Forest Socialism

National forests are socialized forests, and corporate America wants to keep it that way.

When the Reagan administration, in 1981, first proposed the idea of selling at least a portion of the federal government's 107 million acres of timberland to private concerns, the plan met with a roar of opposition. Not only did environmentalists, consumerists, and recreationalists cry out against the proposal—many within the timber industry itself criticized the plan. "I think the industry's going to be satisfied with letting the government run [the federal timberlands]," John Wishart, vice-president for timberlands of Georgia-Pacific Corp., told me earlier this year at a Seattle conference on privatizing national forests, "because they're getting stumpage"—standing timber—"cheaper than otherwise." (Wishart, however, confided that he personally favors privatization.)

In addition to harvesting trees from their own lands, timber companies cut timber in federal forests and pay the government for it (so much per thousand board-feet). In this way, the companies avoid the maintenance costs of the land and various other costs (including property taxes). Moreover, the industry can use its considerable lobbying power to influence federal timberland management policy.

Privatizing federal timberland—which totals about one-fifth of all US timberland—makes perfect sense to economists, who see no crucial difference between land that grows a commercial crop of trees and land that grows a commercial crop of wheat or apples. In either case, the land is apt to be managed more intensively and productively by private owners. The profit incentive will induce private landowners both to lower their costs and to produce more wheat, more apples, or more board-feet of lumber than the managers of federal lands.

That's the economics of it. But politically, the suggestion to sell off federal forests is about as popular as a personal attack on Smokey the Bear. So the Reagan administration, bolder at floating ideas than backing them up, let the sell-off idea recede to the back burner.

Selling forest land was part of the administration's wider plan to sell off $10–$20 billion in federal property—everything from Western sagebrush plains to surplus military bases. In its budget message for 1982, the administration proclaimed: "We will move systematically to reduce the vast [federal] holdings of surplus land and real property [since] some of this property is not in use and would be of greater value to society if transferred to the private sector. In the next three years, we could save $9 billion by shedding these unnecessary properties."

Opponents fiercely denounced the plan. The Sierra Club, for example, attacked the proposal as a "Master Plan for Government Giveaways"—part of the title of a Nov.–Dec. 1982 article in the club magazine, Sierra. Wrote John Hooper, the club's public-lands specialist: "The wealth of our nation—our very strength and heritage—is being turned over to private interests." And columnist Jack Anderson warned that proposed federal-land sales were a "scheme that could lead to one of the biggest land grabs by greedy private interests in the Nation's history."

The land-sale opponents often blurred the distinction between national park land, which was never considered for sale, and the millions of acres of land used to grow timber as a commercial crop. Turning park land into cropland was not the issue of the sell-off proposal; rather, it was the ownership of land already being used to grow commercial crops.

Moreover, the opponents of land sales used terms like land grab and giveaway to describe a proposed auction sale. At a conference at the University of Washington in Seattle held earlier this year to debate the idea of selling the national commercial forests, liberal economist Robert Lekachman said that "any administration so besotted with private enterprise as this one is very likely to dispose of public assets at bottom-basement prices."

But the land was to be auctioned. And auctions of public timber rights in the Pacific Northwest, where loggers three years ago bid a record $400 per thousand board-feet for public timber—double today's price—show that the private sector is sometimes willing to pay high prices for federal trees.

In any case, the federal timberlands are a dubious financial asset to the US government and, hence, to the taxpayer. According to economist Steve Hanke of the Heritage Foundation, these lands produce a net cash-flow deficit of more than $1 billion a year. Hanke, who pushed a radical privatization plan while a senior staff economist on the President's Council of Economic Advisers, argued in the Los Angeles Times earlier this year: "From an economic standpoint, the federal commercial lands in this portfolio are not assets; they are liabilities." Taxpayers would even be better off, Hanke claimed, if the land were given away.

Of course it would be sold. At a dirt-cheap price of $50 an acre and $74 per thousand board feet of timber, the total of national forest timberlands would bring $104 billion, Hanke calculates. And if it were auctioned off carefully, it could bring much more than that.

