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Environmentalists are fond of applying Oscar Wilde's definition of a cynic to an economist: someone who knows the price of everything, but the value of nothing.
Though ecology and economy seem impossible to reconcile, they are both derived from the same Greek root, oikos, meaning household. Freely interpreted, economics is the science of keeping the household accounts in order. Ecology, on the other hand, is the science of ensuring that it is sufficiently stocked with goods.
Economists, on their part, believe that ecologists are hopelessly unrealistic. On the other hand, the practitioners of the "dismal science" — as economics is sometimes called — are scorned for being "resource-illiterate".
Come Together
Unknown to most people, however, there is now a respectable body of science which attempts to make peace between the two fields. From 15 to 18 December 2006, the International Society of Ecological Economics (ISEE) met for its ninth biannual conference in Delhi, India. It was attended by some 800 participants, including 350 from India and 30 from China. Joan Martinez-Alier, outgoing president of ISEE, likened the conference to a diverse feast. Discussed subjects ranged from traditional, local issues to more provocative, global ones. The very fact that Nobel laureate Amartya Sen agreed to deliver the closing speech demonstrated that ecological economics is a movement whose time has come.
Most conventional economics textbooks treat real-life situations as closed systems where the generated waste becomes a resource. Any detour from this diagram is put down to "externalities". These can be accounted for and costs can be attributed to them, keeping in terms with the closed-system mentality. However, ecological economists see that there is a one-way flow from human activity to waste, whether in material or pollution forms. They see that nothing can account for the damage done to the planet.
The mining of a single gold ring generates about 20 tons of mining waste. On a much more alarming scale, the specter of global warming threatens the very survival of the planet itself — externalities gone amuck. Thus, all indications show that the planet is growing at a reasonably good rate in economic terms. However, if we look at the ecological aspects, we are heading towards disaster.
"Cost-shifting Successes"
Ecological economics does not view economic activity as a closed system but one which is embedded in physical and social systems. The natural environment has existed well before the human economy, yet fruitful exchange is not possible. If the economic system is viewed as a metabolism, there are stocks (of fossil fuels, for example) as well as flows (renewable energy). Both stocks and flows are being depleted faster than they can be replaced. Wastes like carbon dioxide are also being generated faster than nature can cope with.
An ecological economist has once cited how capitalism is an economy of unpaid costs, such as the generated pollution and waste. Some conventional economists may even see this as a success in passing off costs to someone else, typically the public at large, rather than the polluter. That is why some ecological economists refer ironically to externalities not as market failures but "cost-shifting successes".
The British economist W.S. Jevons warned as long ago as in 1865 that coal resources would run out. However, China and India, which constitute almost a third of the world's population, continue to be heavy coal users. They will rely on this fossil fuel for their economic growth till the middle of the century. That is despite the fact they both have to abide by the Kyoto Protocol standards on greenhouse gas emissions after 2012.
Unlike conventional economics, the ecological economics directly addresses the issue of "carbon debt". The fact is that industrial countries have created global warming in the first place and now ought to pay for these historical emissions.
Sustainable Development
There is also another concern. China and India may be growing at extraordinary rates, but this does not necessarily mean that the benefits of growth are trickling down to the poor. Economists tend to overlook the tricky questions of equity and distribution of resources. Collective values like GDP and per capita incomes camouflage such disparities. That is why there are more valuable human development assessments to measure the progress, or lack of it, of a country. The infant mortality rate is, for example, a broader index. It not only reveals the development of a country to ensure that a child survives birth, but also shows the general health of mothers. Life expectancy is another effective means of evaluation.
The contradictions that arise with conventional economics were vividly illustrated at the ISEE conference. Several of the attendants cited how Sir Nicholas Stern, the British economist whose recent report on global warming has shaken many countries out of their apathy, believes that climate change is the biggest market failure of mankind. Stern explained in his report that, although there is a huge market for goods and services that combat global warming, countries have failed to invest in these. His simple prescription — that countries currently need to spend 1 percent of their GDP to tackle climate change — does not address equity issues. However, Nobel laureate Sen absolved Stern of such blame, stating that this was not his field of focus.
By contrast, sustainable development requires inter-generational equity, so that in the future, people have access to the same resources.
Off the Hook
However, "cost-shifting successes" were very much in evidence at a panel discussion on the Clean Development Mechanism (CDM). CDM is tradable rights which industrial countries or companies can buy from developing countries whose greenhouse gas emissions are below the limits set by the Kyoto Protocol. Dr Pradipto Ghosh, India's Environment Secretary went so far as to claim that the foreign investment in clean technologies that India expected as a result of such trading amounted to US$8 billion in 30 months. He called it "an economic achievement unparalleled in the country's history." He even added that that Indian carbon market sector was growing faster than any other sector, including construction, IT, and biotech.
The Center for Science & Environment in Delhi has dubbed CDM the "Cheap Development Mechanism". The center claims that CDM enables industrial countries to buy their way out cheaply instead of paying the true economic costs of warming the globe. Developing countries are now selling their emissions permits for as low as $10-25 per ton of carbon reduced. In the coming years, after developing countries also come under the Kyoto Protocol, the cost of reducing a ton will rise to $200-300. The system makes no mention of compliance and penalties for those who have polluted the atmosphere in the first place and lets them off the hook.
It is this niche in the market that is unprincipled. India and China, along with other developing countries, are in effect selling themselves cheaply in the bargain. Traditional free market principles ought to insist upon the polluters themselves paying the price. As it currently stands, offending countries can buy their way out cheaply with such credits.
Instead of cutting their own emissions, countries can invest in clean technologies in developing nations. This also provides industrial countries with a huge market for their technologies when they launch these joint projects. In effect, developing countries are bartering their future growth by accepting such funds today. Under the Kyoto Protocol, many of these developing countries will have to cut their own emissions after just five years. When that happens, they may not be able to afford the much higher rates of carbon credits.
Homo economicus
Kenneth Boulding, the American economist who was one of the founding fathers of ecological economics, warned that the science of economics was based on so many assumptions. Among these assumptions is that about the human behavior as homo economicus, which is a person who saves and spends entirely rationally. In that light, it was unwise for economics to make predictions, which it does recklessly with abundance.
In the Delhi conference, speakers warned that economics, instead of being seen as theoretical knowledge, has become an ideology. Many concepts, such as development, are self-fulfilling and not very accurate. No one is against the concept of growth. That same word can however be reinterpreted to mean regression if it leads to natural resources being depleted for good, for example.
The conference speakers called for inclusive and humane growth, shifting from "I rationality," which is the cornerstone of economics, to "We rationality," implying collective choices. Ultimately, economics has to concede that not everything can be ascribed a cost and to accept the concept of "the best things in life are free". It has to make room for ethical values. Unfortunately, this may seem a difficult task to complete.
Based on social rationality, a speaker called for embedding corporations within socio-political structures, rather than profit. Corporations ought to be compelled to adopt social and environmental goals, as responsible and accountable entities. Their ownership should be more widely dispersed and the public exercise greater scrutiny. While this may sound taboo, such reforms are called for to ensure that growth is more sustainable and just in the long run.
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