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Ecosystem Services: The Traveling Salesman and the Trophic Conundrum

by Brian Czech

Some scholars make a living valuing natural capital and ecosystem services, with trips the world over pointing out the value of standing forests, free-flowing watersheds, coastal wetlands, and all those other “funds” of ecosystem services. Foreign governments, think tanks, and universities pay handsomely for such talks.  It’s a good gig for those who can settle for telling half a story.

Meanwhile the inconvenient truth languishes in obscurity. Our traveling scholars won’t be seen uttering the phrase “steady state economy,” at least not in public. They know it goes against the political tide, which is still coming in for economic growth. Grants go to those who don’t go against growth.

That’s why, after such scholars come through your town or country, you’re left to figure out the big picture on your own. By the time you realize that all the talk about ecosystem services and “green accounting” boils down to the need for a steady state economy, you’ll be left to do the heavy political lifting, too. The traveling scholar will be long gone; probably on another flight to a hefty honorarium.

Let’s get one thing straight: ecological microeconomics — deriving the value of ecosystem services — does have an important role to play in the quest for sustainability. But performed out of its macroeconomic context, all the talk of ecosystem service values is like the din of drums without the melody of a guitar. It’s hard to make sense of.

For the sake of all sustainable, I’d like to propose a new rule; namely, that no talks on valuing ecosystem services be given (especially for big bucks) without a healthy dose of ecological macroeconomics. Without explicitly pointing out the limits to economic growth and the need for a steady state economy, the speaker leaves the audience with a dangerous ambiguity. Suckers and scholars alike are led to believe they can save the world as long as they get the prices right for ecosystem services. Of course, some of the audience will “get it” — it being the need for a steady state economy — but too much ambiguity remains to turn the tide toward steady statesmanship.

This is no hypothetical matter. We see examples abounding. Take the National Wildlife Federation (NWF), which recently adopted a resolution calling for reforming GDP, which is the indicator of economic growth. NWF fully recognizes that GDP is a poor indicator of human wellbeing because it doesn’t account for many things — such as wildlife conservation — that are important to humans. They recognize that growing GDP has amounted to declining biodiversity, among other things. That’s why it is quite logical to surmise that NWF gets the need for a steady state economy.

But no, NWF clarified that they only call for reforming GDP and not for a steady state economy. Apparently they think that, by getting all the prices right for ecosystem services, GDP will be wildlife-friendly and we can have economic growth and wildlife conservation ever after. (Actually, at least one of the NWF delegates who advanced the NWF resolution was motivated by steady state economics.  We know that because he’s a CASSE chapter director! For NWF executive leadership, however, apparently it’s all drums and no guitar.)

NWF would do well to consider Herman Daly’s metaphor of the plimsoll line, the marking on a ship that tells captain and crew when to stop adding cargo. Loading beyond the plimsoll line is so dangerous that it was outlawed. To the NWFs of the world, ecological macroeconomics has a message: when you’re loaded to the plimsoll line, it doesn’t matter if you add a green puppy or a gray pig — you’re sunk!

Failure to see the forest for the trees would be greatly alleviated if only our traveling salesmen of natural capital accounting were to couple the incomplete truth (micro) with the inconvenient truth (macro). I’ll make it easy for them by offering up the “trophic conundrum” model from my upcoming book, Supply Shock. The model illuminates the inconvenient truth that all the valuation exercises in the world won’t save us from the tradeoff between economic growth and environmental protection.

We see from the model that as the natural capital supply curve shifts inward (from S1 to S2), the price of natural capital and ecosystem services increases (from P1 to P2). That’s basic economics. What is not basic (conventional, neoclassical) economics, but rather ecological macroeconomics, is the trophic theory of money, which tells us that the supply curve shifts inward as an inevitable function of economic growth.  That’s because economic growth entails the transformation of natural capital into more goods and services, plus manmade capital and waste.

We can do all the green accounting in the world, but the only way to stabilize prices of natural capital and ecosystem services — the only way to achieve sustainability — is to establish a steady state economy with stable population and per capita consumption. Meanwhile the only way to establish a steady state economy is with more, and clear, articulation of this inconvenient truth. Otherwise, with nothing but ecological microeconomics, we’re just pricing to peddle. We’re not conserving, sustaining, or telling the whole truth.

Game Changer: National Wildlife Federation Adopts a Resolution on GDP

Brian Czech PhotoAmong the world’s biggest environmental organizations, there is now a clear leader of the sustainability pack. The National Wildlife Federation has boldly gone where the Sierra Club, World Wildlife Fund, Defenders of Wildlife, and so many others have feared to tread. As the first big NGO in the 21st century to raise awareness of the trade-off between economic growth and environmental protection, NWF has earned the admiration of a burgeoning group of citizens.

