Green Economy: No Reason For Special Pleading

Apr 17th, 2012 | By | Category: Adaptation, Advocacy, Biodiversity, Ecosystem Functions, Environment, International Agencies, Lessons, News, Opinion, Vulnerability

IHDP: Prof. Partha Dasgupta of Cambridge University on the challenges of measuring the true costs and benefits of economic development.

DIMENSIONS: Professor Dasgupta, how would you define the Green Economy in your own words?

Prof. Partha Dasgupta [PD]: By a “Green Economy” we mean an economy where Nature’s worth is included in the reckoning when people engage in economic transactions. That said, I am not at all comfortable with the expression “Green Economy”. It suggests special pleading on behalf of the environment, in a world where there should be no reason for special pleading. Any sensible society would regard Nature to be a scarce capital asset and would insist on including its value in economic calculations. But we are not sensible, so for the moment we need to flag that point and try to drive it home by talking of “green economies”.

“I am not at all comfortable with the expression “Green Economy”. It suggests special pleading on behalf of the environment, in a world where there should be no reason for special pleading”

As an example of what national accounting in a Green Economy would look like, consider that every year national statisticians produce an account of the transactions that have taken place during the year—consumption, investment, sectorally broken up perhaps in investment in manufacturing, min- ing, agriculture, education and so forth. Currently, one big item that’s almost always missing in those accounts is the exploitation of Nature. Our deal- ings with Nature are not recorded. Green accounts would include those transactions. So, for example, in estimating aggregate investment undertaken in the economy, green accounts would include the DIS-investment that occurs when forests are depleted, when fisheries are damaged, when mangroves are destroyed, carbon is emitted, and so forth. In other words, the value of the services we enjoy from Nature and the goods that we extract from Nature would be included in green accounts.

D: Who will be the key actors and drivers in the transition towards such an economy?

PD: The key actors are us—we citizens. In the aggregate we consume too much in the West, in a very wasteful, quite transparent manner. Our consumption patterns are also biased towards goods and services that make heavy use of Nature’s products. That’s because Nature is typically under- priced, usually priced at zero. We don’t pay for our use of Nature the way we pay for other goods and services. The irony is that manufactured goods are underpriced because Nature’s services that were put to use in their manufacture aren’t typically paid for. Those services should be taxed if there is no other means of ensuring payment for them. In a Green Economy, governments would include the value of natural capital in arriving at public policies. For those forms of natural capital that make for the global commons—for example, the atmosphere and the open oceans—the drivers of a global Green Economy would be national governments them- selves, spurred on by citizens to take action. For the management of global commons, there is really no other option but international cooperation. The transition to a green global economy has to involve the engagement of all levels of society, from house- holds, right up to international organizations.

D: Are there implementation barriers standing in the way of a transition? Do you think it is a question of technologies or rather of institutions, governments or nations?

PD: Well, it has to be the latter. The reason is that technology doesn’t appear out of nowhere. Technologies are discovered, invented and introduced into the market. The drivers of innovations are in- stitutions, and that means the true drivers are the prevailing structure of incentives that people face. It’s sad that for hundreds of years the technologies that have been developed have been rapacious in their use of Nature’s services. And there is a very good reason for that: If you don’t pay for the use of natural capital, or at best pay very little, innovators are not going to economize on them, they will try and economize on the use of the expensive inputs. For example, if wages rise relative to the price of manufactured goods, new technologies can be re- lied upon to be more capital intensive. The flipside of the coin is that if Nature is very cheap, the technologies that entrepreneurs and inventors intro- duce can be predicted to be exploitative of Nature. We have driven ourselves into a corner by working with technologies that are extremely intensive in the use of the natural capital. Looking into the future, societies need to steer their technologies towards those that are more economical in their reliance on natural capital. That can only happen if we pay for Nature’s services, but will require a big shift.

Small changes won’t do because we are locked into a whole pattern of production and investment in knowledge which is exploitative of Nature. A few of us economists have been col- laborating with ecologists in trying to understand the character of the “regime shifts” that will be re- quired if societies are to become “green”. In 2003 my friend Karl-Goran Maler and I edited an entire symposium in the journal Environmental and Re- source Economics on the subject of regime shifts. It contained contributions by ecologists and economists. I edited a second such symposium in the same journal in 2008. But progress in this is slow because the body of economic thinking is engaged in other issues.

D: Is (per capita) GDP an adequate measure- ment for economic growth or will new matrices be needed?

