Executive Summary

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Which form of regulation is better for solving problems, protecting consumers and the environment, and encouraging rational economic planning—regulation by government or regulation by industry through free markets and incentives?

This question is central to Dr. Karen Potter-Witter's following report on the harvesting of forest products in Michigan.

The reader should take note from the beginning that the implications of this study and its recommendations go far beyond its special focus. The paradigm of self-regulation that Dr. Potter-Witter proposes for forest practices represents a model widely applicable to other industries and markets across the nation. Legislators in particular may find the author's reasoning useful when they consider regulation in other contexts.

Michigan is a state rich in forestland—with more timber volume than any other state in the Great Lakes region. Two-thirds of it is privately owned. Of the one-third that is publicly-owned, most is held by the State of Michigan. The federal government, with its three national forests in Michigan, owns the bulk of remaining public forestland.

Of the approximately 1,000 timber producers in Michigan—harvesters, truckers, and brokers-half are headquartered in the Upper Peninsula and most of those employ fewer than five people. Two private organizations have historically provided important support and organizational structure to timber producers—the Michigan Association of Timbermen (MAT) and the Timber Producers Association of Michigan and Wisconsin (TPA). They represent timber producers on public policy issues, generate research and information, and encourage wise management of forestland.

In 1992, Michigan producers harvested 348 million cubic feet of timber—twice as much as in 1965. Today, about 14% of this timber is sold by large industrial timberland owners. They know how to harvest trees to get the best yield; they use professional foresters to help them judge the quality and quantity of timber on the market. They usually receive top dollar for their timber, and then reinvest their profits in forestland. Since these large producers have a strong investment in the land and in the industry, they are usually anxious to meet high standards of environmental safety.

Farmers and other small producers are at a disadvantage. They hold other full-time jobs, and they make only small and irregular sales of timber. They sometimes don't know the best way to clear trees efficiently and -in a way that protects the ecology of the forest. Not only do they often get low prices for their timber; their timber cutting sometimes damages the environment as well.

Some people argue that government regulation of the timber industry is needed to protect the environment and to create more uniform pricing. Others disagree and say that the free market can adjust and help all loggers and consumers by using an independent certification process. The debate between government regulation versus private certification is at the heart of the timber controversy and is the focus of Dr. Potter-Witter's work.

Those who want government regulation argue that all loggers should be licensed in the public interest." Only loggers who have licenses would be allowed to cut and sell timber. In this plan, some kind of review board would establish the standards people had to meet to be licensed. These standards might include on-the-job experience as well as passing a rigorous test. The point is that legislators and timber producers would work together to regulate who could and could not cut and sell timber.

As Dr. Potter-Witter points out, there are historic problems with government regulation. In the first place, timber producers could use licensing to restrict entry into their profession. For centuries, trade guilds have claimed that they wanted to limit their membership to protect the consumers from inferior goods. Instead, these guilds have increased the costs to consumers by reducing the numbers of their competitors. Licensing timber sellers could have this same result: If the licensing test is too difficult or costly, few people will be cutting and selling timber.

Even if the timbermen are purely motivated by the public good, they have to work with state legislators who come to the table with agendas of their own. Most legislators will I have no idea how much or what kinds of experience or education is needed to buy and sell timber and protect the environment.

Also, the costs of government regulation are often enormous. In the timber industry, Maryland and Virginia have already found that government licensing programs are expensive to administer and operate. If more government regulation is required, Michigan wood products could cost more.

A final objection to government regulation is that it threatens property rights. People who own property are not allowed to use land in the way they think best—even if their actions harm no one else. Regulators tend to overregulate because they would rather be safe (and restrict property rights) than sorry (and have to hear complaints of environmental damage). Therefore, regulators tend to prohibit industrial development even when it will almost certainly cause no damages. Also, existing federal regulations on the environment protect everything in the forest from rivers and streams to endangered species. New state regulations would probably complicate timber harvesting and certainly raise the price of wood products for everyone.

If government regulation is expensive and arbitrary, what would work better? Many experts think that self-certification is the answer. Such a system is already under way using market forces to improve the timber industry. Michigan and seven other states have begun the Logger Education to Advance Professionalism program (LEAP) to teach timber producers how, where, and when to cut trees. Vermont was the first state to try this program and the results have been fantastic. Almost one-half of Vermont's loggers have completed the course and received certification. These graduates have been active in harvesting timber efficiently and with careful concern to water quality and other environmental concerns. The state forester in Vermont credits LEAP with reducing the number of water-quality violations in the state from the years 1989 to 1992.

LEAP was started in Michigan in March, 1994, to teach the best practices in cutting timber and protecting the environment. This program is supported by a wide range of groups in the state: Michigan State University, the Department of Natural Resources, the Michigan Association of Timbermen, and the Weyerhaeuser Corporation, among others. So tar, 136 loggers have completed the LEAP program and received certificates.

If LEAP could be expanded and perfected, it might become the market mechanism to improve the timber industry without government intervention. Loggers in Michigan who took the LEAP program and passed a test could receive a special certificate. This certification would be a badge of expertise that would appeal to timber producers and let consumers know that state-of-the art logging practices were being promoted in Michigan. Those consumers who needed logging done and knew little about it could get knowledgeable people to help by hiring certified loggers. Of course, loggers could still choose not to enroll in LEAP, but they might be at a disadvantage in competing for business. Certified and non-certified loggers would compete side by side.

The timber industry in Michigan has a long history of prospering under free enterprise. Michigan was the leading producer of lumber in the U.S. in the late 1800s. When the pine trees were harvested, the industry declined. One century later, timber production is flourishing again. We need safe and efficient logging in Michigan's forests; we need to protect the ecology of the forest and the environment of the state. We can do this in Michigan effectively and economically through the free market by allowing the timber industry to certify loggers.

Which form of regulation is better for solving problems, protecting consumers and the environment, and encouraging rational economic planning—regulation by government or regulation by industry through free markets and incentives?

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