Geoffrey Heal


On his book Endangered Economies: How the Neglect of Nature Threatens Our Prosperity

Cover Interview of May 03, 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.