Managing the Commons

Jared Grant

Case Analysis – Managing the Commons

SGM 5119 – Fall 2012

The case of Ixtlan de Juarez presents an excellent example of local ownership and effective management of the commons.  The project started about 30 years ago when the Zapotec Indians in the state of Oaxaca Mexico reclaimed their forests from state owned forestry companies who had been exploiting the region’s forests for years. This exploitation had been driven by corporate greed and a focus on short term gains that, if continued, would destroy the forests and the people and ecosystem that it supported. Now Ixtlan has managed to develop a business strategy that is generating money for the region while ensuring that the forest is healthy and still producing for generations to come.

As with any socially motivated business venture, there are several challenges that the people of Ixtlan face. One that stands out is the fact that there is no physical boundary that can be placed in order to keep out negative influences and motivations.  In this case the Zapotec Indians rely heavily on the traditional values of their people to self-police the lands and the forests.  According to one of the long time foresters in the community, “anybody who tries their own business is harshly judged” by a council of his peers. This view recognizes that the community support structure is so strong that people within the community holding each other accountable for actions is sufficient to maintain order.  This is most likely not the condition that exists in every community, which makes policing efforts on the commons extremely challenging.  The success of this venture is also highly dependent on the recognition by both government and surrounding states.  This creates a potential instability in the future if the government or a neighboring state decides not to honor past agreements and begin foresting operations.

The chief strategic issue with Ixtlan, as with many other socially motivated business ventures is the struggle between the need to make money and a strict adherence to the social mission of the organization.  Ixtlan seems to be performing well enough, having generated an operating profit of $230,000 in 2009. It was able to turn 30% of this profit back to the business to promote growth, and it was able to use another 30% of the profits to focus on forest preservation.  The company needs to make sure that it continues to put money back into business growth to ensure not only the sustainability of the forests but to ensure the sustainability of the business itself. If they do not make the correct moves, then globalization and external competitors could potentially force them out of the market long term. International firms or even other firms outside of the region could swoop in and capture a portion of the business that the Ixtlan counts on to make money.

The fact that the enterprise is not one whose primary goal is to make money presents managerial challenges as well. Motivation of employees beyond the core group who starts the enterprise may be challenging.  Early on, every individual is driven towards the common goal of saving the forests. As expansion and development of the organization and the business occurs, members are likely to recognize opportunities to make more money.  This allure needs to be balanced with the focus on social mission.  In the case of Ixtlan, this motivation is intrinsic.  Family obligation and a sense of pride keep the group focused on preservation of the forests while the secondary focus is making a profit. Another managerial concern is the fact that the endeavor is managed by a very large assembly.  This presents the challenge of timeliness, but it does allow for no one person to lead the team away from its mission.

Ixtlan’s social mission is to ensure that the forests are maintained in order to support future generations in the region. In some regards this mission serves as a restraint to opportunities in the short term and long term.  The preservation of forested lands prevents further development of those lands for agricultural or housing development which could potentially generate substantial food and habitat for the people of the region.  Preservation efforts also limit short term gains that could be realized if larger scale harvesting were allowed. This could stimulate increased furniture and lumber production, which would bring increased cash flows to the region in the short term.

The people of Ixtlan are not concerned with the short term losses.  They are “taking the long view”, and they recognize that what they do today will ensure sustainability of the region. This view is facilitated by the fact that the people of the region plan to stay there as previous generations have.  Again, this view depends on a degree of insularity that cannot be guaranteed if globalization and external competition comes in to play.  Also, if Ixtlan expands its business into Mexico City, as referenced in the article, the next generation may decide to move out of the region.  This could potentially leave the forest open to outsiders who will not have the same sense of duty and loyalty to the forest as the Zapotec Indians.

As stated earlier, the business model of Ixtlan gives back equal parts to business growth and to forest preservation.  This distribution is a direct result of the social mission of the community.  As stated by one member of the community, the people of the community are exercising ”pure simple socialism… and an idea of capitalism, where we say, You know what? We have to be profitable.” Again, the uniformity in belief system and values allows for the people of the community to share evenly what is made and put individual goals aside in order to preserve the forest and make money along the way together.  The resource base available to the venture is also shaped by the social mission.  Ixtlan has taken advantage of support from NGO’s and Government in the past three decades in order to purchase better equipment and better training in the areas of forest preservation and harvesting.  If the social mission of Ixtlan were compromised, the NGO’s would surely sever ties with the group.

In this specific case, the biggest management challenge is in staying true to the social mission of preserving the forests.  This is the focus that will continue to win the support of the local people because of their history and their sense of ownership for the forest.  It is the focus that will maintain a favorable tie with NGO’s to ensure support for training and potential financial support for growth in the future. As stated earlier, this focus requires a very long range perspective by management.  After all, it takes over 50 years for a tree to grow from seed.  If this were a publicly traded company, shareholders would surely struggle with the idea of waiting so long for a return on investment, and many would surely pass on the opportunity to invest in favor of something that will guarantee financial returns immediately.   The model works for Ixtlan though.  This is because the managers and the shareholders are one in the same.  The people here recognize the value in preserving the forest, and they understand the business enough to understand that patience will pay off in the long run by generating a healthier ecosystem first and profits second.