PD: GdP is inadequate and misleading. Most people who have warned us about the limitations of GdP as an index of economic well-being have pointed to its insensitivity to such ethical con- cerns as inequality. Quite obviously, GdP doesn’t reflect the extent to which a society is unequal. But as an inter-temporal index of societal well-being, GdP suffers from a different, deeper weakness. It doesn’t account for the depreciation of capital assets. GdP stands for Gross Domestic Product, so the rogue word is “gross”. GdP doesn’t include the depreciation of capital assets that accompanies production and the passage of time. An economy could experience high growth rates in GdP even while the forests are being razed. Several countries that should know better are doing just that. Brazil is a good example of a country that’s destroying the Amazon at a rate that should be unbelievable, but isn’t. And Brazil is applauded regularly in such influential magazines as the Economist for its high GdP growth rate! The situation isn’t just ironic, it’s tragic. It is also very bad economics.

There is a great deal of schizophrenia in economic writings. The Economist, for example, periodically publishes columns on this environ- mental tragedy or that, when they occur. In those same issues, though, the magazine can be relied upon to spend pages extolling the virtues of those economic policies that raise growth rates of GdP. Taken together, their analysis never adds up. Un- fortunately, readers don’t seem to notice that. In any case, social tragedies are the wrong place to look for systemic societal errors. It’s like looking only for famines when studying the nutritional status of a population. If you do that, you miss out on persistent and possibly widespread malnutrition in the population.

So, yes, we do need new measures to assess economic progress, but in fact we already have them. A number of us in the social sciences (Ken- neth Arrow, Karl-Goran Maler, Kirk Hamilton at the World Bank, and I) have developed the required index. It’s an inclusive measure of wealth. We should be estimating the wealth of nations, not the GDP of nations. We have shown that societal well-being increases if and only if, relative to its population, an inclusive measure of that society’s wealth increases. By inclusive wealth I mean the sum total of the social worth of an economy’s entire stock of capital assets: manufactured capital, health and education, the science and technology base, and natural capital. But because the social worth of an economy’s capital assets de- pends not only on the prevailing and anticipated technologies and the capital base itself, but also on the economy’s social character, estimating wealth comprehensively would require the combined effort of experts in many disciplines: ecologists, demographers, economists, social statisticians, anthropologists and political scientists, among others. Recently, a number of us have tried to estimate movements in the (inclusive) wealth of nations in a number of countries. Understandably, perhaps, the estimates are woefully crude. But we should be patient. Even the GdP industry took de- cades to grow into the influential giant it is today.

D: How do you see a Green Economy fit into the existing global trade system?

PD: That’s a terrific question. I wouldn’t be able to give you a good answer if only because I’m not an expert on global trade; but let me try. Yes, it would have an impact on trade; more strongly, it should have an impact on trade, because we would want it to. If there are underpriced goods that have a large content of green stuff (natural capital) in them, a country that exports those goods in effect exports a certain amount of its wealth to the importing countries without be- ing paid for it. It’s as though the exporting country cuts down its forests and gives them for free to the importing countries. From an exporting country’s point of view, that can’t be right. Of course, it is nice for the importers because they are getting goods on the cheap. Trade restriction is therefore desirable; for example, the imposition of green taxes in the exporting country. Yet, the moment you say “trade restriction”, experts on international trade start getting agitated. However, green taxes don’t amount to disown- ing free-trade, they amount to pricing goods and services in a desirable way.

D: Can aspects such as new regulatory structures or government subsidies, cause countries to fall afoul of WTO obligations? Can a Green Economy lead to protectionism?

PD: The problem with the WTO is that it doesn’t really want to understand green issues. The organization isn’t willing to be engaged in environmental issues except in the context of eco-labeling, per- haps. I can’t imagine that the wto would disavow the arguments I am putting forward here. It’s just that they only pay lip service to green concerns, they don’t make it central to their engagement. We really need an overhaul of the international trading system, taking cognizance of the fact that there are huge chunks of every economy that are missing from national accounts; more broadly, missing from our economic calculations. But that’s just an- other way of saying we are not really paying for our use of natural capital. The world economy is subsidizing the use of natural capital on a massive scale, perhaps to the tune of 10–20 per cent of the market value of world output.

D: Could you tell us about the most encouraging and most disappointing development of the Green Economy for you?

PD: Well, you are asking questions that come pretty close to personal matters, because I take my work very personally. It’s hard to be detached from one’s work. I’ve been working on poverty, the environment and population for over 30 years, but haven’t had much impact on economic policy, nor on academic economics. The widespread depletion of natural capital, high population growth in poor countries, wasteful consumption in rich countries and the persistence of deep poverty in the world are tightly interconnected, or so I have concluded from my findings. But that work, much of it theoretical and so should be uncontroversial, has had very little effect on my fellow economists. They still work with GdP and believe that techno- logical progress can be relied upon to make up for ecological damage.

