Community forest enterprises as entrepreneurial Firms: Economic and institutional perspectives from Mexico

World Development Vol. 33, No. 9, pp. 1529–1543, 2005� 2005 Elsevier Ltd. All rights reserved

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doi:10.1016/j.worlddev.2004.10.011www.elsevier.com/locate/worlddev

Community Forest Enterprises as Entrepreneurial

Firms: Economic and Institutional Perspectives

from Mexico

CAMILLE ANTINORI 1

University of California, Berkeley, USA

and

DAVID BARTON BRAY *

Florida International University, Miami, FL, USA

Summary. — Few examples exist in the common property literature of community-managed for-estry enterprises (CFEs) operating in competitive markets. Yet, in Mexico, there are hundreds ofsuch examples at varying levels of vertical integration. At a time when devolution of rights to for-ests is expanding worldwide, collective management of timber operations presents an emergingcommunity forestry policy option. CFEs have unusual institutional features that force a reconsid-eration of theories of the firm, unique management tensions, varieties of possible institutionalarrangements governing stocks, and flows of the natural resource, and may have special importancein delivering both economic equity and environmental protection.
� 2005 Elsevier Ltd. All rights reserved.
Key words— community forestry, common property, theories of the firm, poverty alleviation, ruraldevelopment, resource management, Mexico

* The authors would like to thank the William and

Flora Hewlett Foundation and the Ford Foundation for

generous support in the elaboration of this article and

some of the research behind it. We would also like to

thank Skya Rose Murphy and Matthew Zirkelbach,

M.A. candidates in the Department of Environmental

Studies at Florida International University, for their

excellent editorial assistance. Final revision accepted:October 25, 2004.

1. INTRODUCTION

Community market-oriented enterprises,particularly those based on a common propertynatural resource, are historically rare birds.However, a large community forest enterprise(CFE) sector in Mexico that emerged in the lastthree decades, and currently emerging CFEselsewhere in the world, highlight the impor-tance of understanding the theoretical impli-cations and empirical impacts of this ratherdramatic rearrangement of traditional commu-nity institutions. CFEs as productive organiza-tions have unusual institutional and economicfeatures that force a reconsideration of theoriesof the firm, highlight the varieties of possibleinstitutional arrangements over stocks andflows of the natural resource, and may havespecial importance in delivering both economicequity and environmental protection. However,in most times and places, it would appear that

152

the costs of collective action in mountingmarket-oriented enterprises administered bycommunities, particularly impoverished com-munities in less-developed countries, are greaterthan any perceived benefits. This would appearto be particularly the case with communityforest enterprises dedicated to the commercialproduction of timber. Commercial timber pro-duction at its simplest requires substantialinvestments and the administration of complex

9

1530 WORLD DEVELOPMENT

industrial processes. Despite these dauntingchallenges, Mexico presents a still little-knowncase where there are hundreds of such CFEs(Antinori, 2000; Bray et al., 2003).The potential significance of CFEs is large

when one considers the current worldwidetrend toward devolution of forestlands to localcommunities (White & Martin, 2002). Commu-nities managing forests for timber productionwould seem to be the next step that could helpalleviate poverty, promote economic develop-ment, and provide incentives for forest preser-vation (Wunder, 2001). Clusters of CFEs areemerging in many different places in the world(Cortave, 2003; Gill, 2002; Nolan, 2001; Scherr,White, & Kaimowitz, 2003). There is also amuch older, but little documented sector ofcommunity-managed commercial forests inEurope (Jeanrenaud, 2001). Given the chal-lenges in the sector, there are also increasingaccounts of failed CFEs (Irvine, 2000; Smith,1996).Mexican common property, community for-

estry, and CFEs have three unusual features.First, the Mexican common property systemmay be unique in the world in that it is a mas-sive, state-directed and regulated system thathas emerged and been consolidated sincethe third decade of the 20th century (Bray &Merino-Perez, 2002). With varying rhythmsthroughout most of the 20th century, largetransfers of natural forest assets were made tolocal communities from state and private hands(Klooster, 2003), leading to a democratizationof ownership of natural assets (Boyce & Shelly,2003). This transfer laid the foundation for theemergence of Mexico’s community forestry sec-tor. In the course of the 20th century, Mexicanforest communities and urban allies, alternatelyhindered and supported by official policy, havehad to struggle against logging bans, conces-sions, and corruption to achieve more autono-mous management of their forests, with CFEsemerging as a significant, initially state-sup-ported sector in the mid-1970s (Bray & Wexler,1996; Klooster, 2003). Given the demands ofthe CFE organization, they were seldom en-tirely ‘‘self-organized,’’ but depended heavilyon state and civil society support (Bray & Mer-ino-Perez, 2002; Ostrom, Burger, Field, Norg-aard, & Policansky, 1999). Second, well over50%, possibly as high as 80%, of Mexican for-ests belong to communities as a result of agrar-ian reforms (Bray et al., 2003), the secondhighest percentage in the world after PapuaNew Guinea (White & Martin, 2002). A new

national study is underway to document howmany communities in Mexico have logging per-mits and thus some form of CFE (Antinori,Magana, Torres Rojo, Segura, & Bray (ms)).Third, the Mexican experience is showing thatCFEs can combine community governance tra-ditions and enterprise forms to successfullycompete in international markets, and that nei-ther traditional culture nor common propertyare necessarily a hindrance in doing so (Bray& Merino-Perez, 2002; Bray et al., 2003).Most experiences in community management

