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You Can't Eat GNP: Economics as Though Ecology Mattered

by Eric A. Davidson, Ph.D.
Senior Scientist
The Woods Hole Research Center

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When Money Was Worth the Paper It Was Printed On

Brahimu was the elementary school principal who, for a modest fee, gave me private lessons in French and Swahili in the remote African village where I lived in Zaire (now called the Democratic Republic of the Congo). One of the few villagers who earned a salary, he was a frugal, hardworking fellow who really did save money under his mattress. On the day after Christmas 1980, Brahimu's money became worthless. I watched as he stood helplessly in disbelief in front of the dilapidated town hall, clutching a fat wad of colorful money, each bill bearing the image of the Zairian president. That money could have been used the previous day to buy things -- food, clothing, batteries, bicycle tire -- but now it was nothing more than colored paper. The town leader could not give him any solace. The government had not told the local officials anything more than what we had all heard on the radio. This central African government had just declared that its paper money was no longer valid. New bills printed on a different color paper would become the official currency of the nation on New Year's Day. Everyone had a week to exchange the old currency for new bills at a bank. If there had been a bank nearby, a week might have been ample time, and the news would not have been so bad. But for Brahimu and the other villagers in this remote part of Zaire, the nearest bank was at the regional capital, reached only after an expensive three-day train trip, and the train did not always run on its weekly schedule.

Most of the villagers were subsistence farmers who did not need cash to buy food. They harvested their food from their own fields, and they hunted game and gathered snails and insects from the forest. I, too, was better off than Brahimu. By sheer coincidence, I had recently bought a good supply of salt in town, and it served as well or better than any flimsy paper money when it came to making trades for food. I also discovered a valuable asset in the old Newsweek magazines that the Peace Corps had sent me, which I had already read cover to cover. In fact, unlike my colorful, invalid paper money, the paper that Newsweek was printed upon had considerable value. The village children needed printed paper for folding into protective and decorative covers for their school notebooks. There was no other source of newsprint or printed matter in the village, so I had a monopoly on this market. I ripped out pages and charged what I thought the market could bear, which was one page of Newsweek for a mango and three pages for an egg. Pages with big color photos were worth twice those with only print. I managed surprisingly well without money.

No one from my village ever made it to a bank to exchange their outdated currency. Brahimu and others who had attempted to save money under their mattresses lost their entire savings as the old currency became worthless. The new currency eventually made its way out to the village by February and everyone flocked around to look at its brilliant new colors and the familiar portrait of their dictator-president who had just invalidated their old money. No one in the village, including me, ever really understood why the government had essentially taken their money, although we heard it had something to do with catching people off guard who were smuggling large sums of cash to Europe for some sort of ill-gotten gain. As far as I could tell, it was the peasant farmers and rural school teachers who were caught off guard. I eventually got my next cost-of-living allowance from the Peace Corps to carry on my public health projects, but I continued to trade salt and Newsweek for food because I had learned that they were actually more effective bargaining chips than the cash that had few uses in the village. With so little cash changing hands, this village of 1,200 people contributed virtually nothing to the gross national product of Zaire, which may well explain why the government did not seem to care much about them.

When Money Adds Up to Something

When money changes hands, as it did when you bought this book, the gross national product (GNP) of a nation increases. Economists use the GNP, essentially the value of all the products and services created and traded for money in our economy, as a measure of our well-being. The more money we spend, according to the GNP gauge of affluence, the better off we are. The value of the book is measured not by what you get out of it intellectually, emotionally, or spiritually but by how much money you paid for it. Whether we buy books about economics or ecology or buy hula-hoops or handbaskets, the economy won't go to hell as long as we keep spending money. I'll do my part by pumping my portion of the book sales back into the GNP to buy dinner (paying with cash or plastic, of course; no one here takes Newsweek).

Our complex society is based on this trading of goods and services for money, but we seldom think about where the goods come from in the first place or what the consequences are of consuming those goods. Most of us do not need to worry about tilling the fields, fishing the seas, logging the forests, or disposing of the garbage. Other people do those jobs, they get paid for it, and it all contributes to the GNP. We are free to purchase what we want to feed our intellectual and gastronomical desires, and we can also feel warm and fuzzy inside about our contributions to the nation's growing GNP.

Get a Life -- Preferably a Better Life

At the same time, on the same planet, my former Zairian village hosts still live so close to nature that practically every bite of food, every scrap of wood, and every drop of water that they consume comes from their own hard labor, which they must exert most of the waking day in order to extract these resources directly from the forests, fields, and streams. Not only do they return home from the fields bone-weary each evening, but the women must then gather wood and haul water a mile or more before they can start cooking supper. Store-bought items like sugar, salt, and soap are luxuries that are not part of everyday life. Romantic images of peasant farmers or indigenous peoples living close to and in harmony with nature belie the difficulties and hardships in their lives.

The modern peasant relies on nature so heavily not because it is a noble or romantically appealing thing to do. Rather, she has no other option, except perhaps to migrate to the city where her family would become urban peasants. Urban and rural peasants are equally poor, but the rural peasant sometimes has a better chance of extracting enough to eat from nature. She knows from word of mouth that a small fraction of the people in her country and many other people in other countries have much easier lives, and she would give up the hauling of water and wood in an instant if she could. The most common question I was asked by my Zairian hosts was whether it was true that even the unemployed get paid in America. Although the question revealed ignorance about how our complicated unemployment insurance system works, it showed more importantly that even the peasant farmers of remote central Africa were aware of the existence of a "better life" even for the unemployed.

