A good economy requires that we manage nature better
The past 70 years have been successful in many ways. We are healthier, live longer and have higher incomes on average than our predecessors. The proportion of the world’s population living in absolute poverty has dropped dramatically. As we benefit from advances in technology, modern science, and food production, we can be excused for thinking that humanity has never been so good. Global GDP has grown enormously since the 1950s (see graph) and global economic output is 15 times higher.
These achievements, however, hide a simple truth, which has profound consequences not only for the way we think and practice economics, but also for the way we live our lives. All the prosperity we have enjoyed relies on the nature that surrounds us and of which we are a part, from the food we eat, to the air we breathe, to the decomposition of our waste, to the opportunities for recreation and spiritual fulfillment. . Yet the biosphere has shrunk during this same period. Current extinction rates are about 100 to 1,000 times higher than the background rate – the normal process of species loss – over the past millions of years. And they speed up. The graph shows the Living Planet Index, which tracks the abundance of mammals, birds, fish, reptiles and amphibians. Between 1970 and 2016, the species population fell by 68 percent on average globally. A recent report by the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services showed that 14 of the 18 global ecosystem services assessed were in decline.
We have tapped into nature’s assets by extracting natural resources, depleting nutrient reserves in soils, depleting fish stocks, etc. As a result, the biosphere has seriously degraded; some ecosystems, such as coral reefs, are on the verge of collapse.
Certain events can make us think for a moment. The COVID-19 pandemic has prompted many to question the sustainability of our relationship with nature, as illegal wildlife trade, land-use change and habitat loss are the main drivers emerging infectious diseases.
Supply and demand
Earlier this year, The Economics of biodiversity: the Dasgupta review, commissioned by the British Treasury, has been published. In this study, I have sought to show how the economy has neglected Nature. Combining what we know about the biosphere through earth sciences and ecology, the Review establishes a framework for including nature in our economic thinking and provides a guide for change through three broad and interconnected transitions.
The first is to ensure that our demands on Nature do not exceed its supply. What we demand of nature (what some call our “ecological footprint”) has for some decades far exceeded nature’s ability to meet these demands on a sustainable basis, with the result that the biosphere is degrading at a rapid rate. alarming.
This persistent overshoot of demand endangers the prosperity of current and future generations, fueling a significant risk to our economies and well-being. Technological innovations, for example those geared towards sustainable food production, have an important role to play in ensuring that our demands on nature do not exceed its supply.
But if we are to avoid overstepping the limits of what nature can provide while meeting the needs of the human population, patterns of consumption and production must also be fundamentally restructured. Policies that change prices and behavioral standards, for example by aligning environmental goals across supply chains and enforcing standards for reuse, recycling and sharing, can accelerate efforts to sever links between harmful forms of consumption and production and the natural environment.
The growth of the human population has important implications for our demands on nature, including for future patterns of global consumption. Support for community-based family planning can change preferences and behaviors and accelerate demographic transition, as can improving women’s access to finance, information and education.
The second transition is to change our measure of economic success. Rethinking the tools used in economic measurement is a necessary step on this path. GDP remains a critical measure of economic activity when it comes to short-term macroeconomic analysis. But this is not an appropriate measure of long-term economic performance. This is because it does not tell us how an economy’s assets, especially its natural assets, are improved or diminished by the decisions we make.
Rather, we should use a measure that takes into account the value of all stocks of capital — produced capital (roads, buildings, ports, machinery), human capital (skills, knowledge), and natural capital. We can call this measure “inclusive wealth”. Understanding all three types of capital, inclusive wealth shows the benefits of investing in natural assets and the trade-offs and interactions between investing in different assets. It is only with this more complete picture that it is possible to understand whether a country is experiencing economic prosperity. New Zealand’s “welfare budget” and the use of “gross ecosystem product” in China are examples explored in the Review steps taken to establish this more complete picture.
For example, export revenues from natural resources (eg primary commodities in the tropics) do not reflect the social costs of their removal from the environment; in other words, the trade in these goods does not take into account how the extraction process will affect the ecosystem from which they are extracted or the long-term consequences that these communities face. There is therefore a transfer of wealth from countries exporting primary products to importing countries. The implication is more than ironic: it is possible that the expansion of international trade contributed to a massive transfer of wealth from poor countries to rich countries, without this being recorded in official statistics.
Of course, it is not enough to recognize only natural assets. We need to invest in nature. It requires a financial system that channels financial investments – public and private – into economic activities that improve our stock of natural assets and encourage sustainable consumption and production. Investing can also mean simply waiting; left alone, nature grows and regenerates itself.
This brings us to the third transition: transforming our institutions to enable change. At the heart of our unsustainable engagement with Nature is a profound institutional failure. The value of nature to society – the value of the various goods and services it provides – is not reflected in market prices. Open seas and the atmosphere are open resources and have fallen prey to the so-called tragedy of the commons. Such price distortions have led us to invest relatively more in other assets, such as produced capital, and to under-invest in our natural assets. And since many of nature’s constituents are mobile, invisible or silent, the effects of a number of our actions on ourselves and on others, including our descendants, are difficult to trace and are not taken into account. , which gives rise to generalized externalities.
To exacerbate these distortions, governments almost everywhere are paying people more to exploit nature than to protect it. A conservative estimate of the total global cost of subsidies that harm nature is around $ 4 trillion to $ 6 trillion per year.
A thriving natural environment, supported by abundant biodiversity, is our ultimate safety net. Just as diversity within a portfolio of financial assets reduces risk and uncertainty, diversity within a portfolio of natural assets – biodiversity – directly and indirectly increases nature’s resilience to shocks, reducing risk to the services we depend on.
A thriving natural environment, supported by abundant biodiversity, is our ultimate safety net.
Much more global support is needed to increase financial institutions’ understanding and awareness of the financial risks associated with nature. Central banks and financial supervisors can do this by assessing the systemic extent of these risks. The IMF, at the center of the global financial safety net, can also play a critical role in assessing and managing these nature-related risks in its surveillance and financial and technical assistance.
The next steps
With increased awareness of the place of nature in our lives, a message that the pandemic has conveyed to us, this year is crucial to reinventing our economy and our economic and financial decision-making. World leaders will meet for two conferences – the United Nations Convention on Biological Diversity (COP15) and the United Nations Climate Change Conference (COP26) – to discuss the intrinsically linked issues of climate change and biodiversity loss .
The only way to tackle this biodiversity crisis is to effect transformative change, which requires the sustained engagement of actors at all levels, from citizens to international financial institutions such as the IMF. Examining the economics of biodiversity shines a light on success stories from around the world, showing that the kind of change needed is possible. We need to redeploy the ingenuity that has allowed humanity’s demands on nature to become so important, to bring about the transformation necessary to reimagine our relationship with nature. We and our descendants deserve nothing less.
The opinions expressed in articles and other materials are those of the authors; they do not necessarily represent the views of the IMF and its Executive Board, or the policy of the IMF.