of natural resources have focused on individualsubsistence or small-scale market productionusing the common property resource and, inforest situations, on nontimber forest products(NTFPs) (Arnold, 1998; Ostrom, 1990). Aswell, a worldwide trend of devolution is paral-leled by another forestry trend away fromlarge-scale industrial forestry to landholder-based and community forestry that encom-passes more multiproduct based objectivesand smaller-scale timber production (Harrison,Herbohn, & Niskanen, 2002). These tendenciesoccur at a time when doubts have been raisedabout the degree to which NTFPs and pay-ments for environmental services can alleviatepoverty or promote economic development(Richards, 2000; Wunder, 2001). This conver-gence of new research and policy trends hasplaced more attention on the real and potentialrole of communities in producing timber, sinceas Wunder (2001) suggests, ‘‘rents in the timberbusiness can be large, so if decentralization anddevolution of property rights to communitiessucceeded in redistributing just a minoramount, poverty-alleviation potentials couldbe significant.’’Communities gaining access to forestlands,

as de jure or de facto common properties, forcommercial timber production raises the virtu-ally unexplored issue of communities formingenterprises based on a common property natu-ral resource asset, that is, the communitybecoming a type of business (Antinori, 2000).As the new global alternative of CFEs emerges,it becomes important to understand how theyarise and how they function as possibly uniqueeconomic institutions. Given the historical evo-lution of Mexican CFEs, the large amountsof forest resources under their control, and astate-regulated common property system, ananalysis of Mexican CFEs sheds light on keyquestions with global implications: Do commu-nity forestry operations combine democraticparticipation and economic efficiency? Do they

COMMUNITY FOREST ENTERPRISES 1531

have advantages in achieving multiple objec-tives such as poverty alleviation, economicequity and development, and effective environ-mental stewardship? Can they survive and evenprosper within a market economy predicatedon conventional capitalist firms?In this paper, we will take an institutional

perspective to suggest how CFEs in generaland Mexican CFEs in particular are distinctfrom other forms of enterprise organizations.By an institutional perspective, we mean ananalysis of the pattern of ownership and con-trol rights as manifested under agrarian lawand expressed through collective decision-mak-ing processes and the distribution of benefits.An institutional perspective differs from neo-classical economics, which focuses on the tech-nological basis for why and where productionoccurs. In contrast, institutional economics fo-cuses on contractual arrangements and gover-nance modes among buyers and sellers, andowners, managers, and workers within an insti-tutional environment of legal rules and cus-toms. The theory of the firm is a large bodyof literature within institutional economicswhich analyzes the internal workings of pro-ductive organizations. We apply this theory inan introductory fashion to describe CFEs’structures for coordinating production andallocating costs and revenues. By laying outthe details of its institutional structure, we iden-tify it as a distinct case of enterprise organiza-tion. Ostrom (1990) has correctly critiqued thetheory of the firm as not providing an explana-tion for how groups of individuals can solve thecollective action problem. Its usefulness for ourpurposes is in addressing the different but re-lated question of governance in the firm andin CFEs.We find that the decades of experience of

Mexican CFEs provide a rich empirical baseto analyze CFEs as a collective organizationaleffort that combines business with communityparticipation, and as a ‘‘social firm’’ whose fea-tures we contrast with more frequently studiedproduction organizations. The emergence ofenterprises from a matrix of community gover-nance can create tensions between democracyversus hierarchy, managerial efficiency versusrepresentativeness and traditional customs,and management for conservation versus tim-ber production. It generates a wide variety oflocally designed institutional arrangementsover management of the stocks and flows ofthe common property resource to create uniqueenterprises that can compete in world markets

or, alternatively, can result in conflictual situa-tions that lead to the deepening of economicinequities and forest degradation (Guerrero,2000; Klooster, 2000; Merino, Alatorre, Cab-arle, Chapela, & Madrid, 1997). The environ-mental dimensions of any form of forestmanagement are essential and, although thispaper does not focus on that issue, in our con-clusions, we will briefly discuss some of theenvironmental impacts of community forestmanagement.Thus, our paper is outlined as follows: Sec-

tion 2 briefly notes the scant attention affordedto collective, community enterprises despite itsrelevance to research and current trends indevelopment. Section 3 introduces the theoryof the firm as a starting point for more system-atically understanding the nature and chal-lenges of CFEs. In this section, we offer adefinition of CFEs as ‘‘social firms.’’ Section 4discusses Mexican CFEs’ emergence and cur-rent tensions between traditional communitygovernance and enterprise management. Sec-tion 5 presents a variety of locally designedorganizational choices in the control of re-source stocks and flows, while Section 6 de-scribes CFE performance and distribution ofbenefits. Conclusions on the theoretical andempirical significance of CFEs for economicequity and development and environmentalmanagement are given in Section 7.

2. COMMUNITIES, ENTERPRISES, ANDCOMMON PROPERTY

Communities are not often analyzed as eco-nomic entities outside of the household andsmall private enterprise strategies pursued byits inhabitants. A recent deconstruction of theconcept of community as used in the phrase‘‘community-based conservation’’ argues for afocus on competing institutions and actorsrather than harmonious communities, and pro-poses federations of communities as a strategicneed, but does not recognize the issue ofcommunity enterprise formation (Agrawal &Gibson, 1999). The common property researchagenda seeks to explain how groups of individ-uals solve the collective action problem, other-wise known as the ‘‘tragedy of the commons,’’and maintain common property resource man-agement regimes. Some of Ostrom’s (1990) de-sign principles relate directly to institutionalfeatures that will be addressed in this paper.Yet, placing organizations for the collective


appropriation as opposed to individual ap-propriation of commons into the market-place introduces additional governance issues.Whether a traditional rural community canorganize itself as a commercial enterprise de-pends upon pre-existing forms of land tenure,social organization, experience, and resources.For example, most recent efforts to promoteCFEs in the Amazon Basin among indigenouspeoples with mixed subsistence economies offarming, hunting, and gathering have failed.In these cases, most prerequisites for effectivecommunity forest management had to beaccomplished in an extremely compressed timeperiod: development of a road infrastructureand management plans, securing of land titling,and development of new forms of social andenterprise organizations, all with no priorexperience or training in commercial logging(Irvine, 2000). Indigenous peoples in theAmazon also have few institutions that preparethem for genuine collective management of acommon property resource (Smith, 1996).

