This post is by Professor Diane Coyle and Dr Matthew Agarwala. The article was originally published on the Bennett Institute for Public Policy’s blog.
The UK government commissioned independent review on the Economics of Biodiversity, by our Cambridge colleague Professor Sir Partha Dasgupta, is a landmark. Launched on the 2 February it sets out forcefully the imperative for action to halt, and reverse, a catastrophic decline in biodiversity over recent decades. The case it makes is a pragmatic one. Many people will agree there is a moral case for humanity to be good stewards of the rest of nature, but the review’s point is that the economic case is powerful too; ethics and economics are not separate.
Nature is part of the economy
For valuing biodiversity is no ‘mere’ matter of appreciating, for their intrinsic value, the multitude of different species on earth. Our standard of living fundamentally depends on it. Standard economic thinking has treated nature as separate from ‘the economy’, but it is not. Rather, the review demonstrates that the economy sits wholly within the natural world. By undervaluing or even disregarding for so long the services that nature provides, including to the economy we have been consuming unsustainably, reducing future living standards. The review is an eloquent explanation of the need to regard natural capital, in the same way as other welfare-enhancing assets, from produced capital, such as machines, to human capital: our own skills and health. This concept of society’s wealth is inclusive wealth.
Thinking about the entire portfolio of assets contributing to economic development, as we at the Bennett Institute also do in our Wealth Economy programme, has implications for individual behaviour, business decisions and policy choices. As the review puts it, “We are all asset managers.” For decades, economies have been adding to human capital and produced capital, but natural capital (and its biodiversity) has been in significant decline.
The implications are as serious as climate change
This change of perspective – from consumers thinking about today to ‘citizen investors’ thinking about returns tomorrow – is urgently needed. Globally, current living standards require 1.6 Earths to sustain them; we only have the one. Extinction rates are increasing. The encroachment of economic activities on nature may cause more pandemic diseases in future. It will become increasingly difficult to grow enough food to support the human population, as agricultural productivity is reduced. Biodiversity has been less in focus than climate change, as it is less visible and harder to measure, but the implications of inaction are as serious.
One necessary step is to make the scale of the problem more visible through developing better statistics, which has been a focus of our work. One key change will be to start counting nature as part of the economy, rather than something separate from it, and so measuring inclusive wealth, not just a small part of the portfolio. Significant progress has been made in accounting fully for the services nature provides, and there is hope for better integration of measures of natural capital in official statistics used by governments and others as the UN definitions are updated during the next few years.
The Dasgupta Review also highlights two other keys: technology and institutions. It points out that the planet is bounded so the economy must ultimately be too; although, meanwhile, technology can improve the efficiency with which we get economic value from natural assets. Technical advances can create important breathing space on the path to sustainability, making the changes in behaviour and consumption patterns that will be needed less dramatic and more feasible.
The global financial system can be an agent of change
There are other practical pathways to change too. One important lever will be the global financial system. There is much discussion about ‘green recovery’ post-Covid19 pandemic. The financial system will have to direct investments in a ‘green’ direction, for example by taking full account of the investment risk posed by loss of natural assets or by climate change. Central banks, financial regulators and accounting bodies need to develop appropriate global financial and reporting standards. Another example of a policy tool already in wide use is ‘payment for ecosystem services’, payments to landowners for the services provided by the resources they control, although these are not always easy to design effectively.
There is, more broadly, a need to put in place the institutional framework to manage resources sustainably. Some aspects of biodiversity, such as the ocean, require global arrangements. Others involve local ‘common pool’ or shared resources, often best managed locally, using local knowledge and the ability to monitor what is happening. At any level, trust – often referred to as social capital – is required to enable people to work together for mutual advantage. In addition to states and markets, communities or civil society groups are another form of collective or shared decision making that will be needed to preserve and restore biodiversity.
The review summarises options for change, to place nations on a more sustainable path, recognising that economic outcomes cannot be permanently detached from environmental ones. Some of the options – using natural capital accounts and Inclusive wealth to inform decisions and measure economic success – will be familiar from our Wealth Economy project. Others, less familiar, include for example improving family planning options and reproductive health in countries yet to reach their demographic transition.
However, the most important change will be a change in attitudes. The unsustainable is never sustained; the uncertainty is about how, not whether, it comes to an end. The present global economy is unsustainable. The review emphasises the role of education, ensuring that younger people grow close to nature and do not think of it as a separate sphere. There is already a marked generational shift in attitudes to the environment, well-illustrated by school pupils’ Friday protests, inspired by activists like Greta Thunberg. But anybody with any influence over policy decisions owes it to the citizen investors of the future to start acting now.