The EU adopted theForest Strategyin 1998 to implement the principles and cri- teria of sustainable forest management. The Strategy articulates the priorities that should shape member state forest policies in Europe as follows: sustainable forest management and the multifunctional role of forests are overarching com- mon principles; the importance of taking global and cross-sectoral issues into account is increased; and national forest programmes (NFPs) are expected to be the main instruments for implementing SFM principles (EC, 1998). As countries develop their NFPs, they specifically recognise that forests offer a wide range of benefits and contribute to the creation of opportunities for more people to enjoy forests as well as to help rural communities benefit from them.
While much has been done in the EU to manage forests sustainably, imple- menting SFM has often led to a shift in emphasis from the productive values of forests and their social and economic benefits to their environmental values and services. In the 2005 assessment of the implementation of the EUForestry Strat- egy, the concern over the imbalance in addressing the different dimensions of SFM in terms of economic, social and environmental functions was explicitly noted. The report states that while there has been considerable progress in the environmental area, more could be done to better identify the major economic and social issues to secure sustainable management of forests in the long term (EC, 2005).
In transition countries, the regional socio-economic conditions mean that the economic aspects of forestry development and related social issues such as employment, poverty alleviation along with rural and community development are particularly important. In order for the countries in transition to accumulate financial assets, attract investment and economic development, the asset value of the forest is a critical resource for development and improved social condi- tions. However, these countries have inherited from the previous political system mechanisms of decision making that do not take into consideration the present and future conditions for wood production and consumption. Indeed, in many instances, the forests have not been considered an economic asset in market terms, but simply a state patrimony value. For instance in Ukraine,2commercial exploitation of nearly 50% of forest areas is limited yet the annual change in growing stock suggests that these forests could sustainably produce more wood products. To improve the efficiency of and capacity for timber production so that the country could export rather than import timber products, significant changes will need to be introduced into forest policy to promote economic sustainability.
Commonly, the economic dimension of sustainability in forestry requires cost efficient and long-term resource production, where the basic requirement is
a constant or an increased flow of benefits from a forest whose structure and composition are maintained consistent with SFM criteria and indicators (Rice et al., 1997). However, in the economies in transition, achieving economic sustainability is difficult because the forest is endangered through unregulated and illegal uses (Gensiruk, 1999). Despite official norms for forest protection, high interest rates, ineffective enforcement of laws, corruption and demand for wood in foreign markets provide incentives to entrepreneurs to cut and sell tim- ber. Forest policy reform in transition countries needs to recognize that generally pro-environmental legislation may not result in sustainable forest management because forest enterprises are guided primarily by consideration of economic efficiency and profitability. Thus, a forest policy that officially focuses on envi- ronmental priorities and conflicts with the interests of forestry enterprises can easily lead to activities that will result in non-sustainable forest management (Komendar, 2001).
In order for sustainability to be consistent with economic efficiency the growth rate of the forest must be larger or equal to the interest rate (Nijnik, 2004). Maximizing the net present value (NPV) involves a comparison of the net benefits from postponing harvesting with the net benefits from harvesting timber and investing the profits. The objective of maximizing the NPV from the forests with moderate growth often promotes higher harvest levels than the net growth of forest stands. This focus on economic efficiency thus encourages the establish- ment of fast-growing commercial plantations instead of natural forests. This in turn endangers biological diversity and the health and vitality of forest ecosys- tems. In addition, often the establishment of forest plantations increases costs related to care and protection of monoculture forest stands that are less stable biologically, and these costs are not always included in the evaluation process (Nijnik, 2004). There is a threat therefore that in conditions of non-internalized externalities, consumption in forestry could be restricted to the consumption of economic goods and services, leaving the social benefits and environmental service components of SFM underestimated.
Generally, the economic criterion of SFM is less defined in the literature and in the indicator systems being employed. Useful indicators of SFM are, for exam- ple, rents. As a rule, rent is a measure of wealth and its proportion captured by the government indicates whether or not government revenue from forestry is sustainable. Recording of rent capture provides an indicator of the sector’s sus- tainability because in a market economy (quasi) rent capture3accelerates tech- nological development in forestry (Van Kooten,1995). In forestry-in-transition, however, when forest resources are undervalued, rent-seekers tend to redistribute wealth according to their interests, which may do nothing to develop a more effi- cient use of the resources or technological innovation. The discrepancy between the prices of timber production and the prices for timber on the world market encourages rent-seekers to sell timber and capture the rents.4While with proper institutions exporting timber can be beneficial for the economy, since it decreases the budget deficit and provides resources to modernize the machinery, in economies-in-transition this may not be the case.
There is a need therefore in transition countries, where property rights are not always guaranteed, information is often asymmetric and natural resources
are undervalued, to extend the frame of forestry toward a market economy. For- estry advances toward sustainability depend on the extent to which markets and social institutions function in delivering appropriate signals for more optimal allo- cation of various components of capital in space and time.
The weak institutions in countries in transition permit theshadow economy to reduce the tax base of the state and official foreign exchange holdings, leaving the overall performance of the economy in worse shape. Though the data on underground business in forestry in the countries in transition is unavailable, the situation is likely to be bad in the sectors of the economy that are coping with the extraction of natural resources. Losses to the national budget from the shadow economy could be substantial (Fonkych, 2000; Hryniv, 2001). Hence, for transi- tion countries with weakened institutions and commodity prices that do not yet reflect the real value of resources and their scarcity, it is even more important, yet more difficult, to define and employ economic indicators of forest sustainability.
Meanwhile, the SFM addresses economic, social and environmental dimen- sions of sustainability as separate blocks which must be balanced. To ensure a sustainable multifunctional development of forestry, the economic policy reform focused on enlarging the efficiency in timber supply must be complemented by well-targeted measures to preserve forests and conserve their biodiversity and landscape values. The role of government is important in balancing economic objectives with social and environmental requirements (e.g. through the enforce- ment of legislation able to cope jointly with the needs of different forest owners).
Governmental intervention in terms of public environmental and social policies is highly justified during the transition. Over time, and with institutional develop- ment, direct government intervention gives way to indirect guiding through insti- tutional and policy design to further the advance of markets. However, the role of government in regulating the tenure, management, financing and production of public goods will remain even under conditions of a market economy.
Finally, an essential part of SFM policy reforms is the transition in governance.
There are three basic mechanisms of governance5related to the economy: mar- kets, hierarchy (authority) and collective action. Markets constitute govern- ance by voluntary exchange between two parties. Hierarchy is governance by command-and-control instruments, when authority is assigned to one or many actors, on the basis of top-down approaches. Collective action is a coordination by common interest when people act together (Gerrard, 2000).
All over Europe, the importance of ‘good governance’ for the protection and sustainable management of forests is being increasingly emphasized, along with the need to develop and apply integrated approaches in forest policy formula- tion and implementation with wide public participation (EC, 2005). Prevailing institutions in the transition countries, however, constitute the hierarchy.6When rules of governance correspond primarily to government laws and organizations are mainly based within the governmental structure, the whole system of institu- tions does not maximize gains for the participants.
In such situations, policy reform necessitates replacing obsolete human capi- tal and directing the motivations of policy actors to support of a market economy with active involvement of local communities and general public in decision making in forestry. It is important that forest policymakers, practitioners and
environmentalists, all key stakeholders, and the public recognize the forest policy issues in their full importance and complexity. This should lead to a greater emphasis on wise use and protection of forests and to the realization of more joint and effective measures toward managing forests sustainably.