The U.S. Forest Service has custody over 192 million acres of national forest and rangeland—an area nearly equal to Texas and Louisiana combined. Like the National Park Service, the Forest Service is commonly viewed as a stellar example of Progressive Era legislation. However, the Forest Service clearly and recurrently violates the spirit of its stewardship responsibilities. Its self-interest in budget expansion conflicts with both environmental protection and economic efficiency, and significantly injures private forestry. Its increasingly infamous below-cost timber sales are becoming the forestry equivalent of the Valdez oil spill.

Most environmentalists seek to reform rather than replace the system that governs the national forests. They advocate political action and ever more finely calibrated and expensive centralized planning. The “rational calculation under socialism” debate of the 1920’s and 30’s is alive and well in the Forest Service. The current fight over the spotted owl in the old growth forests of the Pacific Northwest is one especially dramatic example of the conflicts, community disruptions, and projected multibillion-dollar losses that result when management decisions are hostage to political pressures.

In forestry as in other areas, decisions depend on information and incentives. Our existing institutional arrangements for forest management are seriously flawed. In the national forests, this means bad information and perverse incentives.

For example: America’s 156 national forests are managed by 120 forest supervisors. According to the government, 76 of these 120 supervisors reported that their units lost money in 1987. Yet revenues from areas that produce valuable timber, the Pacific Northwest and the Southeast, were great enough to cover the losses reported for the system as a whole. Essentially, those forests that are warm, wet, and low subsidized those in the Rockies that are high, dry, and cold. Clearly, the U.S. Forest Service should invest more in managing the productive forests of Oregon, Washington, and the Southeast, while reducing expenditures in the Rockies. Alternatively, the Service could remove itself from the timber business entirely, by applying appropriate environmental safeguards and then transferring the productive forests to the private sector. That is not what is happening. Instead, because of certain bureaucratic realities, the Forest Service is logging environmentally fragile and economically unprofitable areas.

The political logic of below-cost timber sales is straightforward. National forests are located in 40 states and in many congressional districts, and there is a timber program in nearly every national forest, regardless of how efficient it may be to sell the timber. In these districts, logging and road building provide jobs and income to the local communities. Consequently, many senators and representatives find it in their interest to vote for expanding Forest Service road building, logging, and timber management. The politician benefits, the constituent who has a job benefits, and some timber companies that are able to operate where they otherwise could not also benefit—but not the taxpayer, who ends up subsidizing the reduction in quality of an environment he increasingly values.

The Forest Service advocates and oversees the building of roads throughout the national forests. While building roads may seem to be a productive and harmless activity, the environmental consequences are often harsh. As the timber at lower elevations and in easily accessible valleys is harvested, the Forest Service builds its roads farther into the backcountry and on higher and steeper slopes. As a general rule, the steeper the slope, the greater the danger of landslides, slumps, sloughs, and earth flows. The problems are especially acute in the high, steep, and fragile backcountry of the Rockies and Alaska. Roads built there (to reach what is usually poor quality timber) cause soil erosion and siltation of rivers and streams, thus harming irrigation systems and reducing the quality of wildlife habitat.

In the northern Rockies, some of America’s finest trout and salmon rivers have been severely damaged by more than ten feet of mud caused by Forest Service road building and logging. And although some of Idaho’s waters are finally recovering from the road building and logging activities of the 1950’s, the Forest Service is planning new developments on fragile soils that are destined to repeat the injury.

The total mileage of roads built by the Forest Service is more than eight times the total mileage of the U.S. Interstate System. Almost 342,000 miles of roads have been constructed in the national forests, and there are plans to nearly double this.

According to the Forest Service, over the next fifty years it plans construction of 262,000 miles of new roads and the reconstruction of 319,000 miles of existing roads, the equivalent of going to the moon and back and then circling the earth four times.

This massive road building program is designed to accommodate logging activities. Yet much of this logging is uneconomical and is dependent upon substantial subsidies from the federal government. To log these forests, the USFS classifies land as “commercial forest” if it produces 20 or more cubic feet of wood fiber per year. In contrast, the standard for private firms is three to five times that amount. As a consequence of the incentives this low standard provides, the Forest Service consistently underinvests in its most productive sites and over-invests in money-losing, environmentally fragile areas. This is the predictable consequence of management being hostage to politics.

The proposed sale of timber in Tolan Creek, Montana, typifies the economics of timber sales in the Bitterroot National Forest. After the Forest Service spent $304,000 to build new roads in the area, the agency estimates it will lose $257,000 on the timber sale. Although the agency maintains that future sales in the area will pay for the roads, an analysis by Forest Service economist Fred Stewart indicates that even after receipts from future sales are considered the agency will lose more than $24,000.

