The world’s poor, especially subsistence farmers and pastoralists are the first to suffer from the loss of services provided by ecosystems and biodiversity – in other words, the free benefits of nature. These include food and fuelwood from forests, the flow of water and nutrients from forest to field, flood and drought control and soil retention provided by forests, fish from the ocean, and so on. By assigning a value to these services flowing from nature to people, the global economy can start to account for the costs of biodiversity loss as well as reward the benefits that nature provides. This will help protect the natural world for future generations.
A problem of today’s economy is that we have become obsessed by “GDP growth” as the all-important measure of success. The political economist Bertrand de Jouvenel recognized the shortcomings of “GDP growth” as far back as 1968: He wrote ‘because national accounts are based on financial transactions they account nothing for Nature, to which don’t owe anything in terms of payments but to which we owe everything in terms of livelihood.’ Our economic compass is faulty and must be updated to reflect the role of human capital and natural capital in sustainable development, and to ensure that the costs and benefits of conserving nature are more fairly distributed.
Our tendency to discount future benefits compared todays discriminates against future generations. Using a discount rate of 4% (most studies use between 3% and 5%) arithmetically amounts to saying that we value and will trade off a benefit to our own grandchild, 50 years hence, at one-seventh of its value to us today. Furthermore, our use of indicators which are not weighted for poverty discriminates against the poor. We may dismiss ecosystem services as only “10-20% of GDP”, but they are actually “50-90% of the GDP of the poor”. These are all ethical choices that we make, not economic choices. Economics is mere weaponry – the direction in which we shoot is an ethical choice..
The challenge is not only to determine the values of biodiversity but to present these values in a way that is useful to people. It is not sufficient to provide one big global number; we must provide a range of local values that enable local policy makers to make decisions on (for example) conserving forest cover, enable corporations to know their footprint on ecosystems and the climate, and consumers to understand their impact on natural resources.
I am very hopeful that there will be increasing recognition of the economic importance of biodiversity and ecosystems, not just among economists but at the level of policy makers, administrators, businesses and the public.
Promising new initiatives on mechanisms and markets for ecosystem services are emerging in many places and these should be encouraged. The lessons of TEEB are being taken up by many leading governments and corporations. To be successful however, they will all need better institutional infrastructure, more incentives, easier access to financing, and good governance—in short : investment.
This is investment in our grandchildren, and in our poor. For governments, it is about investing public money into public wealth. Why would any sane government not do so ?
As an investment banker with “another life” built over fifteen years around my passion for the economics of Nature, and now made even more serious with my leadership of “TEEB” ( see http://www.teebweb.org ), I am often asked how I reconcile my capitalist background with my commitments to Nature and our environment ?
I give my stock reply “I don’t reconcile them – I am a Total Capitalist”. And usually, the conversation ends there.
Sometimes however, a rare, curious mind will go on to ask the next question, usually some version of “You mean… you see Nature as a form of Capital ?” Now, that does deserve an answer, not a brush-off !
Some years ago at an environmental conference in Aspen, Colorado, I heard Prof. Richard Norgaard speak about what he called “Economism”, the unstated but underlying ideology of Economics. Perhaps that unstated ideology of Economics can be summed up as “Money Matters Most”. But must we so confuse money with capital that we fixate solely on one dimension of capital, i.e. Financial or Man-made capital, and ignore Human Capital and Natural Capital ?
Markets help us to value goods and services that are traded in markets, such as ad-space, club memberships, cars, and houses. We value these things, we conserve them, & we would not voluntarily destroy them – whether they belong to us, or to someone else. These are private goods. But what about public goods & services which belong to everybody and nobody ?
Where are the “markets” to buy and sell clean air, fresh water, law and order, communal harmony, species diversity ? And are we not collectively guilty of assuming “no price = no value = no need to conserve” public wealth ?
For Capitalism to work, it must be recognized in all its dimensions – Physical capital (financial assets, other man-made assets), Human capital ( education, health, social fabric, etc) and Natural capital ( freshwater, forests, biodiversity,etc). This actually is not a new thought. It goes right back to Adam Smith’s concepts of “land, labour and capital”. But in his days, land and labour were plentiful, and if not, then colonization expanded supply. Energy was not even a major factor of production. The scarce input was financial capital, and the entrepreneur-businessman was feted by society because he created financial capital.
How times have changed !
We now need three-dimensional capitalism, we need more sophisticated economics. However, as it was then, business must lead the way and seek new rules and behaviours, which will be regulated by governments, and will be observed, analysed, and summarized by some new-age Adam Smith – and perhaps written up as “An inquiry into the nature and causes of the three dimensional wealth of nations” ?