On May 6, the United Nations released its Global Assessment report with truly devastating findings regarding the state of plant and animal life on earth. Over the past 100 years, grazing, farming, logging, fishing, poaching and mining have dealt an unprecedented catastrophic blow to our planet’s biodiversity. Hundreds of animal species have become extinct, millions of acres of forests have been cut down, and seas are been fished at depleting rates. As arable land is being extended into formerly forested areas, its over-exploitation leads to its degradation and eventual uselessness. The degrading of natural resources and life because of economic activity is one more threat to human life in addition to climate change.
Meanwhile the human population is projected to grow from its present size of 7 billion to 11 billion by 2100. If population growth to the current level has inflicted such a devastation, imagine what it can do to the planet earth when 4 more billion humans compete for natural resources. More consequential than the population growth itself is the certain prospect that billions of people will move from the third World to the second and first Worlds in the not too distant future. As incomes rise, so will consumption and resource usage.
It’s time, therefore, to seriously think and act on the imperative of sustainability. These days we talk about sustainability on various levels. Sustainability of capital resources; sustainability of human resources; sustainability of natural resources; sustainability of climate. Sustainability is satisfied when “a living system operates in a way that it does not use up resources more quickly than they can be naturally replenished. Or a sustainable economic system operates in a way so that expenditures are either equal or less than the income.” For example, as workers, we spend energy on our jobs, but if we have enough rest, nourishment, and recreation, we can restore our physical, mental and emotional stock and continue to be productive at the same or even higher level.
The above description of sustainability echoes the definition of income from capital the British economist Sir John Richard Hicks (a Nobel Prize winner) gave in his book Value and Capital eighty years ago.* He defined it as that amount we can spend without depleting the capital. Applied to sustainability, it requires that we recognize the natural world and the climate that sustains it to be our capital. Thus, we need to determine how much we can take out of this capital without impairing its ability to restore itself. But before I go further down on this line of thought, it is useful to talk about the concept of positive and negative externalities because of their serious impact on our lives and pockets
A positive externality is when I do something good but receive no monetary gain. For example, I buy a hybrid car. I pay relatively more and refueling it is more burdensome. My good choice helps the environment and, hence, everybody. But I don’t get any monetary break. So, I pay for a positive externality from which all others benefit as free riders. Hence, why do it?
For a negative externality, think of a factory that pollutes the air. The price of products the factory makes does not factor in the damage to air quality. That cost is born by all of us. Without any laws or regulations, the factory will continue to do this, profit from it, and pass the cost to us. Unfortunately, unfettered markets fail to monetize the positive externalities or capture the cost of negative externalities at the individual level. But as we say in economics “there is no such a thing as a free lunch.” When the air gets to be too foul to breath and sickness multiplies, it is society as a whole that pays the price in higher health insurance premiums, higher medical costs, etc. The market fails to preserve the air quality because it fails to pass the cost as part of a higher price to the individual consumer of the factory’s products. The point here is that the inability of markets to incorporate the positive and negative externalities of various economic activities contributes to the problem of degradation of human and natural resources.
Environmental sustainability can be also discussed in the context of the theory of the commons. Commons are goods, like pastures, forests, sea areas, that belong to all. In a 1968 influential article published in Nature, Garrett Gardin coined the term The Tragedy of the Commons. He argued that if each individual, driven by personal gain, over-exploits a commons resource, like a pasture, that would lead to its demise. Similarly, if we think the air is part of the commons, each factory owner can foul the air in pursuit of profit without effective self-regulation through the market system. The solution to the problem is collective collaboration among the people having jurisdiction over the commons. The economist, and 2009 Nobel Prize winner, Elinor Ostrom, an advocate of collaborative management of the commons, has documented many examples of collaborative and effective management around the world. Peter Barnes also advocates to treat our natural resources as the commons in his book Capitalism 3.0.
It is time, I believe, we treated our natural resources, biodiversity, and climate as commons. In some cases, it may be enough to leave the custody and management to a local community or a state. In other cases, we may need international, even global, collaboration. Of course, we should be prepared to hear the opposition voices. Some of them will come from big corporate interests that want to remain unaccountable custodians and users of all available resources. Others will come from the ideologues of unfettered markets who are divorced from empirical reality and pragmatism.
We also need to acknowledge the challenges. Restricting our total consumption to the “income” that can sustain our natural capital may mean we live with less than our voracious wants demand. The biggest challenge is that most of the remaining untouched natural resources are in less developed countries whose populations rightfully desire to match our standard of living. How are we going to convince them to refrain from exploitation of their natural resources, when it was the exploitation of ours that propelled us to this prosperity? That will require a global coordination and assistance so these countries can attain prosperity by means other than those that degrade nature. Are we at this point in our current state of world affairs? Not really, considering that our own government wants to open up our national parks to commercial exploitation.
The good thing is that sustainability in its various forms has acquired a momentum of its own. Institutional investors, like pension funds and investment companies, do offer us opportunities to invest in firms based on their environmental and social responsibility. And a multitude of organizations (think of the Sierra Club and Greenpeace) around the world strive to promote sustainability. For the good of the planet, their cause must become our cause.
* I am not sure whether Hicks was the first to define capital income this way, but I cite him because it’s a definition that stuck in my head since the days of my undergraduate studies.
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