Sunday, January 27, 2013

We Must Value and Account for Natural Capital

The Global Canopy Program’s Little Biodiversity Finance Book estimates that the market value of agricultural commodities such as soy, palm oil and beef, which account for 80% of the destruction, is $92 trillion annually. Conversely, the current global spending to protect ecosystems and allied services is a paltry $38 billion per year.This is plainly fraudulent!

 National and international economic policy often ignores the environment. For instance, Kenya’s Vision 2030 has been designed to promote economic and social transformation with little regard to the implications of such transformation on natural capital, presumably on the erroneous assumption those externalities are inconsequential or could be dealt with separately.
 The general claim that economic growth benefits the environment has been vindicated by the claim that there is an empirical correlation between per capita income and some metric of environmental quality. This correlation is less likely to hold whenever there feedback effects of exploitation of Natural Capital is critical, such as those involving soil productivity, freshwater and forests.  
 In 1972 four young scientists wrote the Limits to Growth. This seminal book peered into the future and for the first time demonstrated the consequences of unbridled growth on the earth’s finite resources. They predicted that global ecological constraints – related to biological productive land and water and atmospheric resources – would have significant influence on economic development and human wellbeing in the 21st century.

 In 2011 Johan Rockstrom and colleagues identified nine limits that must not be crossed if our civilization is to avoid catastrophic collapse. In his book “Collapse: How Societies Choose to Fail or Succeed” Jared Diamond argues that refusal to husband resources such as soils, forests and clean water will lead to the collapse of modern-day societies just as surely as the precipitated the Mayan or East Island collapse.

If you keep adding items to a load-bearing creature, it is inevitable that the equilibrium will shift precipitously at some point. The Arabic proverb “the straw that broke the camel’s back” refers to any cataclysmic systemic failure achieved by a seemingly inconsequential addition, a single straw.
 Imprudent use of Natural Capital – the Planet’s lands, atmosphere, waters and their biodiversity – may reduce irreversibly, the capacity for generating material production in the future. Ultimately, the Natural Capital base upon which economic growth depends is produced by complex ecological processes and feedbacks, which in turn generate a wide variety of good and services.

 Natural Capital constraints will place a limit to future economic growth and human flourishing. These constraints will, at best, increase production costs and consumer prices over the next century and, at worse, precipitate long-term decline in global economic output and institutional and governance collapse. 
 Africa Ecological Footprint Report published by the African Development Bank and World Wide Fund for Nature (WWF) shows that the Ecological Footprint of all African countries increased by 240% between 1961 and 2008 as a result of rapid population growth and increased per capita consumption. The report notes that although Africa is not in a biocapacity deficit yet, the continent could face a deficit within a generation if current resource exploitation and degradation patterns persist.
 While our civilization can forestall the catastrophic collapse, the inexorable decline of the Earth’s biocapacity could have irreversible consequences hurling the global economy into a virulent trap of socio-economic and political instability. The long-term impact on the economy and society of discounting natural capital could include:
1.     Diminished or total lack of access to resources, especially energy, fresh water and productive soils could lead to low economic growth, which could touch off a vicious cycle of low returns, low investments leading to low interest rates;
2.     Extended regimes of low economic growth invariably lead to depressed wages. Low wages could in turn lead to inflationary responses to commodity price shocks and weak consumer demand, further exacerbating low economic output;
3.     Periods of low economic output and long periods of zero job growth. Unemployment damages emotional health and undermines the social fabric of society. Widespread unemployment could be the Achilles heals of the nascent democratic governments in Africa.
 The global economy reaps huge benefits from nature, often without accounting for or paying for the full cost of the goods and services. However, pricing nature’s products without costing the dividend from natural capital that provides it is fraudulent accounting or borrowing beyond one’s capacity to pay. Sooner or later the tax authorities or your creditors catch up with you. 
 It is incumbent upon all of us – individuals, communities, government and private sector – to understand and account for our use of Natural Capital and recognize the true cost of creature comforts, national and global economic growth, and sustaining human wellbeing today and into the future.

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