‘Mainstream’ Environmental Economics to the Rescue?
Strengths and Weaknesses of the Market-Based Approach
Although there were already alternative attempts by social scientist to integrate understandings of social life with recognition of the ‘metabolism’ between humans and nature, it was the neo-liberal approach to economics that took hold of the public policy agenda.
In the tradition to which this approach belonged, the core concept of economic life was market exchange between individuals, each seeking to maximize their own advantages from the exchange. This would be the only way in which the immense diversity of shifting individual wants and ‘tacit’ preferences could be coordinated with flexible supply in a complex society. The market would function as a gigantic signalling system, increases or decreases in demand for different commodities interpreted as instructions to producers to increase or reduce supply. Competition between producers would ensure that demand was met with the least cost possible under current conditions, and competition would drive innovation to reduce those costs. Perhaps the thinker with the greatest influence in popularizing these ideas was F. A. Hayek. Originally developed as a defence of liberal individualism against Nazi ideology in the 1930s, his ideas were later deployed against all ‘collectivist’ projects, such as communist and democratic socialist attempts to override the imperatives of the market (Hayek 1935; 1944, 1976; Gamble 1996). Though side-lined by the influence of social democratic ideas in the West following the Second World War, there was renewed interest in his ideas with the rise of the new right, associated with Prime Minister Margaret Thatcher in the UK, and President Ronald Reagan in the United States from the 1980s onwards.But despite the attempt to rely on a ‘pure’ market economy, it came to be recognized, even in this tradition of economic thinking, that in some areas markets failed to deliver optimal distributions.
For example, if producers were able to cut costs by using a resource for which they did not need to pay (say, emitting pollution into a water-course, or into fresh air), they would be able to off-load their costs onto others, and, indeed, be incentivized to increase those costs. These costs were thought of as ‘externalities’, and the broad policy response would be to re-impose the costs on the producers (e.g. the ‘polluter pays’ principle) by some means, so that those negatively affected may be compensated, or the polluting activity reduced. Although ‘externalities’ may be of several kinds, the idea is clearly applicable to environmental degradation, and this provided the basis for the discipline of ‘environmental economics’. The problem, as seen from that point of view, is that many aspects of nature - the air we breathe, beautiful views, birdsong and so on are valuable to us but are both available free of charge and limited in supply. Free goods that are limited in supply are liable to be overused and so degraded. So, the use of such goods must be limited by imposing a charge. This, in turn, requires us to assign an economic value (i.e. a price) to nature’s freely given ‘assets’, and charge users accordingly. For some ‘assets’ this entails assigning property rights to goods that have so far been treated as held in common. This was, in fact, the thinking behind the biodiversity convention.Sustainable development, itself, came to be redefined in these terms. An asset from which we derive a benefit is, in economic terms, ‘capital’. Nature, seen as a colossal bundle of resources of potential benefit to humans, is thus a form of capital - it forms part of our wealth. The rest of our wealth is tied up as physical property, savings, financial investments and so on. This is defined as ‘produced’ capital. Total capital is natural plus produced capital. On one definition, ‘sustainable development’ is reinterpreted as increasing total capital, where natural capital can be degraded, so long as produced capital rises to compensate for the loss.
This could be satirized as ‘it’s ok to destroy nature so long as you make a profit out of it’. Less satirically, it is referred to as ‘weak sustainability’. More genuinely environmentalist economists have developed stronger versions, imposing qualitative limits on what alterations to natural capital can be allowed. For example, some natural capital is defined as ‘critical’, and so needs to be protected. Some environmental losses are deemed ‘irreversible’, and they should be avoided. This could, if taken seriously, involve quite a strong restraint on environmental degradation, for example, preventing building that obstructs a valued view, degrades a wildlife habitat or renders a species extinct. As we shall see, the system has plenty of loopholes to avoid such issues. Since these ideas have been pre-eminent as guides to policy for several decades, the fact that the ecological problems they were intended to solve have continued, with ever-growing intensity, might be another source of scepticism about their effectiveness.There are many practical and philosophical problems with the version of environmental economics as outlined here. The practical ones have to do with the power relations between the institutions that have the task of imposing costs on polluters, the ability of the latter to negotiate and avoid regulation, the uncertainty of methods of measuring and assigning economic value to ‘assets' that are not actually traded, the incompleteness of the knowledge on which such decisions are made and so on. The philosophical issues are the ones that concern us here. First, the concept of ‘natural capital' represents the whole of nature as a source of assets for human use. This obliterates the claim on nature made by other species, except in so far as they themselves can be represented as assets for our use. In more philosophical language, to consider nature as capital is to see the human species as the sole bearer of inherent value - a position often referred to as ‘anthropocentrism’.
