On his book Endangered Economies: How the Neglect of Nature Threatens Our Prosperity
Cover Interview of May 02, 2017
The wide angle
I’ve identified four reasons why our economic system doesn’t
support the natural world. All four of these problems can be fixed by
straightforward institutional or policy reforms.
In fact, there are many ways of solving the problem of
external costs. We can levy a charge on a harmful activity to reflect the costs
it imposes on bystanders: this is sometimes referred to as “green taxation.”
Alternatively we can give damaged parties the right to sue the originator of
the damages, as happened with the BP Deepwater Horizon oil spill in the Gulf of
Mexico. Another solution would be to regulate activities that affect innocent
third parties. We do this with vehicle emissions in the US and in Europe.
Consumer and investor activism can play a role here too: if consumers boycott
companies responsible for environmental damage, the corporate world has an
incentive to take external effects into account. The same is true of capital
markets – if investors stay away from environmentally harmful companies, there
is again an incentive to take environmental issues into account. These are
possible responses to harmful environmental impacts. We can’t afford to
continue to ignore this failure in our economic institutions.
We can also solve the problem of weak property rights that
provide no incentive to conserve. In fact, in the case of fisheries, we are
beginning to fix this problem through systems of tradable quotas that were
recently introduced in many fisheries and are proving effective. These quotas
give fishermen a stake in their fishing ground and an incentive to think about
its future. They work: fisheries where they have been introduced are now much
healthier than before, whereas the others continue to deteriorate. There are
other alternatives, some of which are being successfully applied to manage the
depletion of ground water reserves, another important area where property
rights are not well defined.
Our accounting systems fail us by not recognizing the value
of natural capital. Accountants should warn you when you are running down your
capital, but ours don’t. We don’t have any accounting indicator that warns us
that fisheries or other natural resources are being depleted. Valuable natural
assets are being run down without warning. We have to change this and now is
the time. In fact, the United Nations, which sets the framework for the
accounts of nations, has already proposed a framework for accounting for our
natural assets, which several countries (Australia, Canada, Norway) are already
implementing. The US has declined to follow suit.
I noted the shortcomings of our normal performance measure,
GDP. Better measures of economic performance are under development. These
measures reflect the sustainability of our activities and our impacts on
natural capital. We need to implement them and evaluate our performance by the
results to have a reality check on institutions that govern our lives.
The dominant premise in evolution and economics is that a person is being loyal to natural law if he or she attends to self’s interest and welfare before being concerned with the needs and demands of family or community. The public does not realize that this statement is not an established scientific principle but an ethical preference. Nonetheless, this belief has created a moral confusion among North Americans and Europeans because the evolution of our species was accompanied by the disposition to worry about kin and the collectives to which one belongs.Jerome Kagan, Interview of September 17, 2009
[T]he Holocaust transformed our whole way of thinking about war and heroism. War is no longer a proving ground for heroism in the same way it used to be. Instead, war now is something that we must avoid at all costs—because genocides often take place under the cover of war. We are no longer all potential soldiers (though we are that too), but we are all potential victims of the traumas war creates. This, at least, is one important development in the way Western populations envision war, even if it does not always predominate in the thinking of our political leaders.Carolyn J. Dean, Interview of February 01, 2011
The wide angle
I’ve identified four reasons why our economic system doesn’t support the natural world. All four of these problems can be fixed by straightforward institutional or policy reforms.
In fact, there are many ways of solving the problem of external costs. We can levy a charge on a harmful activity to reflect the costs it imposes on bystanders: this is sometimes referred to as “green taxation.” Alternatively we can give damaged parties the right to sue the originator of the damages, as happened with the BP Deepwater Horizon oil spill in the Gulf of Mexico. Another solution would be to regulate activities that affect innocent third parties. We do this with vehicle emissions in the US and in Europe. Consumer and investor activism can play a role here too: if consumers boycott companies responsible for environmental damage, the corporate world has an incentive to take external effects into account. The same is true of capital markets – if investors stay away from environmentally harmful companies, there is again an incentive to take environmental issues into account. These are possible responses to harmful environmental impacts. We can’t afford to continue to ignore this failure in our economic institutions.
We can also solve the problem of weak property rights that provide no incentive to conserve. In fact, in the case of fisheries, we are beginning to fix this problem through systems of tradable quotas that were recently introduced in many fisheries and are proving effective. These quotas give fishermen a stake in their fishing ground and an incentive to think about its future. They work: fisheries where they have been introduced are now much healthier than before, whereas the others continue to deteriorate. There are other alternatives, some of which are being successfully applied to manage the depletion of ground water reserves, another important area where property rights are not well defined.
Our accounting systems fail us by not recognizing the value of natural capital. Accountants should warn you when you are running down your capital, but ours don’t. We don’t have any accounting indicator that warns us that fisheries or other natural resources are being depleted. Valuable natural assets are being run down without warning. We have to change this and now is the time. In fact, the United Nations, which sets the framework for the accounts of nations, has already proposed a framework for accounting for our natural assets, which several countries (Australia, Canada, Norway) are already implementing. The US has declined to follow suit.
I noted the shortcomings of our normal performance measure, GDP. Better measures of economic performance are under development. These measures reflect the sustainability of our activities and our impacts on natural capital. We need to implement them and evaluate our performance by the results to have a reality check on institutions that govern our lives.