Privatising Parks: Why the Private Sector Can Enhance Nature Protection
By Jeff Bennett
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A competitive private sector and ecological integrity are not the polar opposites they are often made out to be.

In the pursuit of sustainable economic growth, advanced economies like Australia have experienced an extended period of economic reform in recent decades. A notable feature of the reform process has been the progressive reduction in the role of government as provider (owner) and producer (manager) of goods and services.

Yet the winds of change appear to have largely bypassed the National Parks estate. Like tertiary education, which is still almost entirely under the governmentÕs wing, and the social security system, which remains largely unreformed, government provision of nature protection through a nationwide network of National Parks remains a sacred cow.

There have been some attempts at reform by various State governments, such as the contracting out of rubbish collection and basic maintenance tasks, in an attempt to lower costs. But the National Park estate remains fundamentally publicly owned and managed. Moreover, political parties of all persuasions frequently use the promise of additions to the National Parks estate to generate support at election time. That support flows largely from urban-based conservation groups who are capable of holding sway in marginal electorates.

Additions to the estate come at a cost. In general, this cost is incurred by the silent taxpayer who funds the acquisition and possibly small groups of local people affected by the loss of income generated by resources to which acquisitions deny access. In the heat of an election campaign, however, little regard is paid to the consequences for economic efficiency of National Park acquisition. And once acquisitions are dedicated, there appears to be little consideration given to the efficiency of their subsequent management.

So what?

Why need we be concerned with the efficiency of National Park acquisition and management? Some argue that the land under National Park status is frequently of little value for other uses. Why else would it have remained in a sufficiently natural state for it to warrant the status? Others argue that National Parks are effectively ÔoutsideÕ the real economy, as they do not contribute to Gross Domestic Product (GDP). Improving the efficiency with which they are managed will therefore not show up as an improvement in economic performance.

These arguments are readily dismissed.

Weighing up the costs

National Parks impose significant costs on the economy. These costs are of two types: opportunity costs and management costs. The opportunity costs relate to the income the economy could enjoy from the exploitation of resources otherwise quarantined by their status as National Park assets. Growing demand for resources and improved technology (effectively lowering the costs of resource extraction) almost ensures that current and/or future developmental values will be positive. Declaring National Parks therefore has a negative impact on GDP because of this foregone income.

Moreover, the costs incurred in the management of what is an extensive estate are obviously significant. In Victoria, for instance, 16% (3.75m hectares) of the total land area is National Park, Wilderness Park or Metropolitan Park and thus under the management of Parks Victoria.1  In Western Australia, approximately 20m hectares or 7.6% of the state is managed by the Department of Conservation and Land Management.2  This includes 63 National Parks that make up approximately 5m hectares and almost 11m hectares of Nature Reserves.

The magnitude of both management and opportunity costs implies that the nation has a substantial investment in the National Parks estate. The Australian community should demand an appropriate rate of return on that investment.

Measuring the benefits

National Parks make a marked contribution to the economic well being of the nation. Some of that is captured within the bounds of the National Accounts. For instance, National Parks are popular sites for domestic and international tourism and recreation. A proportion of the income generated by the tourism industry could therefore be attributed to the Parks estate.3  Still and motion pictures are also shot in National Parks. Furthermore, the estate contributes indirectly to the productive capacity of many other sectors of the economy. For instance, high quality water sourced from catchments in National Parks is used for domestic, industrial and agricultural purposes. Genetic material preserved in the estate may be used as a base for pharmaceutical developments.

Outside the framework of the National Accounts, the estate also contributes to the well being of society. ÔNon-marketÕ benefits include aesthetic appreciation of the natural environment and the enjoyment gained from the knowledge that native species of floras and faunas are protected from extinction. The magnitude of these benefits should not be underestimated. A wide range of non-market valuation studies4  indicate that the so-called Ônon-useÕ values of protected natural areas are around three times the magnitude of the values generated from recreation and tourism.

The non-market nature of many of these benefits presents an obstacle to conventional performance efficiency analysis. Without estimates of the benefits generated, it is unclear whether they exceed the costs of provision, or indeed if a sufficient rate of return relative to alternative investment opportunities is being generated.