3. CFES AND THEORIES OF THE FIRM

Definitional issues have long been debated intheories of the firm. Coase (1937) and William-son (1975) treat the firm as a hierarchicalauthority relationship among managers andworkers designed to economize on transactioncosts of continuously negotiating, monitoring,and enforcing contracts. Alchian and Demsetz(1972) define a firm as a ‘‘nexus of contracts’’among individuals rather than as an authorita-tive scheme, where the manager receives a por-tion of the residual profits and thus has anincentive to monitor workers. As we open the‘‘black box’’ of the firm further, we find ten-sions over who makes decisions. Jensen andMeckling (1976) argue that it is misleading toidentify the firm as an individual and speak ofa ‘‘firm’s objectives’’ when decisions comeabout by a more complicated process thanindividual decision making. They retain theassumption of a profit-maximizing individualstockholder, but suggest that the ‘‘firm’’ is notnecessarily profit maximizing. The agency the-ory emphasizes costs of incomplete informationwhere there is a separation of ownership by‘‘principals’’ who bear the risks of managementdecisions and control by ‘‘agents’’ who makedaily decisions in the firm. These costs are bal-anced against the benefits of hiring specializedexpertise. Whether the emphasis is on contracts

or legal rules, institutional economics andextension theories of the firm are fundamen-tally a study of collective action (Williamson,1975) where the distinctions of ownership andcontrol are a defining aspect of individual eco-nomic interrelationships.Table 1 compares CFEs to other forms of pro-

duction. The first column lists the basic featuresof productive organization according to Famaand Jensen’s (1983) concept of the separationof ownership and control. Owners are entitledto receive the residual profit stream after allcosts and debts have been paid but also bearthe risks of the decisions taken. Decision man-agement refers to those who initiate proposalsand implement decisions. Decision control isheld by those who ratify and supervise deci-sions. We also specify regulatory frameworkand objectives stated in the literature. Varia-tions within each organization abound, so wepresent only the most general versions here.The second to sixth columns pertain to dis-

tinct forms of organization under which for-estry-related operations can occur. Startingwith the second column, private individuals ororganizations operating what are known asNon-Industrial Private Foresters (NIPF) ownforestland but do not own or operate woodprocessing facilities. Some may hire loggingcontractors every year while others harvest onlyoccasionally. With individual ownership, theNIPF combines the role of risk bearing, deci-sion control, and decision management. In theUSA, this group accounts for 60% of all forest-land (Klemperer, 1996) and displays multipleobjectives (Tiles, 2004).The third column describes the conventional

investor-owned firm. While an array of com-pensation schemes for managers and employeesexist, most separate the tasks of risk bearing,decision management, and control. In publiclytraded companies, stockholders are the generalpublic who allow the board of directors andmanagers to control and implement decisions,respectively. A distinct feature is that sharesare defined and tradeable in the market so thata price mechanism acts as an external check toensure that managers are maximizing returns tocapital. While economists recognize that inves-tor-owned firms may have various objectives,assuming that these firms seek to maximizeprofits has had a wide application and beenuseful in explaining firm behavior (Tirole,1998).Industrial cooperatives (fourth column) re-

strict ownership to worker members who own

Table 1. Ownership and control in production organizations

Institutionalcomponent

NIPFs Conventional firm Cooperatives Mexican CFEs

Industrial Agricultural

Owner(s) Individual ororganization

Shareholders,investors

Labor Land heldby public,communityor individualwith sales tofarmer-ownedenterprise

Official membersof the community

Decisionmanagement

Owner Managers Managementcommitteeelected byworkers

Managementcommitteeelected byproducers

CBC/CBEelected bymembers

Decision control Owner Executiveofficers,shareholders,auditors

GeneralAssembly ofworkers,auditors

GeneralAssemblyof producers,auditors

GeneralAssemblyof localcommunitymembers

Legal system Land use, tax,environmentallaws

Land use,corporateand tax law

Land use,corporateand tax law

Nationaland statecooperativelaws

Agrarian,forestry, andenvironmentallaw

Objectives,assumed orstated

Profit, amenities,NTFPs, bequest

Profit, returnon investment

Dividendsper worker

Unit price,producer andconsumersurplus,services tomembers

Profit, amenities,NTFPs, bequest,jobs, publicgoods andservices


capital assets in common (Jones & Svejnar,1982). Issues akin to the collective decision-making processes of CFEs arise as membersstrive to elect a representative managementcommittee and a board of directors. However,the labor-managed firm, unlike a CFE, has de-fined ownership shares so that members canusually redeem a specified amount of shares ifthey leave the cooperative after a certain periodof time, thereby leveraging some control on theappointed decision makers. The objectives havebeen characterized as maximizing dividends tothe worker, leading to specific theoretical impli-cations, such as the ‘‘perverse supply response’’(supply moves in the opposite direction to out-put price) and a higher reliance on debt to fi-nance growth (Bonin & Putterman, 1987).Agricultural cooperatives are commonly