With this secondary focus on profit, management needs to understand that they are likely to experience a smaller overall monetary return.  This is often the case with socially motivated ventures, at least in the short term.  This smaller return is often accepted because the overall impact of the project is much greater than the sum of money earned.  The manager in this case must abandon strictly bottom line thinking and operate under the assumption that doing good will pay in the long run. In conventional business, this is often not the case because management has to answer to outside shareholders first and foremost.  If these shareholders are interested in turning a quarterly profit, then they are unlikely to accept a proposal that will generate less money.

Finally, management by consensus is paramount in this case.  As stated earlier, Ixtlan is governed by a large council of people from the community.  This approach can be very time consuming, but it ensures that the entire group is aligned with regard to achieving both social and financial goals. It also ensures that no one special interest dominates the decision making process. The approach works here, again, because the members of the council are all members of the community, and all of them share the same values and mission.  In conventional ventures, this approach is far more difficult to apply because of different points of view and different motivations.

The case of the Ixtlan is a powerful example of how local ownership is being applied to manage a common space for the better.  By allowing the people for whom the common is valuable to manage it, the Mexican government is ensuring that the common is sustained.  Since the start of this venture, several similar projects have begun throughout the rest of the country, and Ixtlan has been revered as a primary example of responsible forestry.

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3 thoughts on “Managing the Commons

  1. tlhill2012 November 24, 2012 at 11:44 AM Reply

    Jared – thanks for your thorough discussion of the Xtlan case. What general lessons might one pull from this? You imply several: The role of insularity – or at least their being a recognized “in” group with common values and some sort of cultural, if not geographic, boundary; the importance of a governance structure – in this case an assembly – that keeps the group focused on multiple measures of success, not just profit; the considerable threats from global competition and national, non-community mores – both likely to be in play if they move to Mexico City…what else?

    The Mondragon example for the last class grapples with similar issues of belonging, scale, governance and culture but uses a different approach – a cooperative/representative democracy one – to cope. It will be, I hope, interesting to compare the two.

  2. tlhill2012 November 24, 2012 at 2:38 PM Reply

    McCabe…
    The means by which the Zapotec Indians employ their brand of open source governance is certainly fascinating, but the capacity for the system to be sustainable is still rather uncertain. While the successes following three decades of independent commons ownership is impressive, that time period only represents two generations removed from the founding members, and arguably a corresponding loyalty strength to the original mission. But what happens 50 or 100 years down the road? Once new, further removed generations inherit the commons, it seems less and less likely that the new guard will share the same passion and drive of their predecessors. And with each new generation, the community will presumably grow larger, and thus put additional strain on the consensus system of governance. After all, as the number of stakeholders in the commons grows, so to do the inefficiencies inherent to the consensus system.
    Perhaps then the way in which this system sustains itself is in fact through certain individuals’ need to establish their sense of belonging. By doing so, these individuals would create a sort of cleansing effect, delineating themselves from less engaged, non-communal members. In this way, the consensus system might slow the rate at which it degenerates due to inefficiencies in population growth. The key to a sustainable future for Ixtlan will rely on its ability to grow in response to future generations while not becoming overly inefficient and unable to compete against for-profit entities that will undoubtedly only become more efficient with time.

  3. tlhill2012 November 24, 2012 at 5:17 PM Reply

    Bareeq
    I think you discussed something very pertinent to the IXTLN and the Zapotec Indians managing their own forestry, and that is their motivation. What I found really interesting in this case is that most of the enterprise’s foresters and managers are the university-educated sons and daughters of the older “comuneros.” The capitalist approach has been introduced to them by their university-educated children who are using what they’ve learned to manage and expand this business venture. It concerned me because if profit get put before the social mission, that can prove to be quite detrimental to their cause to conserve this forestry for the long-term and for generations to come.
    In addition, I hadn’t thought of it before you had mentioned it, but upon expanding their business to Mexico City, they will have to create a business system to handle the higher demand of hours, labor, and business sales. Do they have enough manpower to handle this type of expansion? They did not touch on this but I think it’s extremely important to their continued success. It is an ancestral and familial business, but as the times are changing, the coming generations may start to further themselves from the mission and become more of a business-driven model.
    It did interest me how the developing world whether it was IXTLN de Jurez, Mexico with how they are communally managing their forestry or in Africa where micro-lending relies on a group lending model; communal models are the relied upon models for entrepreneurial ventures. It is really amazing to see how people in the developing world rely on each other to accomplish change within their own communities because unlike the developing world, they do not have the resources and technologies most people to use to interact. It bring it all back to a real “grassroots” effort.
    I believe you are right and that the case of IXTLN is a leading example of how to run a community-based venture for a social mission and gaining profits. It is an ideal set-up where all parties benefit but, of course, not without their own struggles such as illegal loggers. It helps, as mentioned in the case, that their lumber is of excellent quality and that this model could not work in other regions without such a great product. This is why I do feel that this case may be an exception and not necessarily the rule in self-sustaining business in the developing world.

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