicit assumption of pure competition in the land market was modified by Joan Robinson in her chapters on rent, and by Schumpeter in his discussion of discontinuities in the supply function of factors and of innovational changes in the demand and production functions. To a greater or lesser extent, however, all these writers have pictured a world in which the entrepreneur could, at a price, obtain the agents he needed. By paying enough, he could achieve the transfer of resources from "their next best use." If the supply was severely limited, he would be forced to substitute other inputs, to obtain supplies from abroad, or to pay high rents for specific factors.

Now it is not my contention that this model is inaccurate, for it is cast in terms sufficiently general to cover most actual situations, with a little bending of the definitions of words. My point is that if the giants of economic theory had been living in Newfoundland, or Saskatchewan, or British Columbia, it would probably not have occurred to them to state the model in terms of the manufacturer's obtaining a plot on which to establish his factory.

In the first place, resources have generally not gone to the highest bidder in the first instance. Homestead and pre-emption lands were allocated by random methods. The discovery of oil and of minerals, though calling for the exercise of patience, the investment of capital, and the application of science, has nevertheless often been a matter of luck. The holding of forest licences and of urban sites has also been, frequently, a matter of nearly blind speculation. It is true that in the long run, successful specialist enterprises have been able to purchase many of these rights from the original holders. A market of a kind has developed, and the equilibrium depicted by the theoretical model, wherein high rents or royalties (or high capital gains) go to the original holders, has tended to emerge. But it appears that fifty years may be required before this sort of equilibrium emerges; in the meantime highly significant events in the economic history of these areas take place. What is interesting is not the description of the stationary state that eventually comes, but the situation in the period between the time of discovery and the advent of the long-run equilibrium.

1Some of the interest in land economics, however, influenced international trade theory, and in Bertil Ohlin, Interregional and International Trade (Cambridge, Mass., 1933) in particular, we have a balanced and detailed account of the effect of an area's stock of natural resources on the distribution of its trade, its production, and its income.

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In the second place, resources are rarely sold outright in Canada; except in the Maritime Provinces the general rule is that they are not sold at all. Under the British North America Act, resources are provincial property, and the power of transferring rights to their use is a provincial power. Hence, within the boundaries of a province, there is no classical landlord selling in competition with other landlords. A province might be conceived of as competing with other regions, and ultimate users as competing with other users, in the resource market; but a province is very likely to put the same reserve price on sites and on deposits which differ widely in wealth, accessibility, and

fertility. Differences in explicit "rent" among the holdings emerge only in the long run, when licensees or tenants transfer them to other enterprises. Indeed, charging a sharp price for provincial resources is often considered to be bad social policy.

In the third place, with the conspicuous exception of the administration of

petroleum and natural gas, resource policy is not aimed at allocating the sites and deposits to the most eager buyer, the highest bidder, or the "best" user, in the sense of the classical model. The reason that the classical equilibrium tends to emerge only in the very long run, if at all, is that provincial policy has explicity attempted to achieve ends other than the maximization of

receipts from the ownership of land. This point deserves fuller discussion.

The Role of the Landlord in the Classical Model In the classical model of the price mechanism, the landlord is the owner

of productive inputs which can be hired for use just as can labour, capital goods, management services, and so forth. The business man attempts to minimize the cost of a given output by hiring the cheapest land sufficient to his needs; land becomes valuable by having alternative uses and the land- owner attempts to find the most remunerative use for his holdings. Thus the

patchwork of rents depicted by Shove and by Joan Robinson emerges, each unit of land of each type being allocated to its most "remunerative" use.

This equilibrium model of the economy, it is often argued, is also relevant to welfare. The price mechanism, it is claimed, tends to allocate each agent of

production to its highest use, until no producer could get a higher net income

by acquiring more land, or better land, because the price of that land, based on its existing use, would be too high to make a change of use profitable. Through the pricing of land and other agents, a situation would be reached where no reallocation of inputs would produce either an increase in profit or an increase in total social product. Thus, the argument concludes, the attempt of the individual landlord to get the highest rent for his holding is in harmony with the attempt of the whole economy to obtain the highest income from the use of all its resources, labour, and talents.