My work has had some impact on ecologists, though; they seem to take my work seriously; and I theirs. But that’s about it. Mainstream economics has been going in a different direction. That said, the shift to ecological concerns among economists shouldn’t be expected to take place within one generation; it can only happen gradually. There is far too much intellectual capital in economic models that ignore natural capital, so the incentives are not right.

“The shift to ecological concerns among economists shouldn’t be expected to take place within one gen- eration; it can only happen gradually. There is far too much intellectual capital in economic models that ignore natural capital, so the incentives are not right.”

One positive thing, although I don’t know if it is too early to say how productive it is going to be, is that some nations are beginning to taking green matters seriously. The Indian government is intending to create a system of green accounts later this decade, and a commission has been constituted by the Indian government. Its task is to suggest the method that should be deployed to re- formulate, recreate national accounts. I was honoured to be asked to be chair of the committee. It’s an exciting venture for me, and very different from anything I have done so far.

Another positive thing is that the young are pretty conscious of Human-Nature interactions— at least the young people I meet in England, in the United States, the Continent and in India. But I’m an academic economist, so I don’t have a feel for the way political movements evolve. I don’t have much understanding of it. But I do know that the fact that young people are concerned about Hu- man-Nature interactions doesn’t mean it’s going to make governments take Nature seriously.

There are also a number of very progressive NGos focusing on green matters. However, there are problems even there. Enthusiasm for green matters can lead people to make statements that are over- loaded, exaggerated or emotionally laden. There is nothing wrong with the latter—people are emotional about many other things; but when it comes to our dealings with Nature, emotionally-charged statements can misfire. You must have heard all those accusations leveled at “tree huggers”, “eco- freaks”, and “anti-progressives”. There is a cultural problem here, arising from an intellectual disconnection in the body populous. We all care about Nature but don’t want to hear uncomfortable facts about contemporary Human-Nature interactions. Because of the latter, we have lost decades. We should have learnt a good deal more about the character of Human-Nature interactions. For example, development activists, such as Oxfam and UNdP, have made population growth a taboo excepting in the context of “reproductive rights”. The organizations bang on about poverty, but are loath to study the phenomenon in ways they haven’t themselves been trained. As they are a powerful lobby, they are able to block progress. As a result, the population- poverty-consumption-environment nexus remains a near-empty slot—in academia, politics, and the public. The socio-ecological pathways that make for human regress and progress are studied with biased lenses. That’s a great disappointment for me and should be for us all.

About Partha Dasgupta

Professor Partha Dasgupta is the Frank Ramsey Professor Emeritus of Economics at the University of Cambridge. He was formerly chairman of the scientific board of the Beijer International Institute of Ecological Economics of the Royal Swedish Academy of Sciences, as well as professor of economics and philosophy, and director of the Program in Ethics in Society at Stanford University. Since 2008 he has been Professorial Research Fellow at the University of Manchester. He is also the Andrew D. White Professor-at-Large at Cornell University and is currently President of the European Association of Environmental and Resource Economists. In addition to a number of honourary fellowships, Professor Dasgupta is a foreign associate of the U.S. National Academy of Sciences, and also a Fellow of the Royal Society and the British Academy. Professor Dasgupta has spent nearly most of his professional life working on poverty and in- equality issues. His cutting-edge research covers welfare and development economics, the economics of technological change, population, environ- mental, and resource economics, game theory, and the economics of malnutrition. Much of his work has involved investigating the areas of sustainable development in which the interests of economics collide with ecological and social issues. An important area of his research has been the study of social capital—for instance, the degree of mutual trust and social networks that form a community. Having grown up in India, he brings a unique perspective to his field. Professor Dasgupta has also been invaluable to the cause of capacity-building among young scientists, especially in developing countries. In 2002, Professor Dasgupta was named Knight Bachelor by Her Majesty Queen Elizabeth II for services to economics. He has won numerous awards and prizes, including the 2002 Volvo Environment, the 2007 John Kenneth Galbraith Award of the American Agricultural Economics Association, and the 2011 Zayed International Environment Prize. Professor Dasgupta holds a B.Sc. (Hons.) in Physics from the University of Delhi, a B.A. (Hons.) in Mathematics and a Ph.D. in Economics, both from the University of Cambridge. He was born in Dhaka, Bangladesh (then in India).

Interviewer : Carmen Scherkenbach

Source: IHDP


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