The Economic Road to Sustainability

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).

Read further:

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!

Advertisements

6 thoughts on “The Economic Road to Sustainability

  1. Excellent post. Here in Tasmania we “hippies” are fighting to have the forests voice heard. That might sound a bit idealistic but our local government has been bought by forestry and cater to it exclusively. Now that there is a massive downturn in forestry, everything is being done to attempt to cater to this aging collapsing empire and those of us resolute about saving our forests are constantly banging our heads against the brick walls of profit against protection. Tasmania might not be as desperate as some third world countries that don’t really have much choice when it comes to selling off their forests to unscrupulous multinational corporations but we are not all that far behind. Our local government is slashing Health, Law and Education budgets in favour of supporting the forest industry and an attempt to appease the hippies whilst continuing on regardless that is being called “The forest peace deal” is a shallow attempt to garner monies from the federal government and distribute it to forestry supporters. Now that scientific evidence is coming out regarding the value of leaving forests just as they stand and how much more valuable they are to communities and to the world in general intact rather than rendered down into chips and paper the forestry are claiming a scientific bias towards the environment. Rednecks have a hard time admitting defeat and this lot are not going down without a fight. It is so very important to spread the word about the true value of trees worldwide. Cheers for posting these most informative posts and for sharing other blogs that we can check out as well. I am off to check out Rhianna Blackthorn’s blogs, thanks for the links.

    • Hi Narf.

      Thanks for the wonderful feedback, as this is my first guest post. I am Australian also (Far North NSW) so I totally understand where you are coming from. Tasmania has some of the most pristine dry eucalypt forests in the world, and it is being logged at a rather frightening rate. The government (regardless of which political flavour) still haven’t got the message regarding conservation of these ecosystems. You are quite right: Its about catering to the masses with all possible haste for the quick buck.

      I live in a region affectionately called “The Big Scrub”. It was once the largest single tract of rainforest in the southern hemisphere. 100 years of logging has reduced it to < 1% of its former size, and now exists in small isolated remnants, on both public and private lands. The biodiversity lost through the logging can not be measured, and if Tasmania is not careful, it may go the same way.

      I cant give much away regarding part two of this series, but hopefully it will resonate some truth with you also. Thanks again!

      Cheers!
      Rhianna

      • That was fast! I only just posted that :o) I am just now reading your 3 blogs and am most impressed with them. I used to live in Western Australia way down south where the hippies grow under the massive big Jarrah and Karri trees. I was raised to care about trees and can’t for the life of me see why the rednecks here are hell bent on removing every last one! I am in good company here, however, and there are many people fighting for the forests and the trees and we are NOT going away. Your post was/is amazing by the way. Cheers for the great blogs and I am smiling because I was just about to press “like” for your 50th like post. I just got 50 as well so we are doing well aren’t we? 🙂 I am going to add your blogs to my regular morning inbox treats to be savoured over my first cup of tea. Cheers for being so eloquent and for giving the trees a voice and I can’t wait to read part 2 🙂

  2. Excellent post. Few people realize that seventeen years before Adam Smith wrote Wealth Of Nations he wrote Moral Sentiments, which described in great length the morals and ethics he felt should be employed in order to do business responsibly. Entire sections of this book were devoted to benevolence and sympathy for example, which are often missing as voracious corporate appetites are fed.

    It sounds as though you might also very much enjoy “Prosperity Without Growth – Economics for a Finite Planet” by Tim Jackson, and “Post-Carbon Reader – Managing the 21st Century’s Sustainability Crises” by Richard Heinberg et al.

    • thanks for the kind feedback. I did know about his other books, and I do believe he did do some good in bringing economics into a rational thought process rather than a (mis)fortunate course of events. I often wonder how he would feel given how much economics had developed, and the courses it has taken.

      I am finding this topic to be very interesting and thought provoking, but its not my main field of study. I am actually a wildlife ecologist! Jacksons book does ring a bell though – I may have actually looked at it during assessment research.

      Cheers again!

  3. Pingback: The economic road to sustainability – Part 2 | The Environmental Rhi-source

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s