Second, the attempt to assign economic value - that is, price - to the beings, processes and systems of nature is to reduce an incalculable qualitative diversity to a single, quantitative system of calculation. This is a secondary consequence of anthropocentrism, since it is done to enable efficient manipulation, but the consequence of the initial reduction of quality into quantity, is the proliferation of unforeseeable and destructive consequences of action. A recent report, commissioned by the UK treasury, has attempted to integrate biodiversity into this tradition of economic thinking (Dasgupta 2021a) and its limitations illustrate some of these issues, as I will argue in detail later in the chapter.Notwithstanding these problems, environmental economics has played a significant role in raising the profile of our ecological predicament in public discussion and policy agendas. Perhaps the most notable example of this has been the UK government- commissioned Stern Report on the economics of climate change (Stern 2006). Stern accepted the broad scientific consensus on the likely effects of unchecked climate change on water resources, food and agriculture, human health and other environmental processes. His argument was that the cost to global gross domestic product (GDP) of inaction on climate change greatly outweighed the relatively small cost of reducing greenhouse gas emissions. The key policy proposal was to assign a price to carbon emissions, and use taxation or trading regimes to incentivize reduction. Although this was a government-sponsored report, and widely supported in many quarters, it was met with sustained criticism in the media by climate change sceptics and free-market fundamentalists, who held that continued economic growth would provide us with future technologies to address any problems as they arose, and others, who argued that the UK would lose competitive advantage if his proposals were implemented. Global greenhouse gas emissions have continued to rise since that time, and by 2020 there was a growing consensus, even in the United States, that warming is a global existential threat.
However, the rise to prominence in public concern of the threat from climate change has pushed to the margins other, equally threatening, symptoms of the growing contradiction between current global growth patterns and the earth's resilience. Biodiversity loss, on a scale and at a rate comparable with the great extinction ‘events' of the geological past, is only slowly coming to be understood as just as dangerous as climate change, and also as intimately intertwined with it.Partha Dasgupta and the Economics of Biodiversity
In several respects, the extinction crisis poses more of a challenge to economic analysis and policy development than climate change. The challenge was taken up by the distinguished economist P. Dasgupta, whose review was presented to the public under the auspices of the Royal Society, and endorsed by Sir David Attenborough, Prince Charles and Prime Minister Boris Johnson (Dasgupta 2021a, b). Given such an august launch, one would not expect radical conclusions. However, the review is, in certain respects, surprisingly radical. Although it is situated well within the terms of the version of environmental economics as just outlined, it does make some significant moves, especially in relation to prevailing notions of public welfare and measures of economic success. There is not sufficient space here for a full engagement with the details of Dasguptas argument, but, instead, I'll consider from a philosophical point of view the fundamental conceptual constructs and tease out some of their implications.
Dasguptas key criticism of GDP as the measure of economic success is that it measures only what we draw from nature and convert into means of consumption. What this fails to recognize is that what we draw from nature, and our ability to continue doing so, depend on the maintenance of the earth's ecosystems and, ultimately, their integration in the earth's biosphere. When we deplete the natural processes that the economy depends on, then we reduce our wealth in ways not recognized in such measures as GDP.
Dasgupta outlines the key concepts of ecology, recognizing the importance of diversity of species to the stability and resilience of ecosystems, the importance of soil biodiversity, the role of ‘primary producers' (mainly plants and some micro-organisms which convert energy from sunlight into chemical energy) and so on. He also grasps the processes that degrade ecosystems, such as fragmentation, pollution and climate change, as well as excessive ‘harvesting' by humans.He sets the problem to be addressed by an economic approach to biodiversity loss in terms of the immense expansion of human economic activity between 1950 and 2020. In seventy years, the world population had grown from 2.5 billion to over 7.7 billion, and global GDP had risen thirteenfold to $120 trillion. But, he argues, this massive increase in what he calls ‘produced capital' has been achieved at the cost of large-scale degradation of nature. He offers the explanation of this which has become standard within this tradition of environmental economics. Many aspects of nature which are used in the making of produced capital are freely available without charge, and so are liable to be overused and degraded. They are, then, understood as ‘externalities', a kind of market failure that needs to be corrected. There are other factors, too, perverse incentives by governments, for example, in subsidizing intensification of agriculture, and problems that arise from the cumulative irrationality of decisions which are rational at the individual level.
