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Nature is Economy

“Nature is Economy” is the somewhat curious title of a book by Jan Paul van Soest and Martijn Blom on the often fraught relationship between nature and the economy. The book, generously funded by the Dutch ministry of Agriculture, Nature Management and Fisheries (Nature Management Division), is based in part on a series of interviews and two meetings of a ‘think tank’. Long-term misunderstanding Most people seem to assume that nature and the economy are like fire and water. After all, whenever economic interests are at stake, nature always seems to suffer. Across the planet vast swathes of the natural environment are disappearing before our eyes, along with countless plant and animal species, a process that is eating away at the very foundations of life as we know it. Here in the Netherlands wildlife, natural landscapes and space itself are becoming scarcer by the year. This book explains, in layman’s language, why it is such a misunderstanding to see nature and the economy in opposition to one another. Not only is that in flagrant conflict with basic economic theory. Such conceptions also breed a style of policy-making that accords nature far too little economic value. Many policy-makers here in the Netherlands are guilty of slipshod use of economic jargon. "Nature is of no value economically and so must yield to interests that do have value", they say, or "the common good will best be served by creating an industrial estate here, and here." Nonsense! Nature contributes, undeniably, to satisfying human needs and is one of the key goods promoting human welfare. Nature and the economy are not therefore in conflict – indeed, nature is the economy! To welfare economists, nothing new, but evidently old news that still needs retelling. Three values of nature If we are to discuss these issues with any degree of integrity, though, we must distinguish three senses in which nature can be said to have a value. The first is concrete financial value to the economy. The mere existence of nature creates tangible monetary flows: higher or lower property prices, for instance, and the economies of the tourism and leisure industries. The second is social value: nature’s contribution to human welfare in a wider sense, the value of the services provided by nature, both within the economy and as the basic constraints in which it operates. And, lastly, the intrinsic value of nature: the value of the natural world, just in and of itself. Unbalanced policy-making The fabric of contemporary policy-making, both national and international, is such that the economic value of nature is glossed over again and again. This is not only reflected in the international literature; it is also borne out largely by the situation unfolding in the Netherlands today. To find a better policy balance, then, we must first learn to use the economist’s terminology properly (the ‘zero hurdle’). And then move on to take a number of other hurdles, facing up to the following specific issues:
  1. We still know too little about the role played by nature in a wide range of economic processes and the true value of these services rendered.
  2. Policy-makers are out of touch with the population’s preferences regarding living nature; when such attitudes are familiar to them, they are given too little weight in decision-making.
  3. There is not enough financial incentive for nature conservation and ‘nature development’, in contrast to the production of replaceable goods and services, which does yield financial gain.
  4. Although conservation may on balance be economically attractive, actual implementation may be undermined by the way costs and benefits accrue to various parties.
  5. Damage to living nature is sometimes heavily subsidised, usually unintentionally; these ‘perverse subsidies’, available to farming, fisheries, mining and other sectors, may have a dramatic impact on the nature.
  6. When it comes to the world of nature, solid policy frameworks are lacking, particularly at the international level: there are, generally speaking, no frameworks for assessing monitoring biodiversity, merely bilateral or multilateral agreements, many of them non-binding.
In the Netherlands and elsewhere these fundamental flaws in the policy-making fabric are all too plain. There are, for example, too many financial schemes enticing local governments to sacrifice nature and open land for the sake of extra employment, purchasing power and government revenue. Freeing up land for housing, trade and industry may yield financial gain, but freeing up land for nature development generally yields little if any reward. Grants paid out to businesses to establish new facilities and subsidies for activities that are overly land-intensive are ‘perverse’, because they are counterproductive in terms of both land use and conservation aims, because ultimately they are destroying the natural world. If investments in nature and conservation are to be aligned more with social preferences, we need to rethink our funding as well as policy mechanisms. We should be rewarding organisations that invest in the upkeep and creation of natural areas, developing ‘smarter’ schemes for both funding and return on capital. Towards an economy of nature If nature conservation and nature development are to assume their rightful place in the economy, a number of policy processes must be thoroughly reviewed. First of all we must learn to appreciate that nature is indeed a key factor in the economy. On its own this is not enough, though, for unless this insight is translated into a set of concrete policy tools and measures there will still be little change. Which means we must review all the ‘perverse’ subsidies, set ‘minimum standards’ for nature and biodiversity region by region (country, province), and create a system of financial rewards for nature conservation and creation. We must also develop mechanisms for redistributing the costs and benefits of such activities, thereby ensuring that what on balance is society’s preference cannot be thwarted by a handful of parties. At the international level, finally, we must work to establish truly effective policy frameworks. Here too, between nations, redistribution mechanisms are of the utmost importance. ‘Monetarising’ nature is not enough Merely assigning a monetary value to nature is not enough to ensure that nature assumes its rightful place in economic deliberations. More important still is a comprehensive review of standing policy mechanisms. This said, though, putting a financial value on the natural environment may well facilitate progress in that direction. When it comes to putting a figure on the immediate economic value of nature, i.e. the direct benefits accruing in terms of concrete monetary flows, today we can be fairly precise. To assess the value of nature to society as a whole means making a fair number of assumptions, however, and several methodologies are available. The intrinsic value of nature, finally, cannot be expressed in monetary terms at all. At the same time, though, ‘monetarisation’ may yield valuable insights on which to base the policy review we need. For example, it may permit explicit identification of certain ‘external’ benefits of nature that would not otherwise have come to light. What next? The main mission of this book is to put the issue of economic valuation of nature fairly and squarely on the political agenda. Populations the world over have frequently demonstrated the major value they attach to nature conservation and nature development. Within today’s institutional frameworks, though, there are major obstacles preventing nature from being accorded its rightful economic place. By identifying a number of key unresolved issues, cited above, this book provides a good point of departure for the project of pinning down the flaws in the policy-making fabric and finding ways to address them. For more information: Martijn Blom email: blom@ce.nl

Authors

Martijn Blom

Delft, December 2003

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