ITQs:  Quota concentration

 

Big is not necessarily bad.  But for a variety of reasons, fishermen, a fishing community, and fishery managers may be thinking "small," preferring an industry that is more spread out among a larger number of people and businesses than pure "economic efficiency" might dictate. 

The reasons often involve much more than just the distribution of wealth.  They include community stability, individual opportunity, tradition, capturing the financial (if not strictly "economic") benefits of a fishery's ripple effect through local machine shops and boatyards ... the list goes on.  The potential loss of those benefits that may result from quota consolidation and transfer is the basis for most of the fear of, and resistance to, individual transferable quotas (ITQs). 

It is probably true that the economic benefits of a fishery will tend to stay more localized if the proprietary interests -- the quota holders -- are local.  Of course, in those ports and communities where a "plantation fleet" exists, those localized benefits may all accrue to one man or one family.  But that is a separate problem and has little to do with ITQs.  There are plenty of ports where the economic and social structure is not what we want for New England -- and it has nothing to do with ITQs.  

"Concentration" is the word that describes the flashpoint:  the domination of the port, the fleet, and the industry by an unacceptably small number of people who use their power to the economic and social disadvantage of other community members.  

We started this series in the June 2001 CFN, explaining that our purpose was to open much-needed dialogue on ITQs.  We have discussed the difficult issues of how to allocate initial quota shares and discards and high-grading. 

Now, in this final column in the series, we talk about quota concentration, ownership definitions, and leasing.  Some of the questions to be explored include:  can ITQs make things better without making them worse?  Can ITQs be implemented with enough safeguards to enhance both the human and economic value of a fishery?  Can a system of individual transferable quotas be devised that would not only be resistant to excessive concentration but actually discourage it?   

 

Concentration

First of all, concentration is not an absolute number.  While the scallop plan calls for a limit of 5% on what an individual may own, that would be an absurd number in the red crab fishery, with its handful of boats.  But 5% of the lobster business would be a huge percentage -- big enough to manipulate the entire market structure.  What matters here is the relative percentage of ownership among the participants. 

There are parallels in other industries.  If one company's laundry detergent has 15% of the market, and no one else has more than 2%, that one big player is very dangerous -- and carefully watched by the regulatory authorities. 

Similarly, the appropriate limit on concentration will depend on the characteristics of each fishery.  And even the restrictions on "ownership" must be reinforced with the ability to "pierce the corporate screen," and prevent the effective control of the fishery by a few entities.  Shadowy financial arrangements, control of production, marketing, distribution, and pricing are all threats to our goal to preserve the traditional values and opportunities of the fisheries.

 

Antitrust laws 

The effect of concentration can be broken down into two categories.  The first is market power, and involves issues like collusion and price-fixing, or a dominance that leads to market manipulation and predatory practices.  Those problems tend to have an undesirable impact on the consumer as well as on competitors. 

The second concern comes closer to home -- the ability to affect quality of life in a fishing community.  That means jobs, wages, opportunities, and even population -- and all that goes with that.  

The first category, excessive market power, is mostly the responsibility of the Justice Department and existing antitrust laws.  While fishery managers may take that into consideration, there is little they can do about enforcing antitrust laws. 

Despite the secrecy that still surrounds the surf clam furor, it is generally believed that the Justice Department was asked about concentration in that fishery, and the response was that the surf clam business was not an industry, but just a part of the larger seafood industry.  Therefore, one person could own all the surf clam rights and still not be in violation of antitrust laws. 

So fishery managers who rely on existing antitrust regulations are in for a disappointment.  And more to the point, the Justice Department does not concern itself with jobs, wages, or community lifestyles. 

 

Restore competition

That second aspect of "concentration" is entirely in the hands of the fishery management process.  

Some believe that one responsibility of the fishery management process is to preserve certain qualities of lifestyle, local benefits, and other aspects of "social justice" because of the public trust nature of renewable marine resources.  To agree with this position, one must agree that it is the government's job to keep any one person from getting "too rich" off the fisheries, whatever that means. 

But where is that line?  Right now, the system of days-at-sea and daily limits combine to put fishermen in a lock-step of economic togetherness that makes relative success the result of nothing more than cost-cutting, rather than being better at catching fish.  ITQs could certainly offer the opportunity for one fisherman's skill to gain him greater reward than his competitors, restoring that essential characteristic of the fisheries that has been lost in the current regulatory environment. 

ITQs may accomplish this restoration of competitive reward to fishing skill, but there may also be good reason to fear that deep pockets alone could become more important than fishing skill.  Are there provisions that could be incorporated into an ITQ system that would accomplish the former while avoiding the latter? 

It is reasonable to say that it is the government's job to find the balance between providing economic opportunity for ITQ holders to grow a fishing business, while guarding against an "unfair" distribution of the benefits from the public resource.  Part of being fair is providing economic opportunity for those who have no quota.  

 

Reward skill

Before there were any kinds of quotas, a good fisherman did not take anything away from another fisherman, except in the very broadest and most diffuse sense.  With quotas, allocations, and closures, however, people feel that gear type, vessel size, geographic advantage, and political maneuvering represent a real and direct threat to their share of the fishery.  In short, whatever the other guy gets from the regulatory system reduces my catch. 

These same problems would arise in the (painful) initial allocation of ITQs.  But once that was done, most of those particular battles would go away, as real competition and reward were re-introduced to the fishing industry, something that most people and all good fishermen support. 

Real competition has its dangers too, though.  A competition based on market power, predatory practices, or overwhelming financial advantage might arise from a badly structured ITQ plan. 

Can an ITQ program be designed that will reward skill and energy, rather than financial muscle?  What safeguards are necessary to make sure that ITQs do exactly that:  reward good fishermen and protect them from agribusiness? 

(Continued on "Ownership" <page.

 

Jim O’Malley (may he rest in peace) was the executive director of the East Coast Fisheries Federation and a former member of the New England Fishery Management Council. Dick Allen was a commercial fisherman and is now a fishery consultant from Westerly, RI.<