Which burgeoning group is that, you ask? Let’s call it the Common Sense Club. They’re tired of the propaganda that we can have our environmental cake and eat it too. The Common Sense Club knows there’s a limit to economic growth, and that growth has been causing more problems than it solves. No, they’re not for high unemployment or poverty – of course not! – but they’re also not for imperiling our grandkids by ruining the environment. The Common Sense Club realizes that, if we care about wildlife, the grandkids, national security, and international stability, we have to strike a balance between the size of the economy and the environment that sustains it.

At CASSE, we’re more aware by the day of how rapidly the Common Sense Club is growing and how diverse it’s becoming. Take for example the five most recent signatories of the CASSE position on economic growth: a Croatian air traffic controller, an Indian economics professor, a Swedish artist, an American banker (that’s right, a banker), and a Dutch computer scientist. The group of steady state signatories is ranging far beyond the original bunch of ecologists and economists who kicked it off seven years ago (although I like to think the original bunch had some common sense too).

But back to the NWF and its resolution on GDP growth; now that’s a real game changer. For the sake of ecological and economic sustainability, the news could hardly be bigger. We finally have a significant counterweight to the neoclassical nonsense that “there is no conflict between growing the economy and protecting the environment.” To put this counterweight in political perspective, the NWF, at 4.4 million strong, has more members than the National Rifle Association. It’s a centrist organization with a rock-solid history.

Why bring the NRA into this? It makes for an interesting contrast because, like the NRA, NWF counts a lot of hunters, fisherman, and general conservationists among its membership. Indeed there is substantial overlap in membership. But NWF also includes a great number of wildlife aficionados who have never pulled the trigger of more than a water pistol. It’s the rare, well-rounded organization that unites citizens far and wide over a mission everyone supports: wildlife conservation.

And wildlife conservation – indeed environmental protection in general – is not a supportable mission as long as the overriding goal is economic growth. That’s why, since the late 1990’s, dedicated ecologists and ecological economists have been toiling in the trenches of professional, scientific societies, engaging these societies in the subject of economic growth. They’ve been working toward days like April 15, when NWF adopted its resolution.

In these scientific societies, efforts have focused on the development of papers and policy statements explaining the trade-off between economic growth and environmental protection. For example, in 2003 The Wildlife Society published a technical review explaining the “fundamental conflict between economic growth and wildlife conservation.” In 2004 the Society for Conservation Biology (North America Section) took the position that “There is a fundamental conflict between economic growth and biodiversity conservation based on the ecological principle of competitive exclusion.” In 2007, the American Society of Mammalogists adopted a resolution noting the “fundamental conflict between economic growth and the conservation of ecosystems, mammalian populations, and species.” Note that the trade-off is often described as a “fundamental conflict” because it ultimately boils down to core principles of physics and ecology.

The scientific societies have addressed the issue of economic growth in such venues as peer-reviewed papers, special sections, and series in journals; symposia, plenary talks, and workshops; working groups and committees; editorials and debates, etc. These academic studies and discussions are a critical phase in a broad movement to build awareness, as illustrated below.

Basic Vision of Awareness-Building

Meanwhile the NGOs (such as NWF) need a sound, scientific foundation to build upon. Otherwise any talk of trade-offs with economic growth can be blown away in the political winds. The collection of papers, proceedings, position statements and policy reviews now constitutes that foundation.

Of course the process of awareness-building isn’t quite as simple as building a pyramid from the bottom up. It is also an iterative process in which NWF’s resolution will empower yet another scientific society to take a position on economic growth, thereby firming up the foundation. The strengthened foundation may then provide the support for the next big NGO (perhaps the World Wildlife Fund, Friends of the Earth, or Sierra Club?) to weigh in. The NGOs are key because, unlike the scientific societies, they have the resources (staff, magazines, mailing lists, etc.) to educate the masses, beginning with their own substantial memberships.

Meanwhile, the general public (third level in the diagram) is being populated by the Common Sense Club. As the Common Sense Club grows, NGOs such as NWF can feel more comfortable telling it like it is about the perils of economic growth. They won’t be left out in the cold, and will in fact attract many new members.

It should also be noted that the NWF didn’t use the “fundamental conflict” language in its resolution. Rather, they simply pointed out that GDP is a poor indicator of welfare because it doesn’t account for many important goals, such as wildlife conservation. But when we recognize that GDP is THE indicator of economic growth, it’s easy to get the point: there is a trade-off between economic growth and wildlife conservation.