based on individual production from privateproperty, with a focus on collective action inmarketing, purchasing, services, or negotiatingwith external agents, but often seek to provideother benefits, for example, community devel-

opment, lobbying, and member education (Ler-man & Parliament, 1992). Decision control andmanagement functions are allocated in a fash-ion similar to that of industrial cooperatives,though objectives are characterized as maximiz-ing the price of the unit sold and maximizingthe sum of producer and consumer surplus(Lerman & Parliament, 1992). The lack of acommonly held land resource as a basis formembership distinguishes most agriculturalcooperatives from the CFEs. Perhaps Israeliagricultural cooperatives, that is, the moshavand the kibbutz, are the closest analogies toCFEs, although they are currently undergoingdramatic transformations (Zusman, 1988).Moshav residents may have private propertyand generate income individually while the vil-lage council provides public goods, with somecollective activities. The kibbutz is much morecomprehensive in collective ownership andstructure and indeed goes beyond Mexicancommunities in the number of collective activi-ties. The model closest to CFEs may be to US


Native American logging operations, and fur-ther research is needed on this phenomenonfrom the kinds of perspectives suggested here(Davis, 1993, 2000; Jorgensen & Taylor, 2000).This discussion makes it possible to distin-

guish some of the unique characteristics ofCFEs as firms, as presented in the last column.Only official members of the community, nor-mally by birth, can be owners. CFEs do nothave well-defined shares to trade or sell. Allcommunity members share risks equally, butthose who leave the community forfeit theirright to any residual profit sharing, which couldbe a deterrent to exit. Cooperatives restrictownership benefits to producer/consumer mem-bers, whereas all CFE community membershave access to resource stocks and benefits.They are also owners of the natural forest re-sources, on which the CFE is based by virtueof the historical, legal, and institutional processwhich created Mexico’s rural common propertysector.In terms of decision management and con-

trol, there are analogies between the otherenterprise forms, where assemblies of stock-holders or General Assemblies may also makepolicy decisions. In both cooperatives andCFEs, there is possible confusion over the rela-tive weight or role of these different functions.Decisions over the flow of benefits are particu-larly important, and, in many cases in Mexico,a significant amount of the benefits from a CFEmay accrue to community members as publicgoods. This is similar to the idea of ‘‘collectiveconsumption’’ engaged in by labor-managedfirms (Vanek, 1970). All forms of enterprise ex-ist in a regulatory environment with respect tolegal frameworks related to labor, production,and environmental issues. In Mexico, agrarianlaw plays an additional role in shaping CFEs.CFEs are similar to NIPFs and cooperativesin terms of having multiple objectives, althoughthe community, which owns the forest and theCFE, typically has a wider range of objectivesin forestry management.To summarize, we suggest a definition of a

CFE as a business based on collective owner-ship or secured access to a forest resource bya community, with governance derived fromor influenced by local community traditions,where tensions between direct ‘‘democratic’’community control and hierarchical manage-ment structure are present, and which typicallyhave multiple functions with profits as only oneof many goals. As an economic developmentstrategy, CFEs may be regarded as either a var-

iant of corporate private property (e.g., ‘‘thecommunity as entrepreneurial firm’’ (Antinori,2000)) or a ‘‘third way’’ between private andpublic sector production. In the followingsections, we will discuss some of the empiricalpatterns of ownership, decision management,decision control, and objectives evident in Mex-ican CFEs, and the variety of forms that CFEscan take in their management of the stocks andflows of the common property forest resource.

4. CFE EMERGENCE AND TENSIONS OFCOMMUNITY GOVERNANCE AND

ENTERPRISE MANAGEMENT

Mexico is rich in indigenous forms of com-munal organization. These institutions wereoverlaid and imitated by the agrarian reformsarising from the Mexican Revolution (1910–20) and enshrined in Article 27 of the Consti-tution of 1917. The resulting agrarian law ledto the implementation of two forms of commonproperty, ejidos and comunidades, 2 which nowcover about half of the national territory. Exec-utive power, acting through the Secretary ofAgrarian Reform, created corporate entitieswith specific membership rules and governancesystem organized around a land base (IbarraMendivel, 1999). Ejido and comunidad gover-nance derive from more ancient indigenousinstitutions and thus do not have classicallycapitalist roots. The agrarian sector was re-formed in 1992, giving local community mem-bers the opportunity to privatize individualland use, but privatization of common propertyforests is still prohibited (Ley Agraria, 2002).The 1992 reforms may be thought of as a formof devolution or decentralization of controlover natural resources of the kind occurringelsewhere (Arnold, 1998, 2001), but markedby the unique agrarian history of Mexico andits early, massive, state-directed effort to createcommon property within a capitalist economy.The traditional ejido and comunidad gover-

nance systems and subsequent reforms providethe social matrix for the emergence of CFEmanagement institutions. Logging communitiesin Mexico range from traditional indigenouscommunities with precolonial agrarian claims,typically comunidades, to much more recentlyorganized nonindigenous ejidos with few com-munal traditions (Bray & Merino-Perez,2003). Many comunidades in particular practicea system of rotating civic and religious respon-sibilities among registered community members