The Wilderness Society maintains that things are even worse in the Tongass National Forest in Alaska. They claim that in Tongass, taxpayers are subsidizing logging and road building to the tune of more than $50 million per year. This implies that we are spending more than $30,000 to create each timber job. In terms of its own budget, the Forest Service returns seven cents to the U.S. Treasury for every dollar it spends on the Tongass. Nationally, despite the increasing value of its timber, the Forest Service returns about 72 cents for each dollar spent on timber management.

In the Gallatin National Forest, which has its headquarters near FREE’s Bozeman, Montana, office, backcountry recreation provides more than 16 jobs for every job produced by the timber industry. The timber jobs, though they are important to those they employ and to the culture of the area, make up a small part of community wages, representing only 2 percent of local employment. Yet the Forest Service has plans for a massive road building project. Little attention has been given to the impact upon 1,171 workers in the recreation industry whose jobs are partially dependent upon a relatively pristine environment.

The slight attention given to the recreation industry is also a predictable consequence of the institutional arrangements and incentives faced by the Forest Service. Forest Service managers are rewarded for selling timber, even when the timber they sell loses money. Their discretionary budget is largely dependent upon timber volume, not net value. Congress, which liberally funds Forest Service roads and timber sales, allows forest managers to keep a share of timber receipts for their own budgets, and the amount they keep is a function of timber volume. Forest managers who want a larger budget can essentially appropriate more money to their unit by selling timber—their agency keeps a share of the receipts. Since Congress pays the cost of arranging sales and building roads, but does not require the Forest Service to reimburse the Treasury for those costs, from the perspective of the district ranger, sales appear to generate profits, not losses, regardless of the true economics of the sales.

On the other hand, most recreational activities produce no budgetary reward for managers because Congress permits fee collection only for developed campgrounds. Also, Congress is less generous in funding recreational activities than in funding timber-related ones. The result is that even if managers are more interested in recreation than in timber, the only way to fund many of their recreation programs is by selling timber.

If the road building and logging activities described above served a great national purpose, they would be more defensible. Yet in the above examples, the economic costs of securing the timber far exceeded any commercial value of the timber. In many cases, roads funded at taxpayer expense allowed access to timber that was too sparse, too marginal, or too slow-growing to justify the high price of the roads and other development costs. In essence, taxpayers are subsidizing environmentally destructive behavior that no private timber company or private landowner could afford.

Road building has other bad side effects. Any increased road access to the backcountry effectively displaces many wildlife species. Although the Forest Service claims to close roads except when they are being used for management or logging, they do so by placing a green gate across the road, often this is a symbolic action offering no real barrier to jeeps, motorcycles, snowmobiles, and ATVs. Thus, quiet backcountry areas originally intended for hikers, photographers, hunters, and the wildlife that attracts them are converted into recreational areas for motor vehicles.

The Forest Service’s logging activities have also displaced trails. In the 1940’s, the U.S. National Forest had 144,000 miles of trails. By 1984, there were only 98,500 miles of trails—despite the fact that during this period the number of backpackers and sportsmen using the forests had increased by a factor of ten. The problem is that backpackers contribute little to Forest Service budgets.

There is increased awareness that mankind is running up against serious environmental constraints. Both locally and nationally people are coming to recognize that below-cost sales are injurious to the environmental and economic health of many areas. In the same way that the Exxon Valdez spill hurt nearly all domestic oil producers, below-cost timber sales in areas such as the Greater Yellowstone portray the industry as environmentally insensitive and dependent upon government largesse. Over the long run, the timber industry has a stake in eliminating below-cost sales.

Environmentalists often decry private timber companies as environmental plunderers. Inciting public indignation and generating funds, environmental groups portray the timber industry as a wanton destroyer of wilderness and wildlife. But this is an industry that must be understood in its institutional context.

Currently the federal government owns about one-third of the land in the United States, and state and local governments own another 9 percent. The rest is privately owned. In 1973, the Forest Service adopted a nondeclining flow policy, which is to say it would sell no more timber today than will be sold in the future. However, during the Reagan administration, John Crowell, who was assistant secretary of agriculture responsible for the Forest Service, advocated ignoring the nondeclining flow policy and suggested doubling the allowable cut. This timber “overhang” has had a huge negative impact on private sector investments in forestry, because increasing uncertainty about federal “dumping” of timber onto the market reduces the expected value of private timber.

Private companies manage their land for marketable products. They do not build extensive road systems into poor quality timber sites or systematically lose money on timber sales as the National Forest Service does. Private firms cannot force taxpayers to subsidize their operations, and those that lose money on sales will go bankrupt. If a private company owns marginal timber land that is de facto wilderness, it is normally in the company’s interest to leave it alone or transfer it to a conservation group such as the Nature Conservancy. Alternatively, they may manage it for its most highly valued use, which may be for wildlife habitat or recreation when they can benefit from doing so.