Using this general model of the price mechanism as the basis of their arguments, Canadian economists have attempted to mould policy to ensure the free working of the price mechanism. They have opposed combines and the maintenance of prices, and have supported free trade, the easy mobility of labour, the improvement of the money market, the rationalization of freight rates, the creation of markets for commodities, mortgages, stocks and bonds,

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and the publication of information. Does it not also follow that the "best" way to allocate natural resources is through the market? And would it not follow that the best way to use the price mechanism is to alienate the resources to individuals, so that the atomization of asset holdings could produce a market in units of land that vary in size, fertility, and location? Many regions that

specialize in agricultural products have, for many years, had markets in

agricultural land of just that type. Why do not the Canadian provinces also alienate all their resources and leave allocation to the price mechanism? Should not economists oppose the monopoly of natural resources inherent in

public ownership? In my view there are four objections to the proposition that rapid alienation

of resources to individuals is the best policy for the Canadian provinces. 1. Undesirable distribution of income. The repeal of the Corn Laws is the

event that serves as a classic illustration of the distributional aspects of the use of land. By encouraging agriculture, the Corn Laws had allocated much of the national income to rent and profits from farming. Under free trade, on the other hand, an increased proportion of the national income was distributed in wages and profits from manufacturing. Canada, short of labour and capital in relation to natural resources, tends also to distribute much of her national income as rent, and would distribute a good deal more if there were more

property rights in land. This policy would be most unpopular; in my view deservedly unpopular.

There is much truth in the physiocratic doctrine that little social service is performed by the holders of land other than making sure that it is allocated to the most remunerative uses. One way of achieving allocation to the best uses without granting excessive transfers of income is to levy property and income taxes, which recover much of the rent. This method, of course, is generally followed. Another method is to avoid the complete transfer of the resources, and thus to channel the rent direct to the public purse. The advantage of this method, however, may be outweighed by disadvantages if those responsible for the alienation of provincial resources do not actively search for the best uses and charge the highest achievable rents and royalties.2 Failure to do so will lead to an increase in other incomes in these industries, chiefly in profits but also in wages. Other forms of taxation would then be necessary to recover the rent component for redistribution to the general public, but to the extent that the necessary taxes were practically or constitu- tionally outside the jurisdiction of the provinces, the recapture of the rent on provincial resources by taxation would be impossible. The collection of high rents and royalties is the only certain method by which a province can maximize its income from natural resources.3

2This possible disadvantage has much to do with the fact that rent is a surprisingly small component of the national income. Not only is much "rent" actually shown as direct taxation (property and corporation taxes), but much of the residue is not taxed by the provincial government, and is allowed to become higher profits, wages, interest, or lower prices.

3The present tax rental agreements make some concession to the solution of this problem, though Milton Moore in his Forestry Tenures and Taxes in Canada, 211-14, would disagree on this point.

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The argument concerning distribution cannot stop here. If there were

perfect foresight, and a well-organized market, the provinces could sell their resources outright and still gain the maximum rent, as a capital sum. In the absence of these pre-conditions, when actually the value and accessibility of resources is constantly changing, the provinces must either hold the resources in order to earn the rent and royalties from hiring out their use, or else

periodically recover them, as leases and rights fall in, and re-price them. In either case, the return of proceeds to the provinces depends on the skill in

bargaining and imperviousness to political pressure of those charged with

regulating the alienation of resources. In my view, the more successful they are, the more likely is the public to be satisfied with economic specialization in the production of raw materials. We return to this subject below.

2. Delay in reaching equilibrium. The classical model suggests that if resources were completely alienated to firms and individuals, the profit motive would lead to their allocation according to their best use. Even if that were so (and the next section suggests that it may not be so), the ideal allocation would emerge only after a long period of time. In the meantime, uninformed

speculation, the lack of an organized market in rights to resources, absentee

ownership, and tax advantages from capital gains might deprive the price mechanism of much of its energy. The mechanism requires not only the "pull" of entrepreneurs combining productive agents into businesses, but also the

"push" of owners seeking the best return from their holdings. American and

European experience with widespread private ownership of forest and mineral land has not suggested the appearance of an efficient market that would facilitate the transfer of these holdings to their best use. Canadian experience with privately owned agricultural land suggests that even here, where knowledge of the available opportunities is quite well known, the reallocation of units of land from one use or ownership to another is sluggish. There is little satisfaction in the knowledge that the market and the price mechanism will bring about a wise use of land if two or three generations are required to achieve it.

3. Indivisibility of projects for developing resources. One of the most serious problems in alienating resources is to decide which of several conflicting uses is the best one. Canada has already much experience with the consequences of unfortunate decisions about "competing-use" resources. For example, because prairie lands were alienated in small units, it was difficult and sometimes impossible to convert them to extensive grain or cattle enterprises. In the Maritimes, land which now would be more suitable for forestry was appor- tioned into small farming units; but the problem of joining them into larger units suitable for woods operations is often very difficult. In some places, the fact that the owner of the surface rights (usually a farmer) also owns the mineral rights has discouraged and prevented mining explorations.

