Humanity has long been confounded by the ever-shifting changes of the Earth. From time immemorial, earthquakes and volcanoes would blight society’s thin hold, farmers would find droughts and floods denying the seasons, while rivers and lakes would inexplicably appear then disappear. For most of civilisation’s short existence, only mystics and religion could justify these events.
In more modern times we have learned to adapt. First, through irrigation and cultivation, we tamed nature’s unpredictable food cycle. Second, with cities and towns, we built more permanent homes, less destructible by the weather. Third, with science and technology, we began to produce our own sources of heat, light and kinetic power.
Just as photosynthesis uses the sun’s energy with water and minerals to create biomass, we now use that same carbon matter – coal, oil and natural gas – to reengineer energy, water and chemicals. And though we still don’t know exactly how it works, we are now pretty close to recreating life artificially.
Yet progress has been so great that humans, along with the wind and the rains, are now having dramatic impact on the environment. Whereas geological time frames were once measured in millions of years, we have now created the Anthropocene, where humanity has left an indelible, geographic mark on the surface of the Earth.
Far from creating a more comfortable, safer world, the artefacts of society – cars, ships, cities, factories – are seen as a danger. And whereas knowledge and innovation helped us surmount the planet’s strange vagaries – knowledge of physics helped sailors find true north rather than rely on a compass lured by unsettled poles – they now leave us afraid.
The visceral denial to global warming is understandable as a knee-jerk reaction to such a very real fear, but rather than put our heads in the sand, or, like people across the millennia, blame conspiracy or some kind of supernatural force, we ought to face these challenges head on. More immediately though, now that the ecological poles have shifted too, so to speak, we need to reorient our economic compasses once again.
The interplay of ecology and economy is often ignored in both commentary and policy, yet like an iceberg hidden by fog, it doesn not appear because it’s not there, but because our tools of common navigation – measures like gross domestic product, market efficiency, labour productivity – simply don’t see it.
The work on social accounting by the late John Hicks, who won the 1972 Nobel in economics for his contribution to general equilibrium theory, states that whereas GDP measures the gross quantity of output (consumption plus investment plus government spending plus net trade or Y=C+I+G+X–M), true growth measures the amount of output an economy can produce without depleting its ability to produce the same output next year.
Analysing output in the way one would analyse the harvesting of fruit from a tree acknowledges that economies, like farms or companies or household budgets, have balance sheets as well as profit statements. But analysing it in true terms not only shows the debt, but the ecological balance sheet as well – water, soil, air and biodiversity – which provides very real economic goods and services, even if improperly measured.
If five years of financial crisis have taught us anything it’s that a focus on output, growth and income to the detriment of assets, liabilities and sustainability is a recipe for disaster. Without noting the equilibrium of the balance sheet the smartest business model can become unstuck. Without noting the equilibrium of ecological balance the smartest societies can become extinct.
The spectre of global warming may seem insurmountable and, at times, politically impossible, but with the clever adjustment of economic measures, markets can be harnessed to find solutions in the same unrepressed spirit that created the problem in the first place. While the media has been rightly subsumed this past week with the idea of thawing permafrosts, the implications of which have been graphically revealed at Doha’s climate negotiations, more heartening developments have flown under the radar.
In the rainforests of Brazil, state-level initiatives to price biodiversity and tighten forestry use have led to local economies that make more money by letting the Amazon stand than felling it for timber. In the United States, slow but steady growth in environmental industries has meant that Obama’s ‘green jobs’ pledge has become more than a political slogan and a real driver of growth.
In China and India – emerging superpowers better known for obstructing international agreements on carbon emissions – hope lies too. In China, with funding from the World Bank, officials in the country’s arid north have begun to restore the largely eroded Loess Plateau as a major Asian watershed, reversing centuries of devastation through designating specific economic and ecological-use areas with their own attendant systems of incentives and rewards. In India, the challenges of unemployment, low incomes and urban waste have been combined to produce the world’s biggest recycling industry.
More to the point, however, the economic compasses of these two countries are being retooled to include ecology in all economic decisions. By 2015, India hopes to legislate measures of gross environmental productivity (GEP) alongside gross domestic product. In China, a new reform-minded central government is said to be reviewing attempts made nine years ago to launch a similar measure, the GDP quality index, which measures sustainability and social equality, as well as production and ecological impact.
In the West, the entrenchment of GDP and its narrow remit has been hard to dislodge, even though its original use in the Second World War was supposed to be temporary, but the EU’s ‘Beyond GDP’ program grinds on in spite of budget dilemmas and the report of France’s Stiglitz-Sen-Fitoussi commission on economic and social measurement continues to shape that country’s industrial policy. Even in heavily polluting Australia there exists the Treasury’s Wellbeing Framework, though it’s admittedly gathering dust in a political environment more interested in the tactics of scandal.
A future of mismeasured growth in the face of climate change and resource scarcity looks bleak, but if incentives can be adjusted and directions realigned, the solutions to a pressing environmental crisis may come sooner than thought.
Reform to private property and capital structures preceded the industrial revolution and the creation of the letters patent system gave impetus for the modern era’s wave of scientific advancement. Whether for inventor, investor or entrepreneur, incorporating ecology and economy too could usher a new era of reward for people and for planet.
The first step though is changing our core economic concepts and our basic economic measures. This starts first and foremost with our chief financial lodestar: GDP.