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Ecology and Economics

The underlying assumption is that if the environment is treated as a commodity and given a price, this will create a market for environmental factors. And depending on the demand and supply for environmental goods, a price will be attached to each one.

Jaydev Jana | New Delhi |

Before India won freedom, Mahatma Gandhi was once asked if he expected free India to attain the same standard of living as Britain. That was an era when the sun never set on the British Empire. With that in mind, Gandhi quipped, “It took Britain half the resources of the planet to achieve the prosperity. How many planets will a country like India require!”

On another occasion Gandhi said, “The economic imperialism of a single tiny island kingdom (Britain) is today keeping the world in chains. If an entire nation of 300 million (population of India at that time) took to similar economic exploitation it would strip the world bare like locusts.” Behind these statements lay Gandhi’s experience of dealing with environmental and developmental issues. Natural resources, both renewable and non-renewable, are natural capital.

If we squander the capital, the system becomes unsustainable. Expressing the contemporary relationship between modern man and nature, E F Schumacher aptly said: “Modern man does not experience himself as a part of Nature but as an outside force destined to dominate and conquer it.” Indeed, modern human beings, under the illusion of unlimited powers nourished by astonishing science and technology achievements, consider all non-human species as ‘inferior’ and exploit them as a captive resource for material growth of society.

Basically, the Western model of development fails to distinguish between income (interest) and capital. Behind such development remains the Keynesian model; and it has failed, because it is unsustainable. In his essay The Economic Possibilities for our Grandchildren, Lord Keynes said in 1930: “For at least another hundred years we must pretend to everyone that fair is foul and foul is fair; for foul is useful and fair is not.

Avarice, usury and precaution must be our Gods for a little longer still. For only they can lead us out of the tunnel of economic necessity and into daylight.” Science is reductionist in the sense that it provides measures for increase in productivity but does not take into account sideeffects of the measures. It is one dimensional. The contemporary model of development has been derived from the dehumanization that set in during the industrial revolution and it remains unabated. Its essence lies in the maximization of profit by promoting consumerism and at the cost of reckless exploitation of natural resources.

The ideological hegemony of the West, established in the past through colonialism, is now perpetuated through aid which is colonialism in a new garb. The world trade system is biased in favour of rich nations, the producers of manufactured goods. The poor nations, producers of primary goods, are at disadvantage. There is a constant transfer of resources from the poor (periphery) to the rich (core).

The application of Science and Technology, especially biotechnology and genetic engineering, appear a double-edged sword since the increased productivity is fraught with adverse side-effects. The Green Revolution led to chemicalization of agriculture, for example. In his book Unto This Last, John Ruskin argued that production and possession may constitute not only wealth but also ‘illth’, a word he coined. Wealth, he argued, was the ‘possession of useful articles, which we can use.’

Conversely, the production of useless things or the possession of things we cannot use, can be defined as ‘illth’. The so-called one-dimensional approach to development has had grave consequences for environment. Most important of these is increasing desertification and soil erosion. Globally, around 12 million hectares of land are lost every year to desertification. This is an area that could produce about 20 million tons of grain.

Every year 75 billion tons of fertile topsoil is lost to land degradation. Next, global warming and erratic and less predictable precipitation patterns associated with it lead to less frequent but larger downpours, interrupting longer periods of deeper drought. Third is the increasing resistance of pests, weeds, and plant diseases to pesticides, herbicides, and other agricultural chemicals.

Fourth, the loss of biodiversity is increasing. Speaking environmentally, many industrial countries will, in time to come, prove to be ecological security risks, because they will not easily give up their unsustainable lifestyle. The principles of modern economics developed and refined since the beginning of the Industrial Revolution have, in a fundamental sense, not changed. The emphasis on one or the other factor may have varied in different models of growth; economists tell us that if we have capital, labour and knowledge, we can produce different goods and services out of different combinations of these inputs.