based on merit accumulated by service in a ris-ing hierarchy of civic positions, called cargos(Segura, 1998). Votes on major decisions affect-ing the community are taken in the GeneralAssembly in which each registered member ofthe community, called an ejidatario or comun-ero, has one vote. Voting can be by consensusor majority rule and elections to office are heldevery three years, or more frequently. Commonproperty management responsibilities fall toauthorities named in the agrarian law, theComisariado Ejidal (Ejido Supervisor) or Com-isariado de Bienes Comunales (Supervisor ofCommunity Assets). These offices are typicallyunsalaried and unspecialized toward forestryor any other management skill. Assembliesmeet a minimum of twice a year, or more fre-quently depending on needs.These forms of organization have been

adapted to the creation of a CFE in stages cor-responding to their particular circumstancesand the degree of vertical integration alongthe production chain from stumpage to trans-formed wood products (Antinori, 2000; Anti-nori & Rausser, 2003). Therefore, enterpriseforms are grafted onto community governancewhere, for example, (1) the Comisariado is theenterprise manager and all administrative postsare treated as community service assignments,integrated into the cargo or ejido system, (2)managers are appointed from the communityto auxiliary positions not part of traditionalstructures but responsible to them, (3) profes-sional managers are hired from outside thecommunity, (4) paid administrative positionsexist on a semipermanent basis and are notpart of the rotational cargo system, and/or (5)experienced or respected members of the com-munity form a sort of ‘‘Board of Directors’’with General Assembly meetings as ‘‘share-holder’s meetings’’ (Antinori, 2000; Bray &Merino-Perez, 2002). The ‘‘Board of Directors’’function can be filled by the Consejo de Carac-terizados, as in Oaxaca, or more recentlyinvented forms like the Consejo de Principalesin El Balcon, Guerrero (Bray & Merino-Perez,2003), composed of respected elders who havepassed through the entire traditional gover-nance system, and increasingly some youngerpeople.Conflicts over decision management and

control are common, leading to a ‘‘permanenttension’’ (Lopez Arzola & Gerez Fernandez,1993) between community traditions andemerging CFEs. Below, we briefly summarizethe primary manifestations of this tension: (a)

hierarchical relationships versus ‘‘democratic’’foundations of community governance, (b) theso-called ‘‘inefficiencies’’ in the interplay be-tween traditional and enterprise structures, (c)accountability and corruption, and (d) conflictsover objectives.

(a) Hierarchy versus community governance

Community general assemblies may notunderstand the technical, financial, and man-agement issues involved in the CFE, yet theymake key decisions. Community memberswho are also employees may not appreciatethe demands of the job. This point has been aformidable obstacle in other resource-basedcooperatives, such as the Basque Mondragonsystem (Taylor, 1996) and Native Americanenterprises (Jorgensen & Taylor, 2000). InMexico, most commonly, the locus of the ten-sion is between the General Assembly, individ-ual community members, and the Comisariado,which has a degree of legal authority, but maybe given little space to operate in practice. Asone frustrated CFE authority noted, ‘‘Forexample, I’m the Forest Foreman. That givesme authority over you, and I yell at you. Then,you say to me, listen, don’t yell at me, this ismy enterprise too’’ (Gijsbers, ms). The morevertically integrated communities have greaterdelegation from the General Assembly, empow-ering their managers to manage (Antinori &Rausser, 2003; Bray & Merino-Perez, 2003).There are also serious limits to ‘‘democratic’’governance within the General Assembly, since,for example, few women are legal communitymembers and therefore do not vote in generalassemblies.

(b) ‘‘Inefficiency’’ of traditional practices

Governance posts must legally and mostcommonly change every three years, althoughsome communities change CFE managers inan even less time (PROCYMAF, 2001). Whileshort terms are regarded as an important mea-sure against corruption, they also have costs asexperienced people leave, and inexperiencedand sometimes incompetent people enter.

(c) Corruption and mismanagement

It can be easy for political elites in the com-munity (caciques in Mexico) to manipulateand dominate the General Assembly andthus carry out a ‘‘covert privatization’’ of the


enterprise (Klooster, 2000). Lack of trainingcan lead to poor book-keeping and moneymanagement, creating confusion and suspicioneven where corruption has not occurred. Inapplying the theories of the firm, it may be saidthat a possible reason for the incidence of cov-ert privatization is the lack of effective, credible,and legitimately based controls on manage-ment. CFEs’ internal mechanisms of controldepend on the community’s overall governancestructure and may not be strong enough if localelites dominate the political sphere.

(d) Multiple objectives

Voting members of the community are indi-viduals who vary by age, gender, income level,and migration history and thus may weightobjectives differently. Many see the CFE as asource for jobs and profit sharing and not asa profit-maximizing enterprise. Tensions overwage policy have also been reported. Somecommunities pay by volume produced, encour-aging productivity, while others pay a dailywage, making some workers to reduce theirproductivity (Alatorre Frenk, 2000). Emerginggroups in many communities see conservationas a primary objective, and object to logging(Bray & Merino-Perez, 2002). The communityowns both the forest, which is used for morethan timber, and the CFE, which may be spe-cialized in logging. Thus, there may be conflictsbetween management for multiple uses andmanagement for timber.

5. CFE ORGANIZATION AND STOCKSAND FLOWS

The broad range of different organizationalforms and rules enacted by forest communitiesmay be viewed as different ways to addressthese tensions over ownership and decisionmaking, with distinct impacts on the allocationof stocks and flows of the common property re-source (McKean & Ostrom, 1995). In Mexico,access patterns range from extensive individualappropriation of timber to entirely communalappropriation. Examples from specific Mexicancommunities follow.

(a) El Balcon (Guerrero)

In El Balcon, the forest common property isnot divided in any way, and a CFE has beenformed to administer the flow of timber from

the resource. Both the stock and the flow areconsidered as communal property, and the flowis divided among community members in amonetary form only after the sale (Bray &Merino-Perez, 2003).

