We are plundering every corner of the world, apparently neither knowing or caring what the consequences might be to the diversity of life. Putting things right will take collaborative action by every nation on earth.
That’s according to the recent Dasgupta Review, which describes the hidden cost of liquidating natural capital assets as a constraint for long-term value creation. The Review calls for action to increase the quantity and quality of our stock of nature and demonstrates that acting now will be significantly less costly than delaying further.
It will require international agreements to change our ways, says Sir Partha Sarathi Dasgupta, the Frank Ramsey Professor Emeritus of Economics at the University of Cambridge, UK. Each ecosystem has its own vulnerabilities and requires its own solutions, Dasgupta explains, so there needs to be a universally shared understanding of how these systems work and how those that have been damaged can be brought back to health.
In 2019, the UK Government commissioned Dasgupta to lead an independent, global review on the economics of biodiversity. After an interim report in April 2020, the study was officially launched at an event hosted by the Royal Society and attended by the Prince of Wales, UK’s prime minister Boris Johnson, and the famed naturalist David Attenborough. Attenborough says, “The Dasgupta Review at last puts biodiversity at its core and provides the compass that we urgently need. In doing so, it shows us how, by bringing economics and ecology together, we can help save the natural world at what may be the last minute – and in doing so, save ourselves.”
Not so long ago, when the world was very different from what it is now, the economic questions that needed urgent response could be studied most productively by excluding Nature from economic models. To introduce Nature, or natural capital, into economic models would have been to add unnecessary luggage. The diversity of life was hardly viewed as an economic good.
Yet aren’t we and our economies embedded within nature, not external to it? If you agree with that premise, then it follows to assert that there has been an institutional failure to account for the externalities nature provides. One of the solution areas identified by the Review is the need to change our measures of economic success. Moving to inclusive wealth — which measures all capital assets (i.e. human capital, produced capital, and natural capital) as the aggregate value of a country’s economic success — would allow the world to return to a path of prosperity that operates within planetary boundaries.
Now the economics of biodiversity requires attention to local socio-ecological details. Concerned citizens — or what Dasgupta also calls the “social evaluator” or “citizen investor” — are perplexed that their economist neighbors insist that markets can eliminate the extent to which the Earth is being degraded and biodiversity is being lost. Their economist neighbors say that all will be well if only the government would set appropriate taxes, subsidies, and regulations.
The concerned citizens are unconvinced that sustained economic growth is the answer; they fear that such an approach will cause everything that humanity has achieved to be lost and that poverty will rise. But these concerned citizens don’t know how to argue with their opposites who perpetuate the “Government Will Fix It through Rabid Consumption” approach.
Talking about the Diversity of Life to Economy-Minded People
To help, Dasjupta offers a series of principles to help reconcile the concerns of both constituent groups as a mechanism to save the diversity of life that remains on planet Earth.
Managing our Assets: The Review introduces the idea of sustainable development by constructing a grammar for understanding our engagements with Nature – what we take from it, how we transform what we take from it and return to it, why and how in recent decades we have disrupted Nature’s processes to the detriment of our own and our descendants’ lives, and what we can do to change direction.
Biodiversity and Ecosystem Services: Biological diversity, or biodiversity for short, means the diversity of life in all its forms. A tension exists between our demand for provisioning services on the one hand and our need for regulating, maintenance, and cultural services on the other. The distinction between drawing on Nature and depending on Nature is all-important. The biosphere’s regulating and maintenance services are the underpinnings of human societies, which is why increases in the material standard of living will come to naught if those underpinnings are broken irreparably.
Nature’s Complexities: Ecosystems are self-regulating, but only within bounds. The biosphere provides regulating and maintenance services as joint products, and ecosystem processes are complementary to one another. Disturb a process sufficiently and the other processes are affected, adversely. Habitat fragmentation reduces biodiversity by impairing important ecosystem functions and altering nutrient cycles. Fragmentation exposes species to harsh environmental conditions, including fires, diseases, and invasive species. That amounts to a reduction in an ecosystem’s ability to withstand disturbances without breaking down – it becomes less resilient.