Economists have sought to develop techniques to estimate non-market environmental benefits in order to assess the efficiency of the use of scarce resources such as National Parks. Because of a range of technical complexities and philosophical qualms, the application of these techniques remains limited. The lack of empirical evidence, however, does not preclude an analysis of alternative ownership and management mechanisms in terms of their adherence to basic principles of allocative efficiency. It is from such an analysis that we can determine if reform will bring about improvements in social well being and thus the policy direction in which we should be moving.

Public, private or both?

National Parks remain publicly owned and managed because this has been considered the most appropriate arrangement on both efficiency and equity grounds.5  But the Ômarket failureÕ arguments upon which these arrangements are premised are far from watertight.

Profitability

The main obstacle to the private ownership of National Parks is lack of a profit motive, as it can be impossible to prevent people from enjoying benefits for which they do not pay (known as non-excludability).

For instance, National Parks may offer recreational benefits as well as a habitat for the protection of endangered species. Different management practices will give rise to different ratios of benefits just as the management of a flock of sheep will determine the ratio of wool to meat that is produced. Encouraging visitors may result in lower species protection benefits while management that limited visitation would trade off recreation benefits for species protection.

A critical point here is that some of the benefits may be excludable while others are not. That is, it may be possible to exclude non-paying visitors from using the Park for recreation, but impossible to prevent people from enjoying the knowledge of species protection. This means that the profit from the private provision of (excludable) recreational benefits can also yield the public (non-excludable) good of species protection.

Equity concerns

Some argue that all Australians should have free access to the National Parks estate, as access to the nationÕs heritage is an Australian ÔbirthrightÕ. In the same vein, others contend that National Parks provide Ômerit goodsÕ, the classic example of a merit good being vaccination against contagious diseasesÑthat is, the individual benefits from immunisation, but their action also benefits others in that they are one less source of contagion. Many argue that merit goods should be made available to all through the public sector.

The most pressing equity concern appears to be the payment of entry fees. Paying fees to enter National Parks is nothing new to Australians. Yet although the Ôuser paysÕ principle is widely applied and accepted, further broadening its scope is problematic for some.

These concerns can be readily addressed. For instance, a number of ÔfreeÕ Park entry ÔvouchersÕ could be distributed to citizens. A scheme along these lines was used to quell resentment to the introduction of visitor fees for CanberraÕs Floriade exhibition of spring blooms. Such schemes may be selective (say to all school-aged children) or broad (perhaps along with motor vehicle registration receipts). Cost savings to the government from the privatisation of Parks would be more than adequate to cover the funding of such a ÔvoucherÕ scheme.

Natural monopolies

Equity concerns are heightened where a monopoly price could be charged. National Parks that contain ÔuniqueÕ environmental or cultural features (for example Uluru or The Grampians) can arguably be regarded as monopolies, though in reality the monopoly status of National Parks needs to be questioned. For a wide range of Parks, the recreational experience offered to visitors is readily substituted.

For instance, bushwalking in a forested National Park could be substituted by bushwalking in a native forest used for timber getting. Viewing endangered species in a sanctuary or even a zoo may be a real alternative for many. It is even apparent that visits to ÔiconÕ National Parks like Kakadu and Uluru are considered as substitutable both between each other (ÔItÕs too expensive to go to Uluru, letÕs just visit KakaduÕ) and with other attractions (ÔWhy donÕt we go skiing in New Zealand this year instead of visiting UluruÕ).

Other Ônon-useÕ benefits of the estate may also have potential substitutes. Endangered species can be protected in sanctuaries and zoos. On numerous occasions the only way endangered species have been saved from extinction has been through captive breeding programmes. With the development of biotechnologies, it is even conceivable that the genetic material contained in a National Park could be stored in a Ôgene bankÕ.

Some problems in practice

The choice between public or private ownership of National Parks is not black and white. The choice is between the efficiency advantages afforded by competitive private ownership and the possible inefficiencies created when non-excludable benefits are predominant. A number of factors influence this balance.