Like CASSE, NWF would like to see indicators other than GDP used to assess human welfare. GDP is like the scale for an obese patient; it’s good for indicating how overweight the economy is becoming. But we need a blood pressure cuff and a stethoscope, too, for a broader picture of health. The Genuine Progress Indicator (GPI) and Index of Sustainable Economic Welfare (ISEW) are examples of indicators that help us form a broader perspective of human welfare.

It should also be noted that, in the diagram above, the politicians at the top aren’t necessarily essential for a sustainable outcome. If the scientific societies, NGOs, and general public are adequately aware of the trade-offs between economic growth and environmental protection (and so much else), a steady state economy can result from the “demand side.” In other words, less consumption and more family planning can stabilize the economy regardless of how much the policy makers try to “stimulate” the economy. Ideally, though, policy makers will serve the public that elects them, and gradually set those fiscal and monetary policy levers back toward a sustainable steady state.

Normally, I reserve my own charitable contributions for a few choice NGOs, most notably CASSE and the irresistible Smile Train. But this year I’m joining NWF, and I hope you do too. They earned it!

National Wildlife Federation Adopts Key Element of Steady-State Thinking

by Eric Zencey

The National Wildlife Federation held its annual meeting near Capitol Hill in Washington, D.C. on Friday, April 15. The meeting took a bold, firm step toward implementing a key feature of steady-state economic thinking: it passed a resolution calling on the President, Congress, state governors and state legislators to abandon gross domestic product (GDP) as the indicator that economic policy makers seek to maximize, and to develop and adopt instead a broader measurement of economic and ecological well-being.

The resolution passed unanimously, as delegates from 47 states and two overseas territories said “aye,” no one said “nay,” and the resolution was gaveled into force. I was there representing the Vermont Natural Resources Council, which had put the resolution on the agenda. The vote was a quiet moment in a large conference hall, with delegates shuffling papers as they sat at long tables facing the dais, each of us fronted by a miniature version of our state flag. This is what revolutions in political economy sometimes look like: quiet meetings in stuffy conference halls in which concerned citizens say, in unison, “Stop doing that and do this instead.”

In passing the resolution, the Federation lends its considerable support to an international movement that seeks to alter what we count as progress. That change—measuring the actual well-being delivered by the economy instead of the amount of money that changes hands each quarter—is crucial to establishing a sane, sustainable, steady state economy.

Every economics textbook warns that GDP is a poor measure of well-being, and yet by default it continues to be the indicator that economic policy seeks to maximize. GDP doesn’t measure well-being at all, but simply tries to tally the dollar value of final goods and services produced in the U.S. By design, it leaves out volunteer work and domestic production—the daycare you do at home doesn’t count, but if you commercialize the transaction by dropping your kids off at the daycare center, GDP goes up. Cooking, cleaning, maintenance, yard work, caring for aging parents—none of it counts if money doesn’t change hands. Neighborhoods, communities and households all benefit mightily from this kind of non-commercial production, and their replacement by commercial services often fails to bring the same level of satisfaction and well-being.

By design, GDP also leaves out ecosystem services; if you hang your laundry out to dry, the sun and wind do the job, but if you throw it in the dryer you use electricity, increase your carbon footprint, and give GDP a bit of a bump. Ecological economists identify a dozen categories of ecosystem services, including climate stability, recycling of nutrients, creation of soil fertility, maintenance of a library of genetic diversity, pollination, purification and transport of water by the solar-powered hydrological cycle, flood protection services of marshlands and forests, and so on. Ecosystem services count for nothing in GDP. If we don’t value them, they are easily ignored. Yet the loss of ecosystem services leads, eventually and inevitably, to the loss of civilization itself.

GDP also misreads our level of well-being by treating defensive and remedial expenditures as positive economic activity. Remedial: the $12 billion that British Petroleum alone has spent (so far) in its efforts to clean up the catastrophic oil release in the Gulf of Mexico counts as an increase in GDP, though the expenditure comes nowhere close to putting things back to their pre-Deepwater state. Defensive: if someone breaks into a neighbor’s house and you decide to buy a burglar alarm, GDP goes up—but you probably don’t feel as secure as you did before the break-in.

Economic growth brings us problems, and as we spend money to deal with those problems (e.g., trucking in water to replace the services of an aquifer contaminated by mountaintop-removal coal mining, adding treatment plants to purify drinking water fouled by chemical discharges, or turning up the air conditioning because smog and particulate matter make opening a window an undesirable option), GDP goes up. By some estimates, as much as one-quarter to one-third of our GDP consists of such expenditures.