Two factions backed the timber-sale idea: the economists and the budget balancers. For matters of economic efficiency, the economists saw the privatization of state land as desirable in itself. The budget balancers saw it as a way to raise a few billion without imposing new taxes. Environmental and outdoor groups, who would lose much of their influence over land use if the forests were sold, immediately tore into these privatizers—Hanke, in particular—as wolves in accountant's clothing.

To make the most forceful case for selling the national forests, Reagan himself probably would have had to come out boldly and say that the federal government ought not to be in the timber-farming business. This he would not do—there simply was no constituency for this view. According to timber-industry observer Luke Popovich, in an article in American Forests magazine in September last year, the prospect of timber privatization "is unsettling to the cozy fraternity of public officials and industry and environmental lobbyists who comprise official Washington."

When a key privatization resolution by Sen. Charles Percy (R–Ill.) failed to pass the Republican-controlled Senate in late 1981, the administration began to shrink the privatization program. "The administration has backed off significantly," said Thomas P. Williams, staff specialist for the Senate Energy and Natural Resources Committee, at the privatization conference in Seattle. "Backing away is always bad political strategy," Williams noted. "You don't want to retreat. But frankly, the public doesn't support privatization, and the administration did not have the votes."

Hanke, the chief privatization proponent at the White House, was forced to resign from the President's Council of Economic Advisers in mid-1982. The reason, wrote Popovich, was "largely because his outspoken advocacy had alienated the administration's traditional allies." The sweeping privatization that Hanke envisioned—and which, he says, had the personal backing of Ronald Reagan—has now become, in the administration's hands, a timid effort at "asset management."

The timberlands part of the scaled-down "asset management program" was announced in early 1983. The administration said it would study the sale of isolated parcels of national forest land—about 3 percent of the total. "It's such a small, piddling amount," Hanke told the Seattle Post-Intelligencer, "you need a magnifying glass to find it." The administration wants "some marginal adjustment in timber holdings," said Doug MacCleery, deputy assistant secretary of agriculture, at the Seattle conference. "It is not a privatization program."

Like deregulation of airlines and trucking, privatization of forest land is an idea that comes from economists, not from the industry. Ironically, in view of its opponents' charges, the land-sale plan was no attempt at a "land grab" by business. Many in the forest-products industry like the ownership situation just as it is. "Industry lobbyists were uninterested in privatizing what they enjoyed at cost," wrote Popovich in American Forests last year. "Industry thinks no more of buying the public domain lands than tuna fishermen think of buying the Pacific Ocean."

Others in the industry would prefer to get the government out of the tree-growing business but don't want to bet on a sure loser. When it comes to political philosophy, industry is not very entrepreneurial. Indeed, according to John Wishart, who oversees Georgia-Pacific's 4.63 million acres of timberland, the forest industry is "a long way" from supporting privatization. Wishart was one of the few industry people who attended the University of Washington privatization conference.

The chief academic spokesman for privatization of timberlands has been Prof. Barney Dowdle of the University of Washington. For 20 years, his self-appointed mission at the university's College of Forestry has been to apply market economics to forestry, historically a profession with much closer ties to the US Forest Service than to industry.

For years, Dowdle was something of a pariah. His ideas were unfashionable politically and, more important, unfashionable with the forestry school's dean. If he had any allies at the university, they were more likely to be in the Economics Department, which has long been a stronghold of free-market-oriented economic theory.

"Barney represents a point of view not typical of foresters," Charles R. Nelson, chairman of Washington's Economics Department, once told the Seattle Post-Intelligencer. "After years and years of being a maverick, he's starting to have an impact—and my opinion as an economist is that he's right on."

In any case, Dowdle's allies were not in industry. "I have 20 years of accumulated scar tissue from private industry," he said at the Seattle conference. "Industry is generally not interested in free enterprise. They're interested in subsidized wood."

