The “Mongolian factor” in this year’s Nobel prize for economics

We can only hope that Mongolia does not have to wait for too long to celebrate one of its own winning a Nobel  Prize, but one of this year’s awardees, Elinor Ostrom, has already given the country a tinge of vicarious immortality as the Mongolian steppes feature prominently in her work on the management of collective resources. She shared the prize with Oliver Williamson as both were seen to have worked on “economic governance”, a catch-all phrase covering the study of sets of rules or practices under which individual agents interact with one another.

Within that inclusive cover, however, the two laureates have explored vastly different aspects of an extremely large field. Williamson’s seminal work in the 1970s was instrumental in developing the modern theory of the firm.  His theory was that large private corporations exist primarily because they are efficient and because they make owners, workers, suppliers, and customers better off than they would be under alternative institutional arrangements. This seeks to explain the rise of the modern exchange economy and is also a central argument for free trade among nations, rich, emerging and underdeveloped alike. Given the scarcity of capital, resources and labor in the world taken as a whole, simultaneous specialization and cooperation will always generate more returns for people or nations through trade than they would have gained by working in isolation.

On her part Ostrom defied conventional wisdom and proved that communities can do better than state control and corporations, and this is where Mongolia comes in. Her studies showed that user-managed properties — such as community fish stocks or woodland areas or pasturelands — more often than not have been better run without external interference or intervention than standard theories calling for stricter central regulation or privatisation predicted.
I can do worse than quote what the prize committee’s informational hand-out says as it sums up Ostrom’s work on mechanisms that sustain cooperation in human societies.

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