(b) San Juan Nuevo Parangaricutiro(Michoacan)

Here, a CFE has been erected on the basis ofindividually appropriated parcels in the forest.In the 1940s, before community logging ap-peared, forests were divided for pine resinextraction, effectively privatizing the forest.However, in the early 1980s, leaders convincedlandholders to follow a community timbermanagement plan and allow logging on theirlands in exchange for being treated as privateproperty holders, through the payment of astumpage fee. Thus, the stock is privatized forthe flow of resin, but the timber stock and floware communalized (Bray, 2002).

(c) Petcacab (Quintana Roo)

In Petcacab, a previously existing CFE hasbeen dissolved, and, in its place, approximately10 ‘‘work groups’’ or subcommunal enterpriseshave been formed. These work group enter-prises divide up the annual authorized loggingvolume from the management plan on a pro-portional basis. Thus, the forest stock remainsas common property held by the community,but the flow is divided up into the work groups,and finally individually, which has led to a‘‘futures market’’ in timber (Wilshusen, 2005).

(d) Union de Ejidos Forestales de Tamaulipas

In at least four ejidos of this organization, theforest remains a common property, but the flowof timber is divided up in two different forms.Approximately half the members of the commu-nities divide the annually authorized volumeinto proportional amounts, which is then indi-vidually logged, while several ‘‘work groups’’manage the remainder of the volume. Thus,the stock as a whole remains communal, butthe flow is both individually and work groupappropriated (Bray & Merino-Perez, 2002).Like an agricultural cooperative, the union itselfallocates costs of technical services and educa-tion among its members. The general subjectof CFE unions, an important phenomenon inMexico, will be considered in a future paper.


(e) Cuauhtemoc (Quintana Roo)

In this community, the forest has been inter-nally and informally parceled among the ejida-tarios. Each ejidatario can now individuallyappropriate the timber on his or her land. How-ever, they operate under a single communitymanagement plan coordinated by a profes-sional forester. The authorized flow representedin the management plan is proportionally di-vided. Thus, both the stock and the flow havebeen individually appropriated.From the perspective of the firm, these varia-

tions may have both equity and efficiency con-sequences, and are likely to have an effect onthe creation and conservation of forest stockand the distribution of benefits it generates.This variety of institutional regimes indicatesthere is no one right way to manage a commonproperty forest resource, assuming the ob-served governance choices represent a local so-cial optimum. Each variant emerges as acreative response to local problems.

6. THE ECONOMIC PERFORMANCE OFCFES AND THE DISTRIBUTION OF

BENEFITS

There has been a tendency to regard MexicanCFEs as constantly teetering on the brink ofcollapse because of mismanagement, high costs,inefficient sawmills and other industries, andexploitation by outside forces. It has also beenargued that capital and labor can more freelyshift in the private sector to more profitable sec-tors while peasant industries do not have thatchoice (Aguilar, Madrid, Merino, & Gutierrez,1990). However, CFEs also have unrecognizedstrengths. For example, it can simply sit on itsnatural asset, exploiting other means of sub-sistence, until prices or technology change infavor of using it again. Forest capital, in con-trast to other physical capital, which typicallydepreciates, maintains its value or appreciates(Klemperer, 1996). The traditional governancepractices of CFE administration can also bringabout cost savings, due to using the cargo sys-tem for administration (Aguilar et al., 1990). 3

Survey data on revenues and costs suggest thatCFEs at all levels of integration can be eco-nomically feasible in the sense that cash inflowsmore than cover cash outflows (Antinori,2000). In a first-order approximation, it wascalculated that in four categories of CFE verti-cal integration, the gross margin (sales less

labor and materials) ranged from 32% in sec-ondary product communities to 54% in stump-age communities (Antinori, 2005). 4 These dataindicate a reason why few CFEs go out of busi-ness entirely.We identify at least four streams of benefits

generated by the CFE: (a) employment (wagesand benefits), (b) public goods investments incommunity infrastructure and social welfareprograms, (c) profit sharing, and (d) capitalinvestments in the enterprise. Economic diversi-fication is a fifth benefit considered elsewhere(Antinori, 2000).

(a) Employment (wages and benefits)

CFEs can generate jobs for very high per-centages of the community labor force. Atone extreme, there are ‘‘full employment’’CFEs where nearly everyone in the communitywho wants a job gets one, ranging from SanJuan Nuevo Parangaricutiro in Michoacan,with some 900 full-time jobs, to Rosariodel Xico in Veracruz with 24 jobs (Bray &Merino-Perez, 2002; Merino et al., 1997). Atthe other extreme, there are stumpage commu-nities where almost no one is employed in forestextraction. In a study of 42 CFE communitiesin Oaxaca, the percentage of community mem-bers receiving income from the CFE on a regu-lar basis was 15% in stumpage communities,19% in roundwood and sawnwood communi-ties, and 26% in secondary product communi-ties (Antinori, 2000). This suggests that mostCFEs can only generate employment for aquarter or less of the community labor force,although without CFEs there would be few lo-cal opportunities. The stumpage group has thelargest percentage of outside workers, perhapsdue to lack of skill or interest in the communityor less bargaining power with contractors.However, the 26% employment level in second-ary product communities may exhaust the com-munity labor supply interested in working inthe CFE, since 63% of the secondary productcommunities hire outside workers comparedto 11% of the sawnwood communities (Anti-nori, 2000). Most of the more integrated andprosperous CFEs also support various fringebenefits, such as health coverage and accidentaldeath benefits (Bray & Merino-Perez, 2002).