To address these issues in terms of economic calculations that, in turn, might provide decision-procedures for managing our relationship to nature, it is first necessary, he argues, to find ways of grasping ecological processes in terms of the concepts of economics. There are two distinguishable steps in this process. First, the ecological processes that underlie human appropriation from the rest of nature are characterized in terms which have a general meaning in the common language, but also a technical meaning in this tradition of economics: these are terms such as ‘asset’, (ecosystem) ‘services', ‘depreciation, ‘wealth’, ‘investment’. So, nature is defined as an ‘asset, one that can figure alongside other investments in a ‘portfolio, and which gives us ‘returns’ in the shape of ‘services, but which can be ‘depreciated’ if we draw down on the stock, leading to a future decline or loss of the services. The services offered by ecosystems include ‘provisioning services’ (food, clothing, shelter and recycling our wastes), ‘cultural services’ (contributing to our sense of well-being and mental health) as well as ‘regulating’ and ‘maintenance’ services (such as nutrient and water cycles and the climate system). This step is an important one, not just because it opens the way to one sort of economic perspective on nature, but more fundamentally, it characterizes living nature as a great storehouse of goods and services for human use - the potential restraint being that it should be used ‘sustainably’ It is thus a way of understanding our relation to nature as an instrumental one, governed by pragmatic, cost/benefit calculation, albeit one in which the costs are more fully represented. Since, on this account, it is human use for which nature exists, the perspective is also anthropocentric. Dasgupta acknowledges this, but at the same time accepts that for some of us (perhaps for him, too) nature has intrinsic value - an idea he links with a notion of the ‘sacred’
But the compatibility of the two perspectives (nature as instrumentally valuable, and as intrinsically valuable) is not so easily established. First, let us suppose that a species - say the white rhino - provides a cultural service for us (it enhances our sense of well-being, for example) then it follows we should protect it. Compare that with, for example, the wolf: highly valued in some cultures, but regarded as vermin in others. The persistence of cultural pluralism poses serious difficulties for the attempt to establish what is or is not a service, for at least the category of cultural services. More seriously, to think about biodiversity conservation in terms of ecosystem services requires us to take account of species, or populations of them, only insofar as they contribute (and contribute indispensably) to the ecosystem function concerned. Consider, for example, the ecosystem services provided by pollinating insects. These insects can be shown to provide an ‘ecosystem service’ to us in terms of their role in pollinating many fruit and vegetable crops that provide up to 70 per cent of the foodstuffs humans consume. However, a problem for this approach to biodiversity conservation is that pollination webs usually include considerable numbers of insect species, and many of these are substitutable for one another in terms of their functional role in pollination of crops. It is true that the involvement of many species is usually taken to be good for resilience of the ‘service, but it is equally clear that loss of some species (usually the rarer ones) is quite consistent with persistence of the ‘service’. That is, there is ‘redundancy’ in the system. If the instrumental goal - preservation of the ‘service’ - is the objective, some of the species can be allowed to go extinct: a definite limitation as a conservation strategy! Finally, as Dasgupta recognizes, only some 2 million out of an estimated 8 million to 20 million cellular (eukaryote) species have been identified and described. Even for those which are ‘known’ to science, very little is known about the behaviour and ecology of the great majority of them. Our sheer ignorance of the huge wealth of living species and their interconnections across the planet would tell in favour of great humility in our assessments of the ‘services’ they provide.