If we’re ever to have a sustainable, steady state economy—an economy that operates on a sustainably sized flow of matter and energy, and which excretes outputs that can successfully be absorbed by the ecosystems of the planet—we need to start measuring what matters, and not mistake the commotion of money for the creation of well-being. Steady-state economics doesn’t mean that our quality of life will stagnate; we can have continual improvement in social and cultural well-being as we spend less on remediation and repair. Ecological economists call this development to distinguish it from footprint-enlarging growth. And this is the key to steady-state thinking—we have to stop growing our ecological footprint (which is already too large to be sustained) and begin budgeting our economy within the limits of what we can sustainably extract and emit. The National Wildlife Federation did not specifically sign on to the steady-state vision; but by calling for an accurate measurement of the costs of economic growth, it has officially joined us on a path that can lead nowhere else.

The resolution passed by the annual meeting reads, in part,

…be it resolved that the National Wildlife Federation urges the President, the Congress, and state Governors and legislatures to take immediate steps to redesign the use of the Gross Domestic Product as an indicator of economic well-being, and to take all necessary action to develop and implement a system of economic accounting that gives a more accurate measure of overall economic and ecological well-being; and be it further resolved that the new or modified system of national accounts should treat as cost or debit items the depletion of finite, non-renewable natural resources and the loss and degradation of ecosystem services, including the service of providing habitat for wildlife.

The Federation is, as the name implies, an umbrella organization that offers central administration and the strength of shared purpose to its affiliate organizations. It’s the largest environmental advocacy group in the nation, with affiliates in 47 states, several territories, and a total membership of 1.5 million members. The organization brings together hunters, anglers and sportsmen, on the one side, with hikers, backpackers, and birders on the other, with a good strong mix of environmentally aware citizens thrown in as well. It’s a broad coalition bound together by a shared understanding of the need to protect wildlife and wildlife habitat—ecosystems and their genetic diversity.

In its seventy-five year history, the NWF has fought and won a lot of battles, from the Pittman-Robertson Wildlife Restoration Act of 1937 (which for the first time provided Federal funding for wildlife programs), through the 1944 invention of the concept of the environmental impact statement and its eventual adoption into law, and on through a leadership role in the major environmental legislation of the 1960’s and 1970’s: the Clean Water Act of 1963, the Endangered Species Preservation Act of 1966, the National Environmental Protection Act of 1969, the dramatically expanded Clean Water Act of 1970. The Federation is an active litigator, using these laws and others to block unwise economic activity and protect the nation’s ecosystems. It’s safe to say that without the Federation, many of the ecosystems of North America would be not just threatened but degraded to the point of collapse.

Begun by a group of outdoorsmen who saw their beloved wilderness areas, and the animals in them, being threatened by the encroachment of economic activities, the Federation has in its seventy-five year history broadened its approach. As a history of the Federation puts it, “While the NWF continues to champion threatened species, its work has evolved to embrace a multi-species, ecosystem approach.” (source: “What We Want is Action,” by Jessica Snyder Sachs in National Wildlife, February/March 2011, p. 27.) It also broadened its reach in another way: “we began seeing the patterns,” says former NWF counsel Patrick Parenteau, “and attacking the root causes of such problems.” (quoted by Sachs, p. 25.) The adoption of the economic indicators resolution is a continuation of this trend, reaching beyond symptoms to address the problem at its source.

The root cause of our environmental problems—our ecological crisis—is infinite planet economic theory, the rules and axioms of a discipline that tells us that it is possible to have infinite economic growth on a finite planet. It sounds crazy, doesn’t it? But neoclassical economists continue to believe this is possible because human ingenuity is a factor of production and, supposedly, it is infinitely powerful. You can get to that conclusion only if you ignore the laws of thermodynamics. Economic production is, at bottom and unalterably, a process that relies on physical inputs. No amount of human ingenuity will ever let us make something from nothing or nothing from something. No amount of ingenuity will let us create energy out of nothing or recycle it to use it again.

In the real world outside of infinite planet theory, our acts and works are constrained by physical law. Those laws tell us that increasing our matter-and-energy throughput has unavoidable consequences in the world. It damages ecosystems, leading to the loss of (sometimes irreplaceable) ecosystem services. We can’t count that loss as a cost unless we first value ecosystem services as a benefit and adopt an indicator other than GDP as the one we seek to maximize. With the passage of this resolution, the National Wildlife Federation commits to lending its considerable energies and expertise to that effort.