February 11, 2011
Crony Capitalism Comes to the Fishing Industry
Michael Milken evokes thoughts of financial wisdom at a level far beyond that of an unsophisticated fishing industry essayist like me. So, when one of the sessions at the Milken Institute Global Conference 2009 is titled "Innovative Funding for Sustainable Fisheries and Oceans," I take notice. The panel for the fisheries session was moderated by Larry Bond, a consultant for the Environmental Defense Fund (EDF) and the speakers were David Crane, David Festa, Jerry Schubel, and Jason Winship. Two members from EDF and none from the fishing industry, oh, well.
The audio of the session is fascinating, particularly that of Mr. Festa, an engaging presenter. Mr. Festa, a vice-president of EDF, is also chairman of the Conservation Committee of the Sea Change Investment Fund (managed by Jason Winship, another of the panelists), and served on Obama's Department of Commerce Transition Team. He envisions a "complete redefinition of our relationship to the natural resource [the fisheries]." By this, he means that the fisheries will all be converted to catch shares, a highly controversial approach sponsored by EDF. This will present a "business opportunity" and require capital.
The macro-economic status of the fisheries is essentially a threatened hostile takeover of the industry by the investment interests of the EDF and other environmentalist organizations. In a recent article, Nils Stolpe asks, "Is this the future of fishing?" His answer is alarming.
What is the micro-economic status? Consider the simplified but typical example of Boat A and Boat B. Each boat has an owner/captain and three crew members. Each owner is gifted by NOAA with an identical individual transferable quota (ITQ) or catch share. Neither boat can fish profitably with the catch allocation that the gifted share carries. A deal is struck. Boat A leases Boat B's share. Boat A goes fishing and Boat B's crew goes on unemployment.
Boat A has a good trip and the catch brings a good price. Revenues look good to the EDF bean-counters. But, because expenses have been significantly increased by the need to lease allocation, the monies to be divided by the crew are less than they used to be. Take-home pay suffers.
Dr. Jane Lubchenco is Obama's anointed head of NOAA, the agency responsible for the management and administration of the fisheries. She has a talent for avoiding quotable sound bites. Still, it has been widely reported that she favors a significant reduction of the fishing fleet and she has been quoted as saying that a catch share is, "A negotiable stock that fishermen can sell as they go out of business, allowing them to exit with some cash."
In the Boat A/Boat B example, the fleet of two has been reduced by 50%, owner B has left with the money from leasing his share, four jobs have been lost, and the other four jobs are paying less. While Dr. Lubchenco gets a gold star in prognostication, this is not the change for which we had been hoping.
The above is an example, a hypothetical. For a scholarly and well-annotated discussion of the economic negatives of catch shares, see "The Elephant in the Room: The Hidden Costs of Leasing Individual Transferable Fishing Quotas" by Pinkerton and Edwards. Other references that depart from the propaganda of the EDF and point out the dangers of catch shares can be found here, here, and here.
But these are just references, words, pieces of paper. To truly understand, you need to walk the docks of New Bedford or of Gloucester or of Portland. Remember Neutron Jack Welch of GE, who would buy a business and soon the buildings would be left but the people would be gone. Well, Neutron Jane Lubchenco has a similar effect. Walk the docks on the first of May, the one-year anniversary of catch shares in New England. You will see the boats, they will be there, they will be empty, and the people will be gone.
In an earlier essay I said that catch shares; given decent management, restrictions on who can buy shares, and most importantly reasonable allocations, is a viable management technique. I received feedback from American Thinker readers that has convinced me that I was wrong. The economics of catch shares will drive the consolidation of the fleet (the Neutron Jane effect). Restrictions on who can buy shares, while a liberal/progressive feel-good idea, relies on legislating against human nature. Imagine the law suit should a financially disadvantaged fisherman be disallowed from selling his shares because of such a law. I understand that the New England Fisheries Management Council adopted limitations on the number of shares that can be held by any one entity. Good try. It will slow things down, but it will ultimately fail.
So, what will happen? Let us return to Mr. Festa who is not very complimentary toward current day fishermen, comparing them to the bar scenes in the movie "The Perfect Storm." He says that the fishermen in the "incumbent industry" have a "series of part-time" jobs and that they must survive a "valley of death" while the industry is "rationalized" under catch shares. He views the transition as a favor to fishermen.
The public-private partnership implied by Mr. Festa in his Milken presentation is ugly and open to ethical criticism, crony capitalism at its very worst. Mr. Festa suggests that an unvested interest, the unbridled environmental lobby, join with NOAA, the co-opted regulatory agency of the government, to destroy the generations-old fishing industry so that a new industry with a different paradigm can be implemented. He implies 400% returns.
Neutron Jane, herself a former vice-chairperson of EDF, is doing her part. Her dictatorial imposition of parsimonious catch allocations is holding down the value of the shares being gifted to the fishermen. Is this a deliberate strategy to drive the fishermen out of business? Or maybe to reduce the entry fee for the bottom-feeders that want to transform the industry? The allocations could easily be 30% higher and still comply with the Magnuson-Stevens Act (MSA).
Dr. Lubchenco's second-in-command, Monica Medina, has been tapped as the NOAA catch shares czar. Ms. Medina was a Senior Officer to the Pew Environment Group, and like David Festa, was a member of Obama's Commerce Transition Team. Her husband is Ron Klain, until recently Vice President Biden's chief of staff, the position he also held under Al Gore. The tentacles of the environmental movement go very deep into NOAA under Obama.
This is all counter to the intent and to the letter of MSA, which requires that the "sustained participation of such [fishing] communities" be provided for and that "adverse economic impacts on such communities" be minimized.
Dr. Lubchenco should be fired, and quickly, before Neutron Jane eliminates all of the people.
While the damage is done in New England, NOAA is poised to expand catch shares to the entire country on both commercial and recreational fishing. Congress should place a moratorium on all new catch shares initiatives. This requires a national will that does not yet exist. Perhaps this essay will help.
In addition, recognize that the fishing industry is but a small example of the Obama Administration's environmental offensive using regulatory forces. Think off-shore drilling, clean coal, and natural gas; all domestic energy areas being diminished by Obama.
Mike Johnson is a concerned citizen, a small government conservative, and a live-free-or-die resident of New Hampshire. E-mail firstname.lastname@example.org.