Even more important are the clashes between the uses of land by non- farming industries. The question of fish versus power has so far been decided in favour of fish on those streams where the federal Department of Fisheries (not charged with the welfare of other industries) has been the deciding authority on rights to build dams; the same is true in the issues of fish versus irrigation and fish versus logging-waterways. Conflicts between other uses are

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settled by the provincial controllers of water rights, each of whom administers a statute setting forth a rigid scale of priorities. There are conflicts between

scenery, parks, and sport on the one hand, and logging, mining, or hydro- electric power on the other. And there are conflicts among mining, forestry, and power.

It must be admitted that the rights over these resources are usually trans- ferrable and may be sold in the market, either direct, or by selling the firms that own them. Could not the price mechanism achieve the allocation of each site to its best use? Probably not. The rights are often specific to particular uses: a hydro permit does not carry the right to exploit adjacent forests; or a

mining licence the right to farm or log the surface; or a forest licence the right to farm the land when it is cleared. This separation of rights does permit the exploitation of distinct resources by specialists in those industries. If, however, the simultaneous exploitation of adjacent resources is impossible, it is not certain that a market in the separate rights would lead to a decision in favour of the best use. Hence, if the government assigns a certain valley to the production of power and assigns a sufficient block of land for the purpose, the market is unlikely ever to convert the operation to forestry. Again, the

recipients of good homesteaded land are unlikely, if the price of wood should rise, to convert their small holdings into forest. Whatever decision is made

initially about the size of units and the use of a given area is likely signifi- cantly to influence their use in perpetuity. Furthermore, if some of the resources are those used in the so-called common-property industries, such as tourism, recreation, or fishing, it is difficult to devise methods by which the market can achieve any sensible allocation at all.

But if the resources are held by a province as public property it is possible to change the whole pattern of use as the prices of certain raw materials, fish, or power change in the market, or as new methods suggest that different scales of operation are suitable to the industry. The conclusion here is that a province should not follow routine in alienating resources where there are conflicting uses; it should appraise the whole region and attempt to work out forms of tenure that would allow simultaneous uses by different industries, keeping the forms of tenure flexible enough so that they can be changed later to meet new needs.

There are dangers here of course. The rational allocation of the use of resources over a period of time, and the rational use of capital goods, require that tenures be sufficiently long to enable owners who practise conservation, or who make investments in the reproduction of biological resources, to reap where they have sown. Tenures that are too short lead to cut-and-run exploitation.4 Another danger is that provincial authorities may turn out to be less flexible in their ideas about the use of resources than would a market dealing in fully owned units. Political pressure of the sort that is now being applied by the fishing industry may make decisions based on income considerations impossible.

4. The desire for "balanced growth." The fourth consideration, like the first,

4See, however, the remarks on this subject in the second Sloan report. In his original report in 1945, Chief Justice Sloan recommended perpetual tenure in forest management licences. The second report recommends reducing tenure to twenty-one years.

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involves a re-examination of economic ends. The classical theory that the price mechanism and open markets for the factors of production lead to the maximization of income and the optimum allocation of resources applies to the area or economy that is maximizing its income. The best way of distin- guishing the "region" to which the theory applies is to say that it is a region within which population and resources are confined. John H. Williams, Bertil Ohlin, and many others have pointed out that the classical theory of international trade has only a limited and short-run application to areas whose population is part of a larger labour market. Furthermore, the theory that the price mechanism leads to high welfare is of limited application in a region where population is changing and where distributional claims are almost as

important as the desire for higher income. So it is with the Canadian provinces. Even if the classical prescription

produces the maximum income for the individual owners of its alienated resources, it is not necessarily the best policy for a particular province. The best analogy for the clash between those who advocate classical laissez-faire and private ownership as a means of maximizing welfare and those who make

provincial policies is the argument about "further processing." Like those who

oppose the unrestricted use of the price mechanism in alienating resources, enthusiasts for the further processing of natural resources within a province argue that balanced growth, not maximum income, is the objective. Let us examine this contention.

