Abstract
This paper evaluates the extent to which public interest or public choice rationales explain timber industry regulation in the Pacific Northwest. Two key regulations are examined: the listing of the Northern Spotted Owl (NSO) under the Endangered Species Act (ESA) in 1990, and the implementation of the Northwest Forest Plan (NWFP) in 1994. Support for the public interest theory of regulation relies on the assumption that (A) demand for environmental protection is driven by local populations directly impacted by regulation, (B) declining timber production is driven by technological factors unrelated to environmental policy, and (C) prevention of logging under timber regulations is effective at supporting ecological diversity and endangered populations. I argue there is little evidence to support any of these propositions. In contrast, evidence suggests that various interest groups benefitted significantly from the reduction in federal timber output resulting from environmental regulation, including owners of private timberlands—particularly institutional investors such as timberland investment management organizations (TIMOs) and timberland real-estate investment trusts (REITs)—and Southern timber producers, suggesting a “bootleggers and Baptists” explanation that fits within the public choice framework. Finally, I argue that even if one accepts the public interest rationale for timber regulation, regulation of the timber industry suffers from both knowledge and incentive problems that make it unlikely to succeed.
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Notes
The 1990 listing of the NSO occurred despite two prior status reviews that concluded the conditions of the NSO did not merit ESA listing (Noon & McKelvey, 1996). In 1988, a district court ruled that the FWS decision not to list the NSO was contrary to law. In 1989 a short-term injunction blocked 140 timber sales until the 1989 “Northwest Compromise” that expanded the official NSO habitat range and subsequently restricted timber production in the expanded range (Ferris & Frank, 2021; Thomas et al., 1990). In 1990 the NSO was officially listed under the ESA.
Although the listing of the NSO under the ESA acted as the catalyst for the injunction, the court’s ruling—as well as rulings resulting in subsequent injunctions—appeals to the requirement of the National Forest Service Management Act of 1976 that “the Forest Service…prepare management plans for its national forests to meet the multiple-use objectives of the national forest system” a component of which includes the maintenance of a “viable population” of vertebrate and nonvertebrate species (952 F.2d 297 (9th Cir. 1991)). The listing of the NSO under the ESA calls into question the Forest Service’s compliance with this latter aspect of the 1976 law.
One can imagine distinguishing between a “strong” and “weak” public interest standard. A strong public interest standard requires that policies satisfy Pareto optimality/the rule of unanimity. A weak public interest standard requires only that policies pass a net-benefit test (the Kaldor-Hicks criterion). It is argued here that regulation of the timber industry satisfies neither strong nor weak public interest criteria.
As Leeson (2019), Geloso and March (2021), and others have pointed out, public interest and public choice rationales need not be mutually exclusive. In fact, public interest and public choice factors may complement one another in the production of regulation. An important caveat is thus that public interest forces—even if well intended—may, for a myriad of reasons, produce regulation that is inefficient or undesirable.
Even in the best-case scenario, the regulations examined here are presumed to induce some job loss: the goal being a reduction in the output of timber. Thus, to be a true Pareto improvement the regulations must not only result in no excess job loss, but those individuals fortunate enough to be deemed recipients of the “optimal” amount of job loss must be compensated. That no such compensation was forthcoming in the aftermath of regulation calls the efficiency of the examined timber regulations into question.
This SIC category includes employment in cutting timber and pulpwood; merchant sawmills, lath mills, shingle mills, cooperage stock mills, planing mills, and plywood mills and veneer mills engaged in producing lumber and wood basic materials; as well as employment in establishments engaged in manufacturing finished articles made entirely or mainly of wood or related materials.
It is possible that the outside party (in this case, environmentalist groups) values the “benefits” of the regulation sufficiently to create the opportunity for a potential Pareto improvement. However, to the extent that those subject to the regulation (lumber and wood products firms, their employees, and the connected communities) continue to resist its imposition, this suggests that no mutually beneficial exchanges exist. In other words, the regulation in question appears to fail to satisfy the unanimity criterion.
E.g., see Scott (2020) https://www.opb.org/show/timberwars/for a summary of the events of the late 80’s/early 90’s.
771 F. Supp. 1081 (W.D. Wash. 1991).
798 F. Supp. 1484 (W.D. Wash. 1992).
See Department of Justice, 2015. “The Spotted Owl Litigation.” < https://www.justice.gov/enrd/spotted-owl-litigation > for a history. As the article notes: “Seattle Audubon Society v. Evans, 1991a, 1991b WL 180099 (W.D. Wash. 1991), [was] one of the long series of spotted owl cases adjudicated by the Honorable William L. Dwyer” (p.1).” Hoberg (2004) writes that “[f]rom the time of his first injunction in 1989 to his approval of the Clinton forest plan in late 1994, Judge Dwyer essentially managed Region 6 of the Forest Service” (p.11).