The second step in the attempt to grasp nature in (neo-liberal) economic terms is to shift from the qualitatively differentiated relations between ecological processes and the ‘services’ they provide to a single quantitative measure that can yield criteria for decision-making as between different services and ‘assets’. The key concept here is ‘natural capital’, but it is used ambiguously in Dasgupta (and in other environmental economic approaches). He asserts, correctly, that not only the economy, but human life itself, is dependent on nature’s processes, and that the economy is ‘embedded’ in nature. We might call this the ‘ontological’ concept of nature: the totality of beings and processes comprising the biosphere, which we know to exist, but whose contents and consequences for human well-being are only partially understood. Dasgupta says that he will use the terms ‘nature’, ‘natural capital’ and ‘natural environment’ interchangeably, but he does not stick to this. When he comes to defining natural capital it is clear that he departs radically from ‘nature’ in the ontological sense. Nature, he says, is to be considered alongside other assets, such as roads, houses, factories and so on. These latter have so far been regarded as capital goods (‘produced capital’), but now economists must include nature, considered as an asset, also as a capital good. What allows an asset to be included as a capital good is that it is measurable. While, admittedly, nature (ontological) itself is not measurable, the ‘value individuals place on natural resources’ is measurable. So, natural capital is not the resources themselves, but the value individuals place on them - a purely social or normative matter.
So, the question arises, if natural capital is just the measure of the value people assign to natural resources, then what is the problem? The problem, it seems, is that the prices people pay in the market for the services they use do not reflect the ‘true’ value of those services. There are two sorts of price - the price we actually pay, and the price we should pay if we included the unaccounted costs of our consumption, such as the future depreciation of an overexploited resource, or the impact of waste disposal on natural ecosystems. The true value of a good is, then, its ‘accounting’ price, which Dasgupta treats as its contribution to ‘social well-being’, or ‘the common good’ (2021b: 23). The gap between actual market price and the accounting price of a good is a measure of the way current economic activity is undermining the social and ecological conditions of its own future possibility. Following traditional economic approaches, Dasgupta represents this as market failure caused by ‘externalities’. These are the effects on people or nature of market exchanges in which prices do not fully reflect the costs (or benefits) - either to people not involved in the transaction, or to natural resources or processes.
So, if, as is accepted, the negative ‘externalities’ imposed on the natural world by our economic activity are growing dramatically and now pose an existential threat to our survival, what is driving the process? Dasgupta’s answer has several components. First, the ecological processes upon which the economy depends are ‘invisible, silent, and mobile’. There isn't much explanation of what he means by this, but the drift is clear: we aren’t aware in our everyday lives of the work of micro-organisms in the soil, or the photosynthetic activity of plants, or of the complex interdependencies of the ecosystems that make up the natural world. We proceed as if they can be taken for granted. More than this, as the services they provide are free of charge, we take more than we should, exceeding the rate at which they regenerate. Economists tend to assume economic actors are ‘utility maximizers’, so this is just what you’d expect them to do. But Dasgupta is critical of that assumption. He seems to recognize two sorts of human behaviour - the competitive individualism of orthodox economics, but also the more socially oriented behaviour of the conformist, who is embedded in social norms and consumes accordingly. Significantly, there appears to be no conceptual space in his thinking for social behaviour that is constrained or obstructed by social divisions, or inequalities of political or economic power.
So, for Dasgupta, it seems that the fundamental cause of our degradation of the biosphere is a combination of ignorance and an excess of consumption that is encouraged by unpriced goods. He envisages a hypothetical ‘citizen investor’ who, possessed of sufficient ecological knowledge, and concern for the social good, would manage her or his ‘portfolio of assets’ in such a way as to close the gap between actual price and accounting price, so eliminating negative externalities.
There are two main problems here. First, the plausibility of the explanation of ecological destruction. Dasgupta’s own specification of the historical moment at which the inclusion of natural capital accounting becomes essential suggests a difficulty. During the period of reconstruction after the Second World War it seems that produced capital was what mattered, while by the 1970s it was increasingly recognized that nature somehow had to be brought into economic thinking, but now, he argues, it has to be placed right at the centre. Could it be that the dramatic expansion in both scale and geographic extension of economic activity during that time has made the gap between ‘harvesting’ and ‘maintaining’ ecosystems both manifest and urgent? Why did the status of fresh air, clear fresh water and forests as free goods not matter in 1950, in 1800 or 5,000 years ago? The rather flat account of economic activity, as the work of differently motivated individual ‘investors’ seems to give us no purchase on either the structure or the dynamics of economic activity considered as a system, in which actors have very different powers to engage in decisions about how to ‘manage their assets’ (such as they may have).
