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It?s all about balance sheet

Economics has to concede that not everything can be ascribed a cost and ethical values do matter, says Darryl d?Monte.

india Updated: Dec 25, 2006 02:50 IST

Environmentalists are fond of applying Oscar Wilde’s definition of a cynic to an economist: someone who knows the price of everything, but the value of nothing. Though the two social sciences seem irreconcilably antagonistic towards each other, they both derive from the same Greek root, oikos, meaning household.

Freely interpreted, economics is the science of keeping the household accounts in order, while ecology is the science of ensuring that it is sufficiently stocked with goods. Economists, on their part, believe that ecologists are irredeemably unrealistic, while the practitioners of the ‘dismal science’ are derided for being ‘resource-illiterate’.

Unknown to most people, however, there is now a respectable body of science which attempts to reconcile the two fields. From December 15 to 18, the International Society of Ecological Economics met for its ninth bi-annual conference in Delhi. It was attended by some 800 participants, including 350 from India and 30 from China. As Joan Martinez-Alier from Catalonia, the outgoing President who has written prolifically about India, observed, it was something of a mela, with things to pick and choose, staples as well as some piquant fare — a bit hot for those unused to it — and some with medicinal value. The very fact that Amartya Sen agreed to deliver the concluding address demonstrates that it is a movement whose time has come.

Most conventional economics textbooks treat real-life situations as closed systems where the waste generated becomes a resource. Any digression from this diagram is put down to ‘externalities’ which can be accounted for and costs attributed to them. However, ecological economists see that there is a one-way flow from human activity to waste, whether in material form or as pollution. Thus, a single gold ring generates 20 tonnes of mining waste. On a much more alarming scale, the spectre of global warming threatens the very survival of the planet itself — externalities gone amuck.

The ecological branch does not view economic activity as a closed system but one which is embedded in physical and social systems. The natural environment has existed well before the human economy, but the converse is not possible. If the economic system is viewed as a metabolism, there are stocks (of fossil fuels, for example) as well as flows (renewable energy). Both stocks and flows are being depleted faster than they can be replaced. Wastes like carbon dioxide are also being generated faster than nature can cope with. Alier refers to extraction from the ‘commodity frontiers’: oil from the Niger Delta or Alaska; closer home, coal, bauxite and uranium from Bihar, Orissa and Jharkhand.

An ecological economist has cited how capitalism is an economy of unpaid costs, while others prefer ironically to characterise externalities not as market failures but "cost-shifting successes". The British economist WS Jevons warned as long ago as in 1865 that coal resources would run out. However, China and India, which constitute almost a third of the world’s population, will rely on this fossil fuel for their economic growth till the middle of this century, despite having to abide by the Kyoto protocol on greenhouse gases after 2012. Unlike conventional economics, the ecological variety squarely addresses the issue of the "carbon debt" – the fact that industrial countries have created global warming and ought to pay for these historical emissions.

There is also the concern that both China and India may be growing at extraordinary rates, but this does not necessarily mean that the benefits of growth are trickling down to the poor. The historian Ramachandra Guha, who has co-authored books with Alier, pointedly has titled his recent book, How Much should We Consume?, introducing a Gandhian rider to the current euphoria on the economic front. Economists tend to overlook the tricky questions of equity and distribution of resources; aggregates like GDP and per capita incomes camouflage such disparities, which is why there are more telling human development indices to measure the progress, or lack of it, of a country.

The contradictions that arise with conventional economics were vividly illustrated at the conference. Someone cited how Sir Nicholas Stern, the British economist (his academic field work was conducted in India) whose recent report on global warming has shaken many countries out of their apathy, believes that climate change is the biggest market failure of mankind. His prescription — countries currently need to spend 1per cent of their GDP to tackle climate change — typically does not address equity issues, even though Sen absolved him of such blame, stating that this was not his brief. By contrast, sustainable development requires inter-generational equity, so that in future people have access to the same resources.

However, "cost-shifting successes" were very much in evidence at a panel discussion on the Clean Development Mechanism (CDM), which are tradable rights which industrial countries or companies can buy from their counterparts in developing countries whose emissions are below limits. Pradipto Ghosh, the environment secretary, went so far as to claim that the foreign investment in clean technologies that India expected as a result of such trading amounted to $ 8 billion in 30 months, "an economic achievement unparalleled in the country’s history". He added that the Indian carbon market sector was growing faster than any other sector, including construction, IT and biotech.

The Centre for Science & Environment in Delhi has dubbed CDM the "Cheap" Development Mechanism because it enables industrial countries to buy their way out cheaply instead of paying the true economic costs of warming the globe. Developing countries are now selling their emissions permits for as low as $ 10 to $ 25 a tonne of carbon reduced, whereas in the years to come, after developing countries also come under the Kyoto Protocol, the cost of reducing a tonne will rise to $ 200 to $ 300.

The system makes no mention of compliance and penalties for those who have polluted the atmosphere in the first place and lets them off the hook. It is this operation of the market that is unprincipled and India and China, along with other developing countries, are in effect selling themselves cheaply in the bargain. It also provides industrial countries a huge market for their technologies when they launch joint projects.

Kenneth Boulding, the American economist who was one of the founding fathers of the ecological branch, warned that since economics was based on so many assumptions — about human behaviour as homo economicus — it was unwise to make predictions, which it does with abandon. In Delhi, speakers warned that economics, instead of being seen as a theoretical body of knowledge, has become an ideology; many concepts, like "development" are self-fulfilling. They called for inclusive and humane growth, shifting from "I rationality", which is the cornerstone of economics (Alfred Marshall’s shipwrecked islander who makes the right choices), to "We rationality", implying collective choices.

Ultimately, economics has to concede that not everything can be ascribed a cost ("the best things in life are free") and it has to make room for ethical values. Given the ascendancy of neo-liberalism, including in this country, this seems a difficult task to accomplish. A speaker called for embedding corporations within socio-political structures, based on social rationality, rather than profit.

When the first joint stock company was formed in Britain in 1564, it had unlimited liability; its reintroduction may rein in reckless growth, a la Enron. Corporations ought to be compelled to adopt social and environmental goals, as responsible and accountable entities. Their ownership should be more widely dispersed and the public exercise greater scrutiny. While this may sound anathema, such reforms are called for to ensure that growth is more sustainable and just.


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