Importantly, even if the aforementioned groups were not involved directly in the production of regulations on the Pacific Northwest timber industry, the benefit that such groups derive from regulation can explain the persistence of that regulation in the face of evidence of its ineffectiveness (i.e., at protecting spotted owl populations).
Appendix A presents similar figures for Washington and California.
Fu (2010) notes that “[T]he NCREIF Timberland Index was established when several timberland investment management organizations (TIMOs), and some other leading members of the institutional investment community, lobbied NCREIF in the early 1990s to establish a broad measure of performance for private timberland investments. These efforts culminated in the publication of the NCREIF Timberland Index in 1994, which provided historical investment performance dating back to 1987” (p. 1–2).
The West region includes Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, New Mexico, Oregon, South Dakota, Utah, Washington, and Wyoming.
The South region includes Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, and Virginia.
As an example, Schick et al. (2020) write that “[I]n western Oregon, at least 40% of private forestlands are now owned by investment companies that maximize profits by purchasing large swaths of forestland, cutting trees on a more rapid cycle than decades ago, exporting additional timber overseas instead of using local workers to mill them and then selling the properties after they’ve been logged” (p.1).
Source: Author’s calculations, Bureau of Economic Analysis Regional Economic Accounts.
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Appendices
Appendix A: timber harvest figures for California and Washington
Figure
Timber Harvest by Ownership, California and Washington, 1985–2000. California data obtained from the California State Assembly Committee on Accountability and Administrative Review California Timber Harvest Statistics, compiled from California tax records. Washington data obtained from Larsen and Nguyen (2002)
6 presents trends in annual timber harvest (measured in billions of board feet) by ownership for both California and Washington. Although the initial share of production taking place on public lands is smaller in California and Washington relative to Oregon, Fig. 6 shows that both California and Washington faced a similar decline timber production during the 1990’s, driven by a decline in output on public land after 1990. Figure
Total Timber Harvest, California and Washington, 1985–2000. California data obtained from the California State Assembly Committee on Accountability and Administrative Review – California Timber Harvest Statistics, compiled from California tax records. Washington data obtained from Larsen and Nguyen (2002)
7 further illustrates this decline by plotting total timber harvest (public plus private) over time for both states.
Finally, although there does not appear to be a publicly available data source for log prices in Washington and California equivalent to the one produced for Oregon by the Oregon Department of Forestry, data is available on the total annual value of timber harvests for the state of California by land ownership type. Figure
Timber Harvest Value, California, 1985–2000. Data obtained from the California State Assembly Committee on Accountability and Administrative Review. Data in millions of current dollars
8 presents the value of timber harvests on private and public land for the state of California from 1985 to 2000.
Figure 8 reveals a large increase in the value of timber production on private lands, consistent with that which would be predicted from the rise in log prices presented in Fig. 4b (assuming California log prices followed a similar trajectory). The value of timber production on private land increased from approximately $502 million in 1989 to a peak of approximately $1.2 billion in 1993. Given both the level of output in board feet and the total value of that output, the implied California log price—in current dollars—increased from $104 per 1,000 board feet in 1985 to a peak of $476 per 1,000 board feet in 1994, falling slightly to $395 per 1,000 board feet in 2000. The large increase in both the value of timber output (despite constant or falling production levels) and the spike in implied California timber prices is consistent with the public choice interpretation of timber regulation advanced in the main text.
Appendix B: lumber and wood products employment in California and Washington
Figure
Lumber and Wood Products Employment, California and Washington, 1985–2000. Figure presents the total employment in lumber and wood products SIC industries. Data obtained from the Bureau of Economic Analysis Regional Economic Accounts
9 presents trends in employment in lumber and wood products SIC industries for Washington and California for the years 1985 to 2000. The figure reveals a sharp decline in employment after 1990 in both states akin to the decline depicted for Oregon in Fig. 2. Lumber and wood products employment declines continuously for Washington through the end of the sample period. In contrast, there is a rebound in lumber and wood products employment in California after 1995. However, as Fig. 3 indicates, most of the growth in lumber and wood products employment in California was in counties not impacted by Spotted Owl-related timber injunctions (i.e., in counties located away from protected forest land in southern and central parts of the state). Further, the rebound in timber products employment appears to be brief. Although the BEA industry classification scheme changes from SIC to NAICS in 2000, making it difficult to make direct comparisons across time, it is nonetheless worth noting that combined employment in “forestry and logging” and “wood products manufacturing” NAICS industries in California declined from 54,505 in 2000 to 29,228 in 2010, an additional decline of approximately 46%.Footnote 18
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Petach, L. The timber wars: the endangered species act, the northwest forest plan, and the political economy of timber management in the Pacific northwest. Public Choice 198, 209–226 (2024). https://doi.org/10.1007/s11127-023-01123-3
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DOI: https://doi.org/10.1007/s11127-023-01123-3