The case has rarely been put carefully, but when the statements heard and

published are threaded together, they run like this. The lack of explicit policies to promote further processing of iron and other provincial minerals destines the whole population to careers in hewing wood and drawing water, and in

mining and fishing. None of these industries uses as much labour as iron and steel manufacturing or light manufacturing. Hence a given rate of discovery will support a larger population, the greater the degree of "further processing." Moreover, local business would not depend quite so sensitively on highly competitive markets for raw materials if it also made finished products. It is also argued that concentration on resource industries without further processing leads to decentralization and frontier social conditions. It is urged that the glamorous fields of nuclear physics, radar research, electronics, internal combustion, synthetics, and handicrafts are conducted where employment is

variegated, not on the frontier or in centres dependent on the production of raw materials. It is pointed out that to the extent that sources of raw material come to be owned by foreign users, the proceeds of depletion or realization are particularly likely to be reinvested elsewhere. Foreign owners of sources of raw material are also more likely than foreign owners of tariff-protected secondary industries to shut down in the event of a depression, transferring whatever orders there are to their home sources.

Now it is useless to counter these "chamber-of-commerce" arguments by saying that they would produce a smaller income (a lower standard of living) than would be gained by acquiescing in the role of "hewing and drawing." I believe that many enthusiasts would, within limits, eagerly choose a larger population over a higher standard of living. Even more would they favour a

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rapidly growing economy, even if the rate of income growth were retarded. They like roads, cities, a skilled and settled labour-force, and industrial diversification, and deplore the rawness they associate with a logging and

mining society. It seems to me that an economist, although not necessarily concurring in

these judgments of value, and not necessarily agreeing with these assumptions about labour-intensity, urbanization, and stability, can nevertheless suggest a few more arguments against acquiescing in specialization in raw materials. Three may be worthy of mention. Consider growth in population first. In a

population as mobile as Canada's, it seems to me that any increase in income

resulting from specialization is going eventually (not at once) to be brought down to the average Canadian level by immigration from other regions. Some

immigrants will be dependants; others will provide secondary and tertiary services. Thus, though specialization may put a spur to income growth, income

per head may not grow much faster than the Canadian average. Even if it does, the actual level at any given time in the future may not be sufficiently attractive to warrant denying the people of a province the pattern of social

growth they would prefer at once. Second, it might be argued that capital would be inefficiently allocated

under further industrialization. To argue so, however, is to forget the regional point of view. The national supply of loanable funds is limited, it is true, but a region obtains only a small part of this supply. If more can be obtained on

fairly easy terms, there is little inclination to refuse the protective legislation that is the pre-condition for this extra investment. Indeed a region well

supplied with raw materials is blase about the use of capital, for it is accustomed to tremendous investments such as Kitimat, which often turn out to have a disappointingly small labour-to-capital ratio.

Finally, in the best tradition of the destructive critics of welfare economics, the economist must point out that there is no argument for increasing income if the question of distribution cannot be settled satisfactorily. In this case, the distributional argument concerns social classes less than districts. If policies aimed at chamber-of-commerce "balanced growth" favour particular districts at the expense of other districts, a question of inter-district comparison of preferences becomes involved in deciding on growth policy. There is no argument independent of judgments of value for disputing a claim that "balanced growth" is the best policy. These three arguments may be summar- ized as urging that, although encouragement of industry to pursue its comparative advantage may be the best national policy, it is not necessarily the best regional or provincial policy.

Many of the same considerations colour actual decisions about the alienation of resources. Obtaining the best price or best use for a resource that is to be alienated is rarely the consideration uppermost in the minds of those who make decisions. Instead, "balanced development" and net value of production have been given equal weight as criteria of alienation. For example, British Columbia has long forbidden the export of logs from provincial lands. There is a bounty on the production of pig iron, which encourages the establishment of a steel industry and discourages the export of iron ore. Throughout Canada,

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there is now a standing policy against the export of power. Freight rates are often biased in favour of, and tax advantages are given to, new processing- plants. In British Columbia, the obsession with the desirability of an iron and steel industry has led the Government to prohibit further staking of iron ore claims (presumably until an industry is established which can use the ore

locally) and to threaten the exporters of ore from old claims with a very heavy tax. The recent British Columbia statute which discontinues the alienation of mineral claims as Crown grants, and instead alienates newly staked claims in the form of leases which are reviewed as they come up for renewal, will probably be the means of further discouraging the export of raw materials.

The view that favours "balanced development" as opposed to high income is exemplified by one of the chief differences of opinion about the alienation of forest resources by means of the new forest management licence. Small forest operators naturally dislike large grants of land, which tend to change the whole structure of the industry in favour of large enterprises, and many communities also dislike the principle of one firm's deciding which town is to be the collecting centre for the products of a forest region that may previously have supplied smaller mills in several locations. The Government of British Columbia, assisted by a Royal Commission report just published, must soon make a decision on this issue. It is unlikely to decide in favour of the policy which brings merely the largest income per capita.