Classifying and Valuing Assets: To the list of capital goods that include produced capital and human capital is now added natural capital. The Review explores reasons for the growing disparity between private incentives and public aspirations and pays particular attention to the wedge between market prices of capital goods, especially the market prices of natural capital, and what should be called their “social worth,” or alternatively, their “social scarcity value.”
The Global Economy in the Anthropocene: In 2019, the global population had grown to over 7.7 billion even while global GDP per capita had risen to around 16,000 dollars PPP (at 2011 prices). The world’s output of final goods and services was a bit above 120 trillion dollars PPP (at 2011 prices), a rate of increase that had never remotely been experienced before. This remarkable achievement has, however, come alongside a massive deterioration of the biosphere’s health. Largely as a result of human activities – land- and ocean-use change in all its varieties – species and the component populations of still-extant species are becoming extinct far more rapidly than in the past. More than 237,000 populations of those species have vanished since 1900.
Unsustainable Economic Development: The biosphere is finite in extent, so the flow of goods and services it provides is bounded. We take goods and services from our planet and we deposit our waste into it: material has to balance. What we take from our planet over a period of time and put back in as waste is known as our ecological footprint. And so the footprint not only includes the goods and services we harvest and extract from the biosphere, it also includes the rate at which the biosphere is able to treat our waste. The full set of provisioning, regulating, maintenance, and cultural services comes into play here.
Rich and Poor, Consumption and Population: It seems our impact on the biosphere increases with affluence, but the efficiency with which we transform the biosphere’s goods and services into the market value of final goods and services also increases with affluence. But that poses a cruel dilemma: other things equal, egalitarian objectives such as those enshrined in the UN Sustainable Development Goals may clash with the global need to reduce our ecological footprint.
Addressing the Impact Inequality, Global Consumption and Global Population: In recent decades, there has been a significant increase in our global demand for provisioning services, in particular food, timber, fibers, biofuel, and water. This has affected the ability of ecosystems to provide the regulating and maintenance services on which our economies ultimately depend. It has been argued that the goal to restrict the increase in mean global temperature to 2°C from that in the pre-industrial revolution era is unlikely to be met unless population growth is reduced substantially.
Environmental, Unidirectional, and Reciprocal Externalities: Property rights to Nature’s processes are difficult to define and difficult to enforce even when they have been instituted. An externality is unidirectional when an agent (or a group of agents) inflicts an unaccounted-for damage or confers an unaccounted-for benefit on another (or others). Under reciprocal externalities, each party inflicts an unaccounted-for harm or confers an unaccounted-for benefit on all others in a population. Reduction in the prospective damage from climate change and biodiversity loss is akin to the production of public goods, which are neither rivalrous (access to a public good by any one group of people has no effect on the quantity available to others) nor excludable (no one can be excluded from access to the good).
Socially Embedded Preferences: In some spheres of life we are competitive; in others we are conformists. The economics of biodiversity remains seriously incomplete when our innate sociability is not acknowledged; nor is policy well informed when we neglect our social embeddedness.
Institutions define the incentives that people have to do one thing rather than another, and incentives shape the production, dissemination, and use of knowledge. A state that invests vigorously in life-saving technology and then applies it is able to transform society for the better. Likewise, technological possibilities shape institutions. History is rife with examples where institutions and technology have influenced one another beneficially. That each can be made at least partially to mitigate the other’s failure has also been widely noted. Although degradation of the biosphere is frequently traced to institutional failure, people often express hope that progress in science and technology can put things right. Let’s hope that technological advances respect and protect the diversity of life as we learn more about its fragility.
If you’d like to keep learning about the diversity of life, economics, technological applications, and so much more, click through to either the abridged version or the full report of the “The Economics of Biodiversity: The Dasgupta Review.” There’s a whole lot to learn.
Citation: Dasgupta, P. (2021), The Economics of Biodiversity: The Dasgupta Review. Abridged Version. (London: HM Treasury).
Images by Carolyn Fortuna, CleanTechnica