(b) Public goods investments

Many communities invest significant fundsinto public goods such as public infrastructure

Table 2. Distribution of CFE profits by level of integration to public goods, profit sharing, and reinvestments in CFE(in 1998 pesos), N = 42

Public goods investments Percent contributing SE Number of observations

Stumpage 88 .08 16Roundwood 82 .12 11Sawnwood 88 .12 8Secondary products 100 0 6

Profits distributed to members > 0 Average, in pesos Number of observations with profit sharing

Stumpage 10,194 9,390 4Roundwood 814 548 5Sawnwood 2,333 1,155 3Secondary products 2,250 2,411 3

Reinvestment in ongoing operations Percent contributing Number of observations

Stumpage 38 .50 16Roundwood 83 .39 12Sawnwood 88 .35 8Secondary products 100 0 7

Source: Antinori (2000).


and retirement pensions, services that are nor-mally the responsibility of the government.Communities may construct or restorechurches, municipal buildings, public lighting,potable water systems, clinics, and schools. 5

As Table 2 shows, almost all 42 communitiesin the Oaxaca study channeled CFE revenuesto social services in the year of the survey (Anti-nori, 2000). Some communities support retire-ment pensions for elderly members or widowsand one community with one million dollarsin annual profits invests 60% of it incommunity public goods (Bray & Merino-Perez, 2002).

(c) Profit sharing

Communities may also decide to distributeall or part of the profits on a proportional basisto all legal members. Distribution of most pro-fits may result from lack of trust, poverty, orlow probability of investing in downstreamprocessing. Amounts of annual profit distribu-tion may range from less than one month’saverage income to greater than full average an-nual rural incomes. One Quintana Roo study offive communities showed an average of 13.5%and a high of 30.3% of household income com-ing from profit sharing (Armijo Canto & Rob-ertos Jimenez, 1997). Table 2 shows that lessthan half (15 of 42) of the Oaxaca study com-munities distribute profits.

(d) Reinvestment and vertical integration

Profits may also go to asset maintenancesuch as constructing or maintaining loggingroads for equipment that permits vertical inte-gration. Most communities made such invest-ments, although more vertically integratedCFEs did so at higher rates. Successive stepsin vertical integration typically go from usingextraction equipments such as cranes, totrucks for transporting the logs, and then tosawmills and other processing facilities. Log-ging can be profitable enough to generate thefunds to acquire more productive assets forthe CFEs. This is quite common in the Oax-acan CFE Study. Table 3 shows the degreeof asset ownership in CFEs at the four levelsof integration, who owns the equipment, andwhen and how it was acquired. The commu-nity forestry industry represents a sizeableamount of capital assets. Individuals oftenown trucks used for transporting logs. Theincidence of collective truck ownershipincreases with integration level. Cranes requiremore specialized skills, and fewer are neededthan trucks to meet production goals. Ofparticular note here is that in the great major-ity of cases, assets were purchased withcommunity funds with little reliance on out-side debt, suggesting barriers to credit, a biasagainst debt, or lack of need for debt financingat that point.

Table 3. Capital asset ownership in Oaxacan CFEs, N = 42

Trucks Cranes Sawmills

Stumpage Roundwood Sawnwood Secondaryproducts

Stumpage Roundwood Sawnwood Secondaryproducts

Sawnwood Secondaryproducts

n = 15 n = 13 n = 8 n = 7 n = 15 n = 11 n = 7 n = 7 n = 8 n = 7

Average number

used for harvest

10 10 13 14 1.75 1.7 1.5 2.9

Distribution of ownership (number of communities)

Community owned 1 8 6 7 0 6 7 7Total individuallyowned, comuneros

4 7 7 4 1 3 0 0

Total individuallyowned, noncomuneros

11 9 2 4 0 0 0 1

Buyer owned 7 1 1 0 14 4 1 0

Average year first bought,

if community owns

1993 1991 1989 1980 1994 1995 1991 1986 1993 1986

How bought first, if community or comunero owneda

Community funds 1 7 5 4 1b 4 5 6 6 6Government assistance 0 0 0 1 0 0 0 2 1 0Bank credit 0 1 1 0 0 0 0 1 1 1Agreement withprivate company

0 0 0 2 1b 4 1 1 1 4

Source: Antinori (2000).a Numbers do not always add to sample totals due to multiple responses per community.b Refers to acquisition by community members.

COMMUNIT

YFORESTENTERPRISES

1539


7. CONCLUSIONS

Mexico has been historically in the vanguardin developing a large and relatively mature sec-tor of communities managing their forests forthe commercial production of timber (Stone& D’Andrea, 2001). As such, it provides keyelements for both a re-conceptualization oftheories of the firm and empirical lessons abouttheir institutional characteristics and economicbenefits. Mexico, due to its agrarian revolu-tion early in the 20th century, intermittentlysupportive government policies, communitymobilizations, civil society support, and re-forms to the Mexican constitution in 1992, ad-vanced in its devolution of control over forestresources to local communities, and thus pro-vides a laboratory test of the costs and benefitsof such a policy. The evidence from Mexicosuggests that unique characteristics of CFEsin general, and Mexican CFEs in particular,make them unusually resilient. Few ever goout of business despite international competi-tive pressures. They are a vehicle for forestmanagement that potentially delivers a signifi-cant measure of economic and social benefits.However, it is important to note for collectiveaction theories that few CFEs are fully ‘‘self-organized,’’ and that state and civil society ac-tors have generally played an important role intheir formation.We have argued that CFEs and common

