Incompatibility of environmental and economic decision-making

Name(s):

Environmentally insensitive economics

Inappropriate economic theory

Failure to recognize the environment as the resource base for all economic activity

Limited assumptions of neoclassical economics

Nature

Economic progress continues to be measured as though the social and natural environments were of no consequence. Little account is taken for the manner in which the degradation of the environment subtracts from human welfare and impairs sustainable development. The discipline of economics, and the economic policies sustained by it, has treated the environment as a free good when in fact it is a scarce commodity. It has been made scarce by ignoring the ecological requirements for a sustainable planetary society, running natural wealth down instead of conserving it.

Background

The world economy is experiencing a continuing trend towards liberalization and deregulation. Privatization of much state-controlled activity is part of this trend. This raises concern that control over polluting activities is also looser, as private investors may pay even less attention to environment and health considerations than the state did in the past.

The input of economics to environment-related issues leaves much room for improvement. Insufficient data as well as research evidence make it difficult to quantify environmental impacts. Evaluation issues, lack of data, and political considerations make it difficult to rank priorities across health, social and economic objectives. Besides, interactions between economic policy and the environment are often very complex and the dynamics difficult to trace, so that clear policy lessons are hard to derive.

Many of the environmental problems result from the continuous unfolding of socio-economic processes that have yet to be properly controlled or managed. The continued poverty of the majority of the planet's inhabitants and the excessive consumption by the minority are the two major underlying causes of continued environmental degradation. These causes, combined with rapidly changing political, social, institutional, financial and technological developments, present policy makers with intractable problems without easy or obvious solutions.

Incidence

Although high-level government officials have issued many declarations and other resolutions endorsing the concept of sustainable development, in reality little progress has been made in improving collaboration between the environment, health and economic sectors. Despite being strongly endorsed by the Helsinki Conference and in Environmental Health Action Plan for Europe, collaboration with economic sectors has been one of the most difficult areas in the development of National Environmental Health Action Plans (NEHAPs) in most countries. The various sectors of the economy ought to see the environment and health sectors as the most important partners in attaining the objectives of sustainable development. Conversely, unless economic sectors are mobilized as key partners in implementing NEHAPs, the environment and health sectors will make little progress towards their objectives. What is needed is to demonstrate that sound environmental health policies complement and support overall socioeconomic development.

Claim

1. The compatibility of environmental and economic objectives tends to be lost in the competitive pursuit of individual or group gains, with little regard to the impact on others, with a blind faith in science's ability to find solutions, and in ignorance of the distant consequences of today's decisions, especially for future generations.

2. Among economists, the real world is often a special case.

3. Rates of return on Sustainable Forest Management (SFM) are not competitive with the return on capital expected by private investors today, especially if the costs of protection and provision of ecological services are included.

4. The complexity and magnitude of the problems at hand should not be a reason for complacency. We must not baulk at designing and implementing preventive policies today. Even if the costs seem high, they will be small in relation to the enormous risks and irreversible damage in the future associated with inaction or 'business-as-usual' paths.

5. As for the WTO, the message is: Get going, or get out. If the institution cannot meet the need, a new one may have to be created.

Counter-claim

1. Economics has a substantive role to play in environmental reconstruction, although many incorrectly see economics as the agent of destruction and not a saviour. It is in economic thinking that solutions to environmental problems are to be found. Economics is not the enemy of the environment. Poor economics is. By manipulating markets, by demonstrating the economic value of natural resources, by altering the way in which economic progress is monitored, there is a real possibility of developing an agenda for development with conservation.

2. Economic and ecological concerns are not necessarily in opposition. For example, policies that conserve the quality of agricultural land and protect forests tend to improve the long-term prospects of agricultural development. Also an increase in the efficiency of energy and material use serves ecological purposes but can also reduce costs.

3. Neoclassical economics can handle equity issues, although it certainly becomes more complex. But you cannot make equity decisions through economic reasoning; people must use the political process to decide whether and how to make economies sustainable. Economists can show what options are available and encourage the debate; they can provide efficient alternative economic scenarios -- for a world with a lot of forests or a little, less poverty or more. Economists can help describe the trade off between current and future welfare, but we should not rely on economics to decide where we want to go.

Broader

Insensitivity to non-immediate hazards to society

Unethical practices in natural resource management

Jurisdictional conflict among academic disciplines

Restrictive business practices in relation to patents and trademarks

Narrower

Excessive environmental protectionism

Inadequacy of economic accounting systems

Aggravates

Natural environment degradation ^{[in 5 loops]}

Difficult distribution decisions ^{[in 5 loops]}

Inappropriate development policy ^{[in 3 loops]}