One of the most important factors is the ability of a private owner to exclude users coupled with the significance of the non-use benefits. For instance, private ownership of a Park may be desirable where exclusion of non-paying visitors is relatively inexpensive and where the jointly produced non-use benefits are either key to the attractiveness of the area or unimportant. Hence, protected natural areas owned by Earth Sanctuaries Pty Ltd (see breakout box on next page) provide shareholder returns through visitor generated revenues yet simultaneously allow the general non-visiting public the enjoyment of knowing that a number of endangered species are being saved from possible extinction.

Prospects for exclusion

Exclusion is clearly important to the prospects of private ownership. Some indication of directions that could be taken has already been given by public sector park managers. The standard approach of installing Ôtoll-boothsÕ at the entrance roads to popular National Parks in NSW such as Kosciuszko, Ku-ring-gai Chase and Royal is a feasible option, but only when visitation rates are sufficiently high to warrant the expense of a permanent collection point. In more remote and infrequently visited areas such as the Simpson Desert in South Australia, intending visitors buy permits by mail. The windscreen sticker that indicates payment for entry is then checked at random by park rangers. With the profitability of their enterprise at stake, it is likely that private providers of Parks would devise even more effective means of exclusion at lower cost.

This implies that a Park far from population centres (and hence infrequently visited) but that is the remaining habitat of an endangered (non-charismatic) species may not be a good candidate for privatisation. A private owner would almost inevitably reallocate the resource to extractive uses. However, with the covenanting of the land titles, a private owner may find that the (small) revenue flows from visitors plus voluntary payments of non-use value recipients are sufficient to generate an adequate return on the capital invested.6 

Similarly, an urban Park may provide a site for recreation and aesthetic benefits for adjacent residents and passers-by. A private owner of such a Park could generate revenue from Park visitors but the non-use aesthetic values may be largely non-excludable. Without a flow of revenue from all the benefits, the private owner may well decide to sell the park as housing sites to his or her personal
advantage but to the net disadvantage of the community.

Such a potential misallocation of resources does not, however, necessitate government ownership. Instead, the title to the Park land could be subjected to a covenant precluding its use for activities other than nature protection and nature-based recreation. Alternatively, zoning regulations at the local government level may be used to maintain the conservation status of the area.

Not everyone free rides

Another question to bear in mind is whether people will automatically Ôfree-rideÕ on the non-use benefits of the Park. There is some evidence to suggest that revenues will flow even when exclusion is not possible or feasible. For example, property owners in the immediate vicinity of a Park who enjoy its aesthetic beauty may exert sufficient Ôpeer group pressureÕ to ensure that all would contribute to the revenue flows of a private owner.

Even where the number of beneficiaries is larger and their geographic spread more dispersed, free riding is not all pervasive. The success of Australian Bush Heritage (see breakout box below), a private provider of protected natural areas, has been largely due to donations from people who enjoy knowing that pieces of ecologically significant bushland are being protected. It may also be the case that investors in Earth Sanctuaries Pty Ltd subscribe to that companyÕs share floats not solely to generate a financial return on their investment. They may invest as a form of ÔdonationÕ to the protection of Australian ecosystems.

If not private ownership, then management

There remain at least two obstacles to private ownership. First, the political will to achieve a privately owned network of National Parks may not be sufficiently strong to withstand the power of interest groups that would be disadvantaged by such a reform. Second, the revenue generated for a private owner may not be enough to cover costs, as already discussed, and so at auction the Park would be handed in without a bid being registered.

Yet Parks can still be publicly owned but privately managed. Tenders to manage Parks could be let by government. To ensure that the estate was managed in a way that was to the communityÕs best advantage, the contract could specify a set of Ôsafe minimum standardsÕ and specify a default deposit as an insurance against any failure to comply with contract conditions. The management fees charged by the private sector would depend on many factors. Subject to the contract Ôsafe minimum standardsÕ, Park managers could be left at liberty to charge entry fees, operate concessions within the Park and otherwise generate cash flows that would lower the amount they would require as a fee for managing the asset.