But Dowdle's criticisms of the industry are tempered by a recognition of industry people's perception that to survive they must deal with political reality. "Given a choice of supporting nonsense that may get them more timber now or working for legislative or administrative reform that may take years," Dowdle has written, "their actions are not surprising." The "nonsense" Dowdle refers to has its origins in federal actions of nearly a century ago.

"Government timber production in the US is an atypical case of state ownership and centralized planning that arose largely as a result of historical accident," argues Dowdle. "Simply speaking, the country made a mistake." Originally, US government policy was to transfer public lands to private owners. But during the period 1891–1907, after most of the eastern forests had been privatized, the policy was reversed.

This explains the current pattern of forest ownership in the United States. In Maine, for example, 48 percent of the commercial forest is now owned by forest companies, and virtually all the rest by smaller private owners. The Forest Service has less than 1 percent. In Oregon, by contrast, the Forest Service has 48 percent of the commercial forest, and other public agencies (including the federal Bureau of Land Management) own 14 percent. Forest companies own 23 percent of the commercial forest, and small private owners hold 15 percent.

The difference has nothing to do with the type of trees native to Oregon or Maine or with the inherent merits of private ownership in one place versus the other. It has everything to do with how much forest in those states had been privatized when federal land policy changed in the 1890s. In states settled later than Oregon, such as Idaho and Montana, the percentage of forest land federally owned is even higher than in Oregon, and in Alaska it is highest of all.

The national forests were the product of the same populist era that created railroad regulation, the Food and Drug Administration, and the first antitrust laws. In 1891, Congress passed the General Revision Act, which allowed the president to withhold public-domain timber. Each president withheld timber until the law expired in 1907, when 150 million acres of withheld land became the national forest system. The US Forest Service, an agency of the Department of Agriculture, was set up to run it.

Behind the push for public forests was the young forestry profession. The discipline of forestry originated in Germany, where the forests had been managed as a steady-state economy since medieval times. There, village folk relied on publicly owned forests for game, timber, and fuel, and it was the forester's job to see that the resource wasn't overused. Game was protected by bag limits, and timber was protected by an annual allowable cut, an idea Dowdle sardonically calls "bag limits on trees."

In 19th-century America, there were no bag limits on trees or on much of anything else. Foresters schooled in the German tradition, such as President Hayes's Interior Secretary, Carl Schurz, argued that only public ownership and management would save the forests from ruin. Bernhard Fernow, who was the first chief of the Department of Agriculture's Division of Forestry, argued that the market was unsuited to growing timber as a crop, because anybody who planted such a crop was unlikely to live to see it harvested.

To this rationalization of government intervention, economists answer that trees do not have to be harvested to be sold. There is no problem, says Dowdle, "as long as old men can sell assets to young men." There is one other condition: the assets must be gaining in value fast enough to make them worth holding on to.

This latter, however, was not the case in the 19th century. Timber production was a "mining" industry, thus depleting a given inventory of wealth. The lumber industry moved its logging operations from New England to the South to the Great Lakes region to the Pacific Northwest, never replanting a tree.

Dowdle does not advance the argument, put forth by some supporters of privatization, that the land was despoiled because it belonged to the government and that private owners would have reforested. The lumber industry cut and ran, Dowdle says, because there was so much timber relative to the demand. It was cheaper to buy it than to grow it. In some cases, the cut-over land was worth more than the forested land, implying that the timber had negative value.

In the 1890s, timber growing, as an industry, would not be profitable for another half-century—which is probably why the forests were nationalized so easily. The government was taking over an inherent loser, just as it did 80 years later with passenger railroads.

Corporate tree farming didn't begin until the late 1930s, when political pressure began building for the nationalization of corporate timberland. In the early '40s, Weyerhaeuser Co. dedicated the nation's first corporate tree farm in Washington State and started the National Tree Farm Movement, a timber-industry commitment to controlled reforestation.

It wasn't until after World War II, however, that tree farming caught on, spurred by a great climb in timber prices. As recently as the late 1940s, says Dowdle, standing timber was selling for $2 a thousand board feet, about 1 percent of recent prices.

The great rise in timber prices, more than anything else, has turned lumbering from a kind of mining to a kind of agriculture. Today, America's forest companies are corporate wood farmers.