However, if a company owns a high-quality timber site, it will be logged and managed in such a way to maximize discounted returns. While private timber companies do engage in political favor seeking, these companies do not act primarily to placate Congress. They are more interested in generating profits in the marketplace. That self-interest leads private timber companies to behave in a more economically responsible manner than does the Forest Service. Often, they do less environmental damage, for they rarely remove timber that will not pay its way out of the woods.

A good example of private management benefiting wildlife and timber management is Champion International’s management of its forest lands in western Washington State. In the late 1970’s Champion International and the Washington Department of Wildlife began a cooperative management program to encourage deer in the forests. Champion limited the size of its new clearcuts and distributed them across the forest in order to give the deer as much habitat as possible.

Initially, this did not have the desired effect for Champion. There was an explosion of the deer population, which resulted in widespread deer damage to conifer seedlings. Also, because of the high deer densities, the reproductive rates of the does declined, and the number of fawns surviving was low. The public blamed Champion’s clearcut logging for the decline.

In response, the Washington Department of Wildlife agreed to alter the management of the deer herd on Champion lands by designing special hunting seasons to reduce the deer numbers. This, in turn, lessened the deer damage to seedlings, and allowed for more viable fawns. In return. Champion continued its cooperation in timber harvesting, and agreed to fund a deer population monitoring program.

In 1987, Champion began a fee-access program. Hunters were charged a modest fee for the right to hunt on Champion lands. Not only was the response of hunters greater than expected, but nearly one-third of the access permits in the first two years was purchased by mushroom and berry pickers, hikers, mountain bikers, fishermen, and others.

The cooperative deer management program on Champion lands benefited all parties. The combination of sensitive forest management and a balanced hunting season has made the Champion lands the most productive deer habitat in western Washington. In 1988 the Champion tree farm had the highest hunter success rate of any forest lands in the state. For Champion, the deer were converted from a liability into a resource.

Congressman Dick Armey’s (R-Texas) solution for closing obsolete American Army bases may show us a way to reform the Forest Service. Last spring a House resolution to prevent the closure of 86 military bases failed by a vote of 381-43, a belated but no less welcome victory for common sense and economic efficiency. The closings are projected to save taxpayers $5.6 billion over the next twenty years.

Congressman Armey overcame his previously successful opposition by applying the economic logic of self-interest to the political process. Recognizing that political obstacles to base closings were costing the public billions of dollars, Mr. Armey devised a strategy that would waive the restrictions of O’Neill-Cohen (which mandated a comprehensive and costly environmental impact study before a base could be closed) and force Congress to confront closure. Under his plan, a commission studied and assembled a list of bases that could be closed without harming our nation’s security. Congress then had to accept the bases as a package, closing all of them or none at all.

The National Forest System and national defense system have many characteristics in common. They both:

—provide highly visible jobs in the communities where they operate; have units widely dispersed throughout the country;

—have some units (national forests and military bases) producing a public good and others producing “public bases”;

—have political constituencies and economic ramifications that make it difficult to shut down individual units.

I suggest that we apply the Armey strategy to the national forests, to close down commercial timber management in those ranger districts of national forests that consistently lose money. First, as happened in the closing of the military bases, a commission composed of individuals with broad experience in business, government, and in this case, conservation and forestry, would be created. Such a diverse commission will likely protect both environmental quality and economic efficiency, and our foremost objectives will be realized; to halt below-cost timber sales, ease the burden of the taxpayer, and protect the environment.

The commission’s first task would be to identify ranger districts that do not make money from their timber and recommend that these districts be closed. These lands are of course valuable for their wildlife habitats, watershed protection, and as recreational areas, and they should be protected accordingly.

My next step goes beyond the Armey plan and advocates the transfer of profitable ranger districts to parties that will manage them better. Hence the second task for the commission would be to identify profitable sites and prepare them for auction. The best managers of timberlands are private timber companies and institutional investors, such as pension funds and insurance companies, interested in long-term investments. They must, however, have incentives to protect the lands in which they are investing. Successful bidders on what are now federal lands would have to accept constraints on herbicide and pesticide use, restrictions on the cutting of old growth timber, recreational easements, and protective buffers along watercourses.

Only the Forest Service’s distorted bureaucratic logic sees clearcutting and the building of erosive logging roads as enhancing aesthetics, wildlife habitat, and watershed protection. Instead of maximizing the value of the lands it manages, the Forest Service maximizes its budget. Its behavior is not the result of evil, stupid, or incompetent people, but is the consequence of the centralized, bureaucratized nature of the institution—a nature that can be changed. The public choice model inspired by Congressman Armey provides an effective method for doing so.