A move in this direction has been taken in Victoria where the Department of Natural Resources and the Environment (DNRE) contracts the management of that stateÕs Parks to Parks Victoria. Originally, the management of VictoriaÕs National Parks was undertaken from within DNRE. In order to separateÊ the DepartmentÕs monitoring and policy role from its operational function, Parks Victoria was hived off from the Department and a Ôpurchaser-providerÕ relationship was established.

The problem with this arrangement is that so far Parks Victoria remains the sole supplier of Park management services. It is effectively a monopoly supplier to DNRE. The simple remedy to this situation is to permit other entities to bid for the right to manage individual Parks for a pre-specified period of time. The competitive pressures generated by such a bidding process would doubtless yield benefits to users, non-users and the general taxpayer.

New directions for policy

A single rule of thumb for privatising National Parks clearly will not suffice as the wide diversity of circumstances evident in the Parks estate will need to be matched with a diversity of institutional arrangements. Nonetheless, a number of starting points in the reform process are apparent.

First, governments should announce that they will declare no further additions to the estate. This will remove the Ôcrowding-outÕ effect that public ownership of Parks is having on private sector attempts to raise funds for the establishment of protected natural areas. Free riders in the community who value additions but find it cheaper to lobby governments to supplement the estate would be forced to reassess their position. Flows of funds to organisations like Australian Bush Heritage and Earth Sanctuaries would expand and a host of smaller, most likely locally based fundraising bodies would emerge.

Second, each StateÕs portfolio of Parks should be analysed with a view to disposing of those assets which, with appropriate covenants attached to the titles, could be sold to private interests. This analysis would need to take into account the relative importance of use and non-use, excludable and non-excludable, benefits provided. A progressive approach to sales, beginning with obvious candidates like tennis courts, golf courses and restaurant sites would provide experience and confidence to those responsible for the process. Ensuring strong competitive pressures amongst potential bidders would be a key factor in this process.

Third, a separation of the regulatory role of State environment departments (or National Parks and Wildlife Services) from their operational roles is critical. Where government departments or agencies are effectively regulating their private sector competitors, the prospects for non-neutral competition are very real. However, this step must be supplemented by allowing private Park management businesses to compete against the operational arm of government, again under principles of competitive neutrality.

Each of these steps would advantage both the park users and those enjoying non-use benefits as well as the general taxpaying public. The rate of return on the communityÕs investment in nature protection would also be enhanced.

Conclusion

The current policy of publicly owned and managed National Parks in Australia is based on the flawed premise that Parks are Ôpublic goodsÕ and that engagement with the private sector is therefore inappropriate. Yet a number of plausible ownership and management options exist that could reap the advantages of competitive private supply while ensuring the ecological integrity of the National Parks estate. The present dominance of the public sector in the provision of protected areas should not be allowed to continue.

Endnotes

 1Ê Parks Victoria, Annual Report, (Melbourne: Government Printer, 1998).

 2Ê Conservation and Land Management (CALM), Annual Report, (Perth: Government Printer, 1998).

 3Ê The work of Bennett, Gillespie and Powell illustrates the significance of income flows generated directly and indirectly by two NSW National Parks. See J. Bennett, R. Gillespie, R. Powell, and L. Chalmers, ÔThe Economic Value and Regional Impact of National ParksÕ, Australian Journal of Environmental Management 3: 4 (1996), 229ø239.

 4ÊÊJeff Bennett, ÔA Threshold Value Analysis of Proposed Forestry ReservesÕ, Australian Forestry 61: 4 (1999), 1ø8.

 5ÊÊC. Tisdell, ÔNational Parks: Economic IssuesÕ in Leisure and Recreation in Australia, D. Mercer (ed), (Melbourne: Sorrett Publishing Co., 1997).

6 The capital investment, that is the price of the land, would not be a reflection of the value of the land for extractive purposes if a covenant excluded such uses.

Author

Jeff Bennett is Professor of Environmental Management at the National Centre for Development Studies, The Australian National University.

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