The location of dams, the transport and sale of natural gas, and the declaring of fishing seasons in various areas are all decided, partly at least, with an eye to the prosperity and growth of various regions: "balanced development," not

rapid growth of income per head, is one of the main considerations.5

III

These four objections to the use of an atomistic land market to allocate natural resources do not all apply in all instances. Taken together, they do

explain much of the intervention and contradiction in systems for regulating the tenure and taxation of resources. Yet they must not be taken as a defence of the present collection of alienation systems, which are in danger of achiev-

ing certain specified objectives only at the cost of losing many of the advant-

ages that the price mechanism would offer. I wish therefore to conclude by listing four points which can be regarded either as weaknesses in the present system or as desiderata in a wholly administered (non-price) method of alienation.

Exploration and Planning I have argued that a free market in tenures is unlikely to lead to the maxi-

mization of income, because the tenure required by each of the industries that would potentially exploit an area would differ. This argument has no force,

In the phrase "balanced development" I also include policies aimed at what we may call sociological, as distinct from economic, objectives. The parcelling out of agricultural land in small holdings, with concomitant support of family farms, is one of these. So also is the lack of interest in the rationalizing of the fisheries, the continuation of policies that favour small prospectors and small loggers, the unconditional allocation of many resources to Indians, and the preservation of the rights of hunters and sport fishermen.

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however, unless provincial governments, the alternative decision-makers, act on information at least as good as that which would be available to partici- pants in a market. Large investors, such as the big mining companies, are willing to spend a very great deal in exploration for particular types of material. Unless provincial governments can do better, they might as well leave the job to private capital (leaving aside any objections they might have to

turning the development of their resources over to a few very large concerns). In rejecting the incentives to exploration provided by the price system, the

governments should adopt a positive role. At the very least they must make sure that the type of tenure is suitable for each industry. But if the provinces are prepared to undertake what our colleagues in the planning profession call

regional planning, there is a very useful, though expensive, role they can perform.

The task undertaken by the Wenner-Gren Development Company in exploring the Rocky Mountain trench region is an example of what I mean by regional planning.6 This kind of planning is so costly that, according to the Premier of British Columbia, it would need more men and money than the province can at present afford. Not only does it require the simultaneous placing of a number of expert parties on the ground; it also requires expensive central planning and co-ordination. My point here is that a government must produce an approximation to this exceptional effort to justify its decision to act as arbiter in deciding on the users and uses of resources. There are other methods, of course. Pressure groups wielding countervailing powers, public and press controversy, conflicts between governments, and the consequent stalemates, have much the same effect: they produce not only friction and heat, but also light. In my opinion, the prolonged controversy about fish versus power in the Fraser River has had this desirable effect. But conflicting groups cannot be relied on always to produce thought and study, particularly if the opportunities are new and involve no vested interests. In such cases, I would argue, a government must either commission an enterprise to appraise all the potentialities of a region, or, preferably, act as entrepreneur itself by undertaking the risks of exploration.

Competition The second desideratum is that, once an opportunity has been discovered,

and once the best of the conflicting uses has been determined, the best use of resources also requires that the best firm or individual be found to undertake the enterprise. In the theory of the price mechanism this matching-up of talents and opportunities would take place eventually through the process of

6The Wenner-Gren enterprise has, so far, done no more than indicate an interest in the trench and obtain rights as sole concessionaire in prospecting, surveying, timber-cruising, and so forth. It is forming a sort of planning-council which, I gather, co-ordinates the activities of the exploring parties and evaluates the prospects reported by each; the ultimate aim is the compiling of a report that will indicate which of the reported opportunities is worth exploiting, and which of the conflicting and complementary opportunities should also be developed in order to make the best use of the whole region. If the development is to proceed, enough activity must be initiated to cover the costs of a transportation system, in this case the famous mono-rail railway. The social requirements in the form of townsites, schools, roads, and hospitals would also be joint costs of all the industries established.

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the buying and selling of resources by business men. Can provincial control over the alienation of resources quicken the process?