Wood farming has its drawbacks. Clear-cutting, an economical harvesting method for timber companies in which every tree on a large tract of forest (usually 250 acres) is felled, is ugly. From an airplane, much of the Pacific Northwest's lower Cascade Range looks like the head of a man losing patches of hair. Sloppy clear-cutting has silted up streams, ruining them as spawning grounds for salmon. And the long-term effects on the soil of removing trees rather than letting them rot are not known.

Replanting tends to create a one-species forest, which may lessen the diversity of wildlife. And while commercial timberlands tend not to be prime hiking areas, privatization of the national forests could remove or restrict recreationalists' cheap access to hunting and fishing on these lands, which has come to be regarded as a right in Western states.

But conventional farming also reduces the diversity of wildlife, introduces chemical fertilizers, and restricts access to farm land. Certainly, replacing natural grasslands with fertilized wheat fields has had environmental and social effects, not all of them nice. But these have not been so great as to become arguments against farming per se.

If the world is to use wood, it needs wood farmers. Privatization of the federal government's commercial forest land is simply a proposal to sell the most productive part of the woods to wood farmers, who will get the most wood off of it.

That the forest industry gets more wood out of its land than the government produces on federal land should come as no surprise. Private companies own the land for the single purpose of maximizing the long-term income from it. The federal government's land-management goal is to provide for "mixed use." This is a conveniently unquantifiable goal continuously redefined by Congress, by the land-management bureaucracy, and by the interplay of lobbyists in Washington. It does not result in efficient production of wood.

In 1977, in the Pacific Northwest, for instance, forest companies harvested 5.5 percent of their trees. Loggers harvested a mere 1.3 percent on the national forests. These figures are roughly typical for the last 30 years. The 5.5 percent rate reflects the removal of old-growth trees—so old that they may be decaying as much as they are growing—and is not a sustainable rate. Dowdle believes a long-run harvest of 4 or 4.5 percent is quite possible.

In any case, the higher rate of harvest on industry land has been accompanied by a higher rate of tree growth. According to the American Forest Institute, an industry research organization, in 1970 the average growth per acre on corporate forest land was 52 cubic feet a year, compared to 30 cubic feet on the national forests. And in 1977, according to a study by economist Marion Clawson, growth per acre on corporate forests averaged 59 cubic feet per year, compared to 35 cubic feet on national forest land.

The timber companies make much of timber management. Seedlings are carefully nurtured in greenhouses before being transplanted to the forest, and genetic research is conducted to increase wood production. But in the short run, an even larger advantage of private ownership is the use of economic calculation to decide when and how much timber to harvest.

A big reason for the small harvest on national forest land is the noneconomic concept of "nondeclining even flow"—a concept that Dowdle traces back to those medieval Germans protecting the forest commons with "bag limits on trees." Simply stated, nondeclining even flow is the idea that planned timber harvests must never be permitted to decline. To do this, the annual cut is set to equal the annual net growth, so that the net amount of wood in the forest is always the same.

Biologically, the problem with even flow is old-growth timber. The annual net growth of an old stand of trees may be zero—new growth may be canceled out by insect damage and decay. The most effective way to increase the net growth of such an area is to cut down the trees and plant new ones—which is precisely what even-flow forestry frustrates. Yet, federal law requires national timber land to be managed on this "sustained yield" basis.

To an economist, sustained yield is really a sustained inventory policy. It means the resource owner is restricted in adjusting his inventory. And it assumes that the inventory he begins with is the economically proper amount.

"We always will want to keep a comfortable cushion of timber growing into commercial inventory. But neither we nor any other business needs a 130-year supply in inventory. That is what we've had in the past, and we are in the process of working it down." That is the policy of Weyerhaeuser, as stated by the company's number-two executive, Charles Bingham.

But since the US Forest Service is required by law to follow a sustained-yield policy on its lands, it cannot "work down" its inventory. Thus, in deciding how many trees to allow to be cut and how many to let stand, it is forbidden from using economic calculation.

