The Economics of Enough_ How to Run the Economy as if the Future Matters - Diane Coyle [38]
There is an economic cost to extractions. A UN project, The Economics of Ecosystems and Biodiversity (TEEB) is estimating the monetary value of aspects of nature such as keeping water and air clean, protecting coasts from storms, and maintaining wildlife species. It estimates the annual cost of forest losses at $2–$5 billion, for example.28 But in addition to concern for the economy and our own living standards, Sen articulates an expression of the value we place on the existence of different creatures—and this is a value that would not have been widely shared in previous generations. He writes: “If the importance of human life lies not merely in our living standard and need-fulfillment, but also in the freedom that we enjoy, then the idea of sustainable development has to be correspondingly reformulated.”29 We need to sustain our freedom too, including the freedom to meet our needs but going beyond it—we should aim to ensure that future generations have at least the same capabilities.
All of these definitions tally with the formulation of social welfare in economics in terms of the range of choices open to people. But there is still a question about how any formulation of sustainability, necessarily abstract, can be put into practice. How much less consumption does it imply now? One practical proposal is that the amount we save rather than spend now should leave the next generation with at least the same amount of capital as we inherited ourselves, specifically natural capital in the environmental context.
Natural capital is the stock of natural resources of all kinds, the world’s environmental wealth. The natural capital of concern for sustainable economic growth is not just the climate. Many of the world’s various ecosystems, large and small scale, are under threat, whether areas of rainforest that provide a living to poor rural communities, coral reefs, or major fish stocks in the oceans. When an ecosystem collapses, so do the societies relying on it; indeed the human society should be thought of as part of the ecosystem. Humans and our activity are part of the environment, not separate from the natural world.30
This rule about leaving behind no lower a level of capital than we inherited directs us toward an inherently longer-term framework than focusing on how much is generated each year, or the flow of income and resources a measured by GDP. In just the same way, a key measure of the success of an oil company is its reserves, not just how much oil it pumped this year; or the success of a university investment fund is the value of the endowment as well as the income contribution for the year. A stock of wealth is a measure of future potential, exactly what is needed to implement any of the definitions of sustainability set out here.
What does it mean to leave at least as much capital as we inherited? How can natural capital be measured? There are no easy ways to calculate natural wealth because markets undervalue many natural assets—there are many externalities that make property rights over natural resources hard to enforce and the “tragedy of the commons” ensues. This means that resources owned in common—such as fish in the ocean or clean air—are overused and therefore depleted. No individual owner takes responsibility for their stewardship, in the absence of any successful collective agreement to limit their depletion. The price we pay (essentially free) is lower than the price that would reflect the true cost of our use of them. This has distorted the development of advanced economies to make them far too hungry in their use of such resources. As Dasgupta says: “Distortions in the pricing of primary factors of production filter down to influence research and