property community enterprises in general re-quire extensions in the theory of the firm. CFEsas firms share similarities with other productionorganizations, but also differ in important waysalong the dimensions of ownership, decisioncontrol and management, and objectives. Inownership, CFEs originated because of a gov-ernment created or recognized common poolresource, and all community members have aclaim to resource stock and benefits. In decisioncontrol and management, CFEs, like coopera-tives, characteristically experience confusionamong shareholder, manager, and worker func-tions, and the sorting out of these roles can leadto intense community conflicts. CFEs work inforests which are used for logging, firewood,building materials, nontimber forest products,environmental services, and bequest values,and prioritizing these uses can be challenging.The CFE is not free to simply incorporateand establish itself as a private enterprise whereit can equilibrate risk-sharing burdens throughthe public sale of stock. It must struggle to cre-ate market-oriented institutions out of a pre-

existing matrix of traditional community gover-nance. Mexico’s ejido and comunidad systemsare different in its details from local governancesystems elsewhere in the world, but the tensionsbetween community and enterprise governanceemergence are likely to be similar.As communities grapple with these issues in

the Mexican case, they have generated a widevariety of institutional arrangements for man-aging the stocks and flows of the commonproperty resource, and thus the structure ofthe CFE. There would appear to be no oneideal form of a CFE organization. CFEs arecapable of generating an array of benefits forforest communities, including wages and bene-fits associated with employment, investment inpublic goods and welfare programs, direct prof-it sharing, and capital investments in the CFE.For many CFEs with little or low quality com-mercial forests, forestry will be of only minorimportance. But many CFEs demonstrate, asWunder (2001) has speculated, that communi-ties which directly control logging can use prof-its to both alleviate poverty and promoteeconomic development. As well, demandingindustrial skills and processes are not beyondthe capacity of local communities, given appro-priate levels of training, technical assistance,and contractual opportunities in the market-place. There is much evidence of shortcomingsof public and private sector logging in deliver-ing benefits to local communities. Thus, CFEsmay constitute a ‘‘third way’’ of economicdevelopment for countries with large rural pop-ulations with common property traditions andforest resources.The issue of environmental sustainability has

been mentioned throughout, but for reasons ofspace has not been discussed. However, since itis a key element in evaluating CFEs, it shouldbe briefly noted that there is also emerging evi-dence that Mexican CFEs may also have someadvantages in terms of good environmentalstewardship, and some are collaborating closelywith researchers to improve environmentalmanagement (Bray et al., 2003; Velazquez,Bocco, & Torres, 2001; Velazquez, Torres, &Bocco, 2003). Regions dominated by commu-nity-managed forests have been shown to havethe lowest rates of land use change in tropicalMexico and to compete successfully with pro-tected areas in the maintenance of forest cover(Bray, Barry, & Merino-Perez, in press; Duran,Mas, & Velazquez, 2005). Community loggingin Quintana Roo has no impact on plant biodi-versity (Vester & Navaro-Martinez, in press).


Snook (1998) has also argued with respect toQuintana Roo community forests that

. . .the many communities that own, utilize, and ben-efit from this forest also provide a context withinwhich forest management can be practiced in a moreholistic fashion than that defined by the limited de-mands of the timber industry. . .a diversified, peasanteconomy may provide the best framework for a kindof silviculture that works with the complexity of. . .species-diverse tropical forests.

On the other hand, when community forestmanagement is caught up in community con-flicts, forest degradation is likely to be the result(Klooster, 2000).In this paper, we have presented an analyti-

cal framework for CFEs based on an exten-sion of theories of the firm to highlighttensions over ownership, decision control andmanagement, stocks and flows, and economicbenefits and distribution of the surplus. Wealso suggest, to refer to the questions posedearlier in this article, that CFEs are developing

new models for how communities can combinedemocratic participation, community manage-ment, and economic efficiency, with varyingdegrees of success and failure. They may havedistinct advantages and resilience in achievinga balance of economic equity and environmen-tal stewardship through a unique combinationof enterprises, deeply rooted communities,and a common property resource. The experi-ence of Mexico suggests that neither beingcommunity based nor a traditional institu-tion is necessarily a hindrance to becomingcompetitive even in international markets,and may confer some competitive advantages.The special characteristics of CFEs also sug-gest that governments may want to begindeveloping specialized forms of legislationand support that meet their special needsand allow them to achieve their potential forequity, social stability, and better environmen-tal management of local and global forest re-sources.

NOTES

1. The authors’ names are in alphabetical order. Anearlier version of this paper, authored by David BartonBray, was presented at the international conference on‘‘Rural Livelihoods, Forests, and Biodiversity’’ orga-nized by the Center for International Forestry Researchand held in Bonn, Germany, May 19–23, 2003.

2. The literal translation of ‘‘comunidades’’ is ‘‘com-munities,’’ but in Mexico, it is also a concept in agrarianlaw, meaning indigenous communities which demon-strated long occupation of the land, in contrast to ejidos

which are based on a group’s new land grant from landredistributed through the agrarian reform process.Hereafter, when referring to the specific Mexican agrar-ian legal term, we will use the Spanish term comunidades.When we use the term ‘‘communities’’ in English, we

refer to both ejidos and comunidades as a generalcategory.

3. It is not specified in the study if the lower costs werereflected in the market price or the marketability of theCFE’s product.

4. The four categories of CFE vertical integration referto stumpage, roundwood, sawnwood, and secondaryproducts.

5. Not all such investments are necessarily optimalones. Some communities will invest large sums in a newmunicipal building when there are no computers in thecommunity (Lopez Arzola, personal communication).

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