The chief means now available to a government in search of the best

private contractor or concessionaire are selling by auction and calling for tenders. In British Columbia there are auctions of oil and gas lands and of timber rights. On the other hand, the system of mineral claims declares that the obtaining of a lease or a Crown grant is the reward for exploration and

prospecting; the obtaining of tenure is also the chief incentive to explore for

petroleum. Thus the province seems to have conflicting objectives; by offering tenure to successful parties, it obtains cheap exploration of its mineral resources, but in so doing it forfeits the right to select the best enterprise for

developing them. Of course, there need be no conflict, for in many cases the most skilful and the most fortunate exploring firm is also a highly acceptable developer and producer.

As an economist, I am much impressed by the virtues of competition in these situations. For one thing, it may be impossible for the administrators of

provincial resources to obtain any idea of the value of a new discovery by negotiation with a single firm; royalties may be ridiculously high or low. Only the obtaining of bids from competing firms in the same industry will enable the province to find the best exploiter and to get the best return of proceeds. But I am also unable to see that under the present system there is any way to obtain the required exploration other than granting tenure to successful

prospectors.7 Of course, under a system fully dominated by government, the

exploration could be undertaken by the province; but that would be very expensive and, in view of the tremendous losses involved, probably an unsuit- able role for public enterprise.

The conclusion, therefore, must be a weak one. If a government has itself undertaken exploration, as is usually the case in the alienation of forests and water, it should encourage competition among industries for the rights to

exploit the resources it has found. But if a government cannot itself afford

exploration, it may have to continue to offer tenure to an industry as an incentive for undertaking prospecting.

Independence Administrative decision, when a great deal is at stake, or when large firms

are dependent on it rather than on the market for the acquisition of tenure, properly becomes the concern of senior officials and of the government itself. The government, and eventually the civil servants, become vulnerable to

7Even in this instance, where tenure is in effect offered as the incentive for prospecting, some use of the price mechanism would seem to be possible. For example, the original prospector or company could be given a lease, as now, and the unalienated adjoining land could become Crown reserve, to be auctioned or sold by tender, perhaps to the original company. Such a system would discourage much uninformed speculation in the stock market, prevent impecunious firms from retaining promising sites at no cost to themselves, and permit active firms to acquire the size of site they need, at the market price. The system would be unpopular with the little man in the mining industry, who cherishes his right to stake claims in any new, promising camp or region, because, like the system in use in petroleum and natural gas fields it would tend to favour the large, well-capitalized enterprise.

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political pressure and pressure from particular groups and even, it may be, to

corruption. The expenses of promoting its objectives may be insignificant to a

large firm, balanced against the gains from a granted application for tenure, particularly if the price, royalty, or rent to be collected by the province is small. (This consideration reinforces the importance of competition men- tioned just above. If administrators can induce price competition among alternative users of resources, much decision-making is efficiently done for them already.)

It may be impossible for a small province to obtain sufficient expertness and sufficient stature in its civil and political servants to withstand this kind of pressure. Indeed, if the pressure is strong, it might better trust the allocation of resources to the market, hoping that its slow equilibrating tendency will approximate an acceptable use of resources. And, to repeat, once the use of a resource has been decided on, a government can always have recourse to

price competition to select a user. If the mention of private pressure seems over-dramatic and sinister, let me

refer to less distasteful instances. Governments and civil servants are constantly in touch with, and dependent on, certain regions and industries, whose

political power may be very large. If so, a government may be unwilling to decide on the distribution of its resources in accordance with the "best" use: the rescue of weak regions or industries may be given what is to an economist an unduly high priority.

But here again we encounter the fourth point made in the previous section: that the economic ends usually promoted by our profession are not necessarily those of provincial governments. The "balanced development" ideal may indeed rightly include, even at an economic cost known to be high, the

encouragement or resuscitation of weak enterprises and regions. Therefore, to

argue that it is a weakness of the administrative alienation of resources to be vulnerable to pressure from particular firms, industries, or regions is judgment of value; many would counter that this vulnerability is the very virtue of democratic local government. My own opinion is that it is worth while having an administrative system that is strong enough to deny special advantages to weak groups, and that the absence of such strength would constitute for me a telling argument for the abandonment of special administrative procedures for alienation, however justifiable they may appear on paper.

It is at this point that the title of my paper becomes germane. I have no doubt about the strength of the arguments against unrestricted laissez-faire as a method of alienating resources. But an administrative system, however well thought out, requires resourcefulness and responsibility on the part of its executive if it is to take the place of the price mechanism. There are grave dangers that not only the maximization of income but also the principles of

just government and impartial administration may be lost if the stakes are

high and the resources are rich.

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Resourcefulness and Responsibility

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