The second problem has to do with the normative component in natural capital accounting. The difficulties in the way of assessing the ecological implications of decisions, given the limitations of our knowledge of these highly complex natural processes, are great, but they are potentially resolvable in the way that the normative component of natural capital accounting may not be. In Dasgupta’s thinking, the ‘accounting prices’ of alternative courses of action must be calculated on the basis of their potential contribution to ‘social well-being’ or ‘the public good’. So, not only does ecological assessment come into the calculation but also rival choices concerning the contribution of each option to the public good. This would be less of a problem if the society were made up of individuals with both a shared view of the public good and a common will to act so as to realize it. This takes us back to the first problem, just mentioned: the social relations making up the economy are structured in ways that place people very differently in relation to the costs and benefits of economic activity. What are the procedures for deciding whose interests should prevail in the accounting? More seriously, whatever people's interests may be, their value preferences may also differ. The attempt to ‘translate' the complexly differentiated world of living things and their interrelations into a single unit of measure - price - is designed to allow decisions about what, or how much, of one thing may be replaced by - or exchanged for - so much of another. This is what markets do, but, as Dasgupta admits, markets don't do this well in the case of biodiversity and ecosystems, so natural capital accounting has to take its place.
One reason why markets don't do well in this field is that some things can't be replaced, or substituted for one another. Partly this is a matter of their differentiated roles in ecosystems, but more significantly for this argument, they may not be substituted because they have a unique value, or because the two things being considered for possible substitution are not comparable. This is called ‘incommensurability’. For example, the standard application of these ideas in UK planning include principles such as ‘biodiversity net gain' (BNG) and practices such as ‘biodiversity offsetting’ There are many issues about whether such practices ever work as claimed, but philosophically the problems have to do with how the loss of one species, or community of species, in a particular habitat can be compensated by the provision of another to allow ‘development' (provision of ‘produced capital') to take place on a biodiversity-rich site. The calculation acknowledges there will be a loss of some species at the site, and the BNG calculation is supposed to show whether provision of an alternative site will provide a net gain in biodiversity. But how is the value (‘accounting price') of each of the species and their ecological relationships to be measured? Do we just count species, each with a single unit of measure? Do we assign more value to the rarer or more vulnerable species? Or do we take into account the particular cultural significance of an iconic species, or confine ourselves to the ‘keystone' species that are central to the provision of ecosystem services, or maybe consider the value of certain species in terms of their scientific interest? In practice, in planning enquiries these issues are usually settled in ways that favour the most powerful actors in the process, sometimes with the use of ‘bespoke metrics' designed to produce the outcome desired by planners or developers (personal observation).
John O'Neill provides us with a more fundamental philosophical objection, one which takes us back to the view, developed in the previous chapter, of humans as beings for whom their relations to the rest of nature as essential to well-being. He distinguishes between beings or places that are valued de re, for themselves, or de dicto, in this context, merely for the services they provide. He gives the example of public objections to the destruction of an 800-year-old woodland to make way for a service station. Some objections involved questioning the practical possibility of replicating the biodiversity of the woodland in the proposed compensatory offer. But others called into question the offer of compensation itself, as failing to recognize the unique particularity of the place and its place in people's lives:
However, the problem also lies in the fact that no new site could replicate the particular valued history of the woodland that would be lost in Smithy Wood. Even if it were possible to keep a woodland with the same features, something would be lost. It is this particular place with the history that is embodied in it that matters. The de re value cannot be compensated with the gain of woodland elsewhere.
(O'Neill 2017: 10)
The main conclusion to be drawn from this analysis is that the double process of, first, thinking of living nature in terms of the ‘services' it provides for humans and, second, rendering those services measurable in terms of monetary values - that is, prices, either actual or hypothetical - provides a means of arriving at decisions relating to nature and our use of it which appears merely technical and uncontroversial, but which conceals a great hornet's nest of social partisanship and suppression of difference. What might otherwise be matters for public discussion among citizens, and voted upon in democratic institutions, becomes settled invisibly by the technical devices of a particular kind of abstract economic reason. This is by no means the intention of Dasgupta, or the many environmental organizations which now follow the same path. Indeed, many of the recommendations Dasgupta makes - practices of rewilding, shifts away from meateating, avoiding waste and so on - are entirely reasonable. However, in almost all respects, they can be, and usually are, advocated directly on the basis of sound ecological considerations, without the mystifying detour into formal economics. It is greatly to Dasgupta's credit that he does acknowledge that assigning a value to ‘natural capital' involves a normative judgement about ‘the common good'. That, of course, is where the problems start. What counts as ‘the common good' is a matter for democratic public debate, not a set of technical devices in economic theory.