A central theme of sustainable development is the integration of eco­nomic, social and environmental concerns.

This principle is at the heart of the Bruntland Commission report, the Earth Summit agreements and various national policies and strategies. Chapter 8 of Agenda 21 (UN 1992), agreed to at the Earth Summit on Integrating Environment and Development in Decisionmaking, states:

A first step towards the integration of sustainability into economic management is the establishment of better measurement of the crucial role of the environment as a source of natural capital and as a sink for by-products generated during the production of man-made capital and other human activities.

In this view, integrating environment and economy means appreci­ating the role of the environment as a component of the economic system that provides raw materials for production and as a receptacle for wastes from production. David Pearce and his colleagues (1989: 5), in their report on sustainable development, interpreted the principles of sustainable development as recognising that 'resources and envi­ronments serve economic functions and have positive economic value'. Similarly, DJ Thampapillai (1991: 5) states in his text on Environmental Economics:

Clearly, the natural environment is an important component of the economic system, and without the natural environment the eco­nomic system would not be able to function. Hence, we need to treat the natural environment in the same way as we treat labour and capital; that is, as an asset and a resource.

The economists' view

Economists claim that environmental degradation has resulted from the failure of the market system to put any value on the environment, even though the environment serves economic functions and provides eco­nomic and other benefits. They argue that environmental assets, because they are free or underpriced, tend to be overused or abused, thereby resulting in damage. Because they are not owned, and do not have price tags, there is no incentive to protect them.

The word 'value' is derived from the Latin valere, meaning 'to be strong or worthy', and has a moral dimension for most people: values are what they teach their children. However, economists use value to mean 'that amount of some commodity, medium of exchange, etc., which is considered to be an equivalent for something else; a fair or adequate equivalent or return' (Oxford English Dictionary quoted in Waring 1988: 17). So when economists talk about environmental values they are speaking of something quite different from the environmental values that environmentalists speak of.

Economists argue that unless the environment is valued in monetary terms - that is, given a price - it will be undervalued. They claim that most people are used to dealing with monetary values and can more easily relate to them. Also, because other things are valued in monetary terms, if environmental benefits are converted into monetary terms they can be compared with the benefits of other ways of spending money. For example, the benefits from preserving a wetland can be compared with the benefits of filling it in and building a housing estate.

Some environmental resources - such as timber, fish and minerals - are bought and sold in the market. But their price often does not reflect the true cost of obtaining them, 'because their valuation has invariably been based on the resource as an entity by itself and not as the compo­nent of a resource system' (Thampapillai 1991: 15). Thus the price of a resource may include the partial but obvious cost of obtaining it, but not the cost of the environmental damage caused in the process.

Other environmental goods, such as clean air, the ozone layer and aesthetic landscapes, are not bought and sold, and so are said to have a zero price in the market place. They are referred to as public goods.

The treatment of public goods

The market does not deal very well with resources that are not individu­ally owned - such as the atmosphere, waterways and some areas of land - referred to as public (or social) goods by economists.

1. 'Consumption by one person does not reduce the quantity available to others.' For example, when a bushwalker goes to a scenic lookout her action does not reduce the amount of view available for others to see.

2. Benefits automatically accrue to everyone - 'enjoyment cannot be made conditional upon the payment of a price or upon ownership'. For example, if the ozone layer is not depleted, everyone benefits. Conversely, no one can be prevented from benefiting, even if they do not pay to prevent its depletion.

3. 'Individuals cannot avoid using the good.' For example, the air is some­thing that no one can avoid breathing (HRSCEC 1987: 11).

Public goods include some types of information, most scientific know­ledge, lighthouses and national defence, as well as environmental bene­fits. In reality, there is a continuum from 'pure' public goods to private goods, with many goods and services having some but not all the char­acteristics of a pure public good. For example, a water supply can be charged for, and is sometimes privately controlled and sold. The world's supply of fertile soil, forests and even beaches can be seen as a common heritage, but parts can be owned by individuals.

One of the reasons that public goods are not usually bought and sold is that it is difficult to exclude non-payers from using or taking advantage of them. This means it is hard to make a profit from providing them, and there is little incentive for private firms to supply or maintain them. However, public goods often cost money to supply or maintain, and their provision and protection has traditionally been a government responsibility.

There is some debate about how well governments fulfil this respon­sibility. Economists agree that the environment could be more effectively protected if people and firms were charged real prices for using it. This would ensure that environmental considerations were incorporated into market decisions and the environment was properly priced to reflect the relative scarcity of natural resources and assets.