How are economics, consumerism and the environment linked together? – a guest-post by Rhianna Blackthorn.
In part one of this introduction we learn about the value of environmental goods and services and the difficulty to account for it in our economic system.
Value vs Price: Why Value is Important
The economy systematically places value on scare resources. It is important to clarify that value is not the same as price; price relates to the cost in the market place where value relates to its rarity. Price may fluctuate due to consumer and seasonal influences, where value will only ever increase as the availability of resources decrease (Costanza et al., 1970). Think of it in this way: air is in plentiful supply so is of little economic value while gold is more difficult to obtain and is rare, giving it a higher value.
The importance of value may not be immediately apparent, but when environmental goods and / or services (EGAS) are valued, policy makers are more likely to design legislations around their acquisition, use and protection (for example: oil) (Costanza et al., 1970). The necessity of valuing EGAS is easy to understand in theory, however, the complexities of valuation and market implementation becomes increasingly more difficult as the EGAS being assessed becomes more abstract (Costanza et al., 1997). For example, how does one value the service of soil? It facilitates water filtration, recycles nutrients, and supports biotic life to name just three basic services. The valuation of these services will differ depending on who is assessing it and under which economic model.
This six video produced by the United Nations and narrated by Sir David Attenborough perfectly illustrates the need for valuing environmental goods and services.
The three economic models
Neo-classical economic models fail to account for the flow of environmental goods and services, with many services undervalued or unvalued entirely (Asafu-Adjaye, 2009). The father of modern economics, Adam Smith, viewed the environment as an unlimited resource; if you need wood, just take it from the forest. There are plenty more forests. While a demand exists, producers will go to extraordinary lengths to meet those demands. This demand and supply cycle has resulted in many of the exploitations that exist today in our environment.
The obvious valuation omission of the neo-classical economic model was recognised in the late 1950s, resulting in the emergence of the environmental economic model. Under this new system, it was recognised that the environment should be included in the systematic valuation processes but the economy should remained its primary focus (Pearce et al., 1993). It regarded raw environmental materials as income (i.e.: log the forest and harvest the timber for profit but understand the forest supplied it), disregarding any ecological limitations or services that the forest performed.
The ecological economic system arose throughout the 1980’s to address the shortcoming mentioned above. It recognised that the environment supports the economy and that the two systems are intrinsically linked (Costanza et al., 1997). Under the ecological economic system, EGAS are viewed as capital depletion within the system (i.e.: once a forest has been logged and its timber harvested, it cannot be harvested again and the services to the ecosystem it provided are lost). It also identified that the environment sometimes provides resources in limited quantities as not all EGAS are infinite. This was the important break through in economic system design.
These opposing viewpoints have very different consequences on the environment. All three
systems recognise the value of the environment in terms of providing society with the resources it requires, however, their method of valuing and therefore protecting it are different. The problem lies, however, in the difficulties associated with valuing and policing the system. Perhaps these difficult in implementation and management are why the ecological economic system is not widely utilised even though some forecasters have debated this issue and its obvious benefits as early as the 1970s (Costanza et al., 1970).
Asafu-Adjaye, J. (2009). Environmental economics for non economists: techniques and policies sustainable development. (2nd ed.). Singapore: World Scientific Publishing Co. Pty. Ltd.
Costanza, R. et al. (1970). The Value of the World’s Ecosystem Services and Natural capital. Nature, 387, p. 253-260.
Costanza, R. et al. (1997). An introduction to Ecological Economics. Boca Raton, Florida: CRC.
Pearce, D. W., & Warford, J. J. (1993). World without End; Economics, Environment and Sustainable Development. New York: Oxford University Press, Inc.
Rhianna Blackthorn lives in Australia with her husband and 18 year old daughter. She is a wildlife ecologist, and is currently in the final year of her Environmental Science degree. She attends university, maintains three blogs, and engages in various community activities regarding sustainability and environmental protection. Her blogs are Rhianna’s Guide to Ethical Eating, The Environmental Rhi-Source and Reflections. Of herself, Rhianna writes: “I am happily married 40 years old something mother of two. I have dark hair, olive skin and brown eyes. The rest is subject to change without notice.”
Picture by José Cuervo Elorza, obrigada!