Environmentalists claim that the timber industry has over-cut its proprietary land—particularly in California, Oregon, and Washington, according to Sierra Club public-lands specialist John Hooper. But the American Forest Institute reports that the Pacific coast is the only part of the country where harvests have exceeded net growth, due to the removal of old-growth trees. (Why let them sit there if they aren't growing?)

Most of the old-growth trees on corporate land have been cut. In the Pacific Northwest, most of the forests replanted in the first four decades of the tree-farming movement will not be mature until the next century. The result, if public ownership and public policies stay the same, will be a slowdown in the timber harvest in the next 20 years.

In a major study of Oregon timber lands in 1976, the Forestry Research Laboratory at Oregon State University reported that under present allowable cuts on federal timber land, the harvest in western Oregon would decline 22 percent by the year 2000. However, if allowable cuts were changed, harvests could be increased 25 to 30 percent on the national forests. Over all of western Oregon, then, the harvests (and, implicitly, the economic benefits) need not shrink at all.

Most of the US lumber harvested in the 20th century has come from private land. For the first 50 years of their existence (1907–1957), national forests contributed only 3 percent of the total production of softwood sawtimber—the primary material for most lumber, plywood, and pulp products—says Dowdle. The result is that the federal government now holds 63 percent of the nation's uncut timber, while it owns only about 20 percent of the nation's commercial timber land.

For the first time, the nation really needs the timber on federal land. Only now, nearly a century after the decision to retain government ownership of some 90 million acres of commercial forests (now at about 107 million acres), is the cost coming home.

"If you've got counterproductive policies in the lettuce industry, they'll show up in one season," Dowdle commented to me in an interview. "If you've got counterproductive policies in the timber industry, it might take 80 years."

If land stays in public ownership, especially under the limitation of sustained yield, much of the cost will be borne in the Pacific Northwest. There, 73 percent of the timber is in government ownership, compared to 14 percent in the South. This has intensified a flight of forest-products investments.

The Northwest's timber companies have been investing in the South for several decades. Weyerhaeuser, a Tacoma-based company that got its start in 1900 when Frederick Weyerhaeuser bought 900,000 acres of railroad land grants in the Northwest for $6 an acre, now owns more land in the South than in the Northwest. Georgia-Pacific, which had moved early in its corporate history from Georgia to Portland, Oregon, moved back to Georgia last year. G-P's 3 million acres in the South constitute more than two-thirds of its holdings.

The companies have several reasons for moving. Freight rates to eastern markets are lower from the South than from the Northwest. And provisions of the Jones Act prevent northwestern companies from hauling lumber through the Panama Canal on foreign vessels, whose rates are lower than domestic freighters. Southern pine also grows faster than Douglas fir, the predominant Northwest timber crop. And southern labor costs are lower than the Northwest's.

But still, there has been another reason. Timberland in the South—most of it privately owned—can be bought and sold. In the Northwest—where the federal government holds much of the commercial forests—ownership of timberland is comparatively restricted.

There's "no question" that the pattern of federal landholdings has speeded up the movement of the industry from the Northwest to the South, Gilbert L. Oswald, vice-chairman of Simpson Timber of Seattle, told me in an interview. "If you want to grow, the opportunity lies in the Southeast, because of the land ownership."

Who would buy the federal timberland? Forest companies could not afford all of it—especially now, after having just survived the toughest recession in their industry since the 1930s. Small woodlot owners would probably buy a fair share of it, if it were offered in small parcels. (Non-timber-industry owners now hold 278 million acres—or 58 percent—of US timberland.) In addition to these buyers stands one possible big buyer: pension funds.

Why pension funds? For one, they have the money. Two, they have longterm money that traditionally is invested in long-term assets, like 30-year government bonds. Three, government bonds are paper assets, more vulnerable to inflation than any other investment, while trees are "hard" assets. And four, unlike other "hard" assets, such as gold and silver, trees grow.

Bruce Ramsey, a business-news writer for the Seattle Post-Intelligencer, regularly reports on the timber industry.