The overwhelming emphasis in modern economics on growth rather than development is the major problem today. Development is viewed as a dynamic process that causes a change or changes through human intervention for enhancement of quality of life in a society over a specified period of time, effecting a quantitative improvement in the desired direction, respecting sustainability of development and protecting environmental deterioration.

Growth is often equated with development. But the fact is that growth at least in some parts of the world has come to symbolize unfettered consumerism. Many modern technologies fuel consumerism rather than encourage development. In the process resources get depleted faster than they are re-generated. The relationship between economic growth and environmental quality has been evolved.

The ‘limits to growth’ school argued strongly that this relationship is negative, in that economic growth is by definition bad for the environment as it leads to more resource use and more pollution. The Environmental Kuznets Curve (EKC) hypothesis also states that as per capita incomes grow, environmental impacts rise, hit a maximum, and then decline. This implies an ‘inverted-U’ shape. The science of economics is also coming under pressure from the science of ecology.

Ecology focuses on the study of ecosystems and habitats. One of the greatest and most important realizations of the last few decades is that the planet is a collection of numerous interconnected ecosystems like oceans, forests, rivers, deserts, lakes, ponds and many others. In a complicated but imperfectly understood way, these interconnections determine the state of life on Earth. If all fragmented ecosystems work in harmony, life will prosper, if not, life on Earth will be exposed to great hazards.

Destruction of one ecosystem can lead to end of the other, thereby affecting life forms which are supported by these. Now the vital question is what has this got to do with economics? The principles of economics and ecology bring out the conflict between the concepts of ‘price’ and ‘value’ in sharp relief. It is easy to determine the price of a glass of water. It may be a few paise. But what is its value?

One discovers it when one is thirty or when there is water shortage. Economics concentrates on market prices and cost of commodities, goods and services. Ecology tells us that the prices of Nature’s bounties are distorted, as they do not incorporate their true value. The trouble is that economics deals with marketable commodities and services. Under the principles of economics, Nature’s goods, also known as public goods, are free. Free goods or imperfectly priced goods ~ like water ~ are prone to indiscriminate exploitation.

Those constitute fragile habitats and ecosystems. So, to protect such ecosystems they must have proper price tags. Another major difference leading to conflict of world views propagated by ecology and economics is that of time scales on which the two disciplines look at problems. Economics deal with issues that must be decided in a short time-range. Analytical tools available today don’t permit economists, scientists and technologists to predict and analyze the distant future.

On the other hand, environmental problems are long-range. The time periods involved may be typically of the order of decades and even centuries. Studies aimed at putting a value to the environment are growing. In fact, environmental economics is one of the fastest growing branches of economics even though its contribution so far is not so substantial. There are many links between two systems.

The environment provides the economic system with inputs of raw material and energy resources, including minerals, metals, food, hydrocarbons and fibres. These resources are either non-renewable (such as coal and iron ore) or renewable (forest, fisheries). Inputs are transformed by the economic system into outputs that consumers demand. The economy uses the environment as a waste sink. Wastes may originate from either production processes or from consumption activities.

Environment has a limited assimilative capacity to absorb and transform some wastes into harmless substances. Pollution is said to occur when emissions exceed assimilative capacity and produce undesirable impacts. The underlying assumption is that if the environment is treated as a commodity and given a price, this will create a market for environmental factors. And depending on the demand and supply for environmental goods, a price will be attached to each one of them.

This will help bring environment in the fold of economics. A group of environmental economists has also gone to the extent of creating property rights on environmental factors provided by nature. Of course, commodification of the environment raises several moral and ethical issues. Moreover, environmental goods cannot be divided. For example, how can we divide clean air between two neighbors? Creating property rights will also create haves and have-nots.

However, we are at the threshold of a major revolution in ideas. The environment is one such area. The guiding principle of economics must be the meeting of needs, and not greed. There is need to apply environmental economics rather than classical economics and to recollect the prophetic statement of Mahatma Gandhi: “The earth provides enough to satisfy every man’s needs, but not every man’s greed.”

(The writer is a retired IAS officer)