Crime and Justice in the Garden of Eden Nalin Kishor Richard Damania (OPCS/ARD/ESSD Sponsored Presentation, May 4, 2006, Washington DC)

Scale of Corruption in the Forest Sector Corruption in the forest sector is globally pervasive Has many forms: Criminal: illegal logging, smuggling, extortion Legal but corrupt: state capture, institutional erosion, rent seizing Scale is vast – but quantitative estimates remain elusive Illegal logging may cost >10bn per annum

Does Corruption Contribute to Deforestation?

Costs of forest corruption include: Environmental losses – local and global (climate change and biodiversity loss) Fiscal losses to state from lost royalties Livelihood losses to forest dependent communities Spread of crime and corruption to other sectors Undermining institutions (with growth implications) Undermining legitimate forest enterprises

Why is corruption and crime so globally pervasive across the forest sector? 1. Demand exceeds Sustainable Supply. 2. Sustainable Supply is relatively inelastic (trees grow slowly). 3. Profits from unsustainable logging > profits from sustainable logging. 4. Costs of unsustainable logging are public and benefits private  High rents from unsustainable harvesting (Indonesia: milling capacity 70m cum, allowable cut 15m cum – recipe for corruption)

Typology of Corruption Commercial Scale Illegal Logging: Big business, commercial operators, links to other crimes (drug, arms and people smuggling) Corruption Contagion: Logs are bulky and can only be sold with connivance of host of institutions (transport, customs, police…….)  More widespread institutional decay  Weak institutions -> impede development and growth

Typology of Corruption (cont.) Grand Corruption and State Capture: Legal logging – but contributions paid to gain access to timber concessions Problem is widespread from Malaysia to Australia and beyond Often accompanies land use decisions (cattle ranching in LAC)

Typology of Corruption (cont.) Also linked to illegal logging: Poor log tracking system The Alchemy of a Log Illegal Logger Indonesia Gets $2.2/m 3 Broker illegal log Indonesia Gets $20/m 3 Broker legal log Malaysia Gets $160/m 3

Typology of Corruption (cont.) Institutional Erosion and Rent Seizing: Malaysia, India and Indonesia bequeathed strong forest institutions Timber boom 50s and 60s-> dismantling of these institutions Why? Institutions are endogenous: To capture high rents need to erode institutions that impede rent capture

Typology of Corruption Petty corruption and extortion: Victims are most often subsistence dwellers In scale relatively small but likely huge poverty and livelihood impacts Admits of straightforward solutions Vest property rights Community-based forest management; community woodlots (supply-side intervention)

Solutions (1) Solutions need to be incentive compatible: institutions will not impose reforms that undermine their self interest Search for answers that: Lower rents from unsustainable logging: (Exogenous) demand side interventions Commercial (IKEA type model) Responsible public procurement “Green” consumerism Supply side interventions that are incentive compatible Interventions that make sustainable logging more attractive than unsustainable logging Payments for Environmental Services (esp. carbon)

Solutions (2) Search for answers that: Improve the supply of good governance and increase incentive to utilize legally harvested timber: Put native forests under forest management plans and certification Development of industrial plantations Institutional reform and strengthening Reform of forest service, incentive payments, transparency and accountability (global monitoring of forest stock, global log- tracking Improving the forest law enforcement and compliance system

Solutions (3) Search for answers that: Generate the demand for good governance and strengthen the political will: Improve accountability, develop strong multistakeholder processes (Philippines, Bolivia) Foster “producer” and “consumer” country collaboration at the regional and international levels (FLEG processes)

Solutions (4) Search for answers that: Galvanize international cooperation and provide a platform for action: Forest Law Enforcement and Governance (ministerial) processes (collaborative actions by “producer” and “consumer” countries at the regional and international levels).