We seem to get closer to this "better life" as we get further and further removed from nature. The cars, stoves, plumbing, and shopping malls that make our lives so much easier also leave us several steps removed from the proverbial earth, wind, and fire that the peasant farmer knows so well. The more sophisticated our society, the more cushy our lifestyles, and the higher our nation's GNP, the less we need to think about where the basic necessities come from. If only that were true! It is not.

We may not need to think about tilling the fields every day, but we had better not lose sight of the fact that our wealth and our comfort are derived from a combination of natural resources -- soil, water, air, forests, oceans, mineral deposits, climate -- and the skill and ingenuity with which we utilize and manage those resources. If we neglect or abuse those natural resources, we undermine our own prosperity.

Most mainstream economists recognize that equating well-being solely with GNP is overly simplistic. Nevertheless, after recognizing the imperfections of GNP as a gauge of wealth, prosperity, and well-being, most mainstream economists go ahead and keep using it anyway. Many also ignore the role of irreplaceable natural resources as the foundation of our economic prosperity.

We need not go back to a peasant farming subsistence to appreciate the necessity of the natural resources upon which we depend, nor should we ignore GNP and other measures of modern economic prosperity, but we need to stop and remind ourselves that our modern, high-tech economy is still based on the wealth of a natural resource base. Unfortunately, three fallacies of mainstream economics persist and have lulled many people into thinking that we are insulated from the responsibility of being prudent stewards of our natural resource endowment.

Three Fallacies of the Current Mainstream Economic and Technological Model

Fallacy 1. Marie Antoinette Economics

The first fallacy comes from those economists who explain how the world works primarily in terms of markets and exchanges of money. In the debate about global warming (which is discussed in Chapter 5), one economist argued that we need not worry much about the effects of global warming on the economy, because the only sector of the economy that he considered strongly influenced by the climate is agriculture, which contributes only 3 percent of the United States' GNP. Like Marie Antoinette's suggestion that French peasants without bread could eat cake, this view of how the world works seems to suggest that if the crops fail, the people could eat the 97 percent of the GNP that remains. The importance of the natural resources upon which agriculture and most of our food supply depend extends far beyond their direct 3 percent contribution to the GNP. Food production is a good example of how imperfect GNP is as a gauge of our well-being, because we all recognize how important food is to our daily lives, even if agriculture is of only small direct importance to the GNP. The role of forests in providing clean water and habitat for plants and animals and in regulating the climate is another example of how GNP fails to count the true value of natural resources.

At present, the mainstream of the discipline of economics generally fails to recognize the extent to which human economic activity is dependent on the biological and physical condition of our environment. Until very recently, modern economics and ecology have been studied separately, with little constructive communication between disciplines. However, the human economic system and the biophysical ecological system of the earth are inextricably linked. The premise of this book is that the economic system will fail if the ecological system is not carefully managed. The inverse, which is also true, is that a failed economic system creates desperate people who will destroy the ecological system.

Fallacy 2. Custer's Folly

The second fallacy assumes that the technological cavalry will come over the hill in time to save us from ecological disaster. The cavalry usually arrives in the nick of time in Hollywood westerns, but it arrived too late in the real world of the life and death of General George Custer. Will technology replace the internal combustion engine in time to avert global warming caused by burning coal and oil? We have already changed the atmosphere so profoundly that the next few generations will have to cope with a warmer, less hospitable world. Technological developments in modern agriculture have averted massive famine, so far, as the human population has grown to 6 billion people. As the population climbs to 8 or 10 billion, however, and as soils erode away and groundwater is depleted and contaminated, will technological development keep pace and enable us to provide more and more food and clean water with fewer and fewer natural resources?

We will need the best that technology can provide, but to be more cautious than Custer, we had best not rely solely on future technological developments to clean up the messes that we are now making with our current bad habits. Prudence dictates that we slow population growth, prevent soil erosion, conserve groundwater, and stop polluting the atmosphere. Future generations will benefit from these essential natural resources under any scenario of technological development.

This second fallacy is based on the common assumption in economics that new technological developments can almost always find substitutes for a natural resource when that resource is depleted. Although this assumption is valid for some natural resources, it is not valid for the most important ones. It is true that when we run out of oil and coal, we will substitute solar energy or fusion or some other source of energy. Clever engineers may also come to the rescue by inventing technological substitutes if and when we run out of copper, cobalt, or any of a number of minerals that we use in industry now. The technologically optimistic economists, however, fail to see the difference between these substitutable natural resources and the resources that humans will continue to require (at least for the next several generations) and for which there are no substitutes. These essential natural resources include soil, air, fresh water, oceans, and forests.

The technology argument can be taken to absurdities that are not relevant to our lifetimes or to those of our children and grandchildren. Perhaps crops can be grown hydroponically (in nutrient solutions without soil); seawater can be desalinized and purified on a large scale; air can be filtered; the regulatory effect of forests on climate can be substituted with shields and mirrors placed in orbit above the earth. Although it would be foolish to rule out categorically any of these technological dreams, it would be much more foolish to assume that any of these extravagant ideas would be feasible on a large scale within the next few decades, if ever. That leaves us still needing soil, air, water, and forests for our livelihood. Technology can either help us or hurt us to make wise use of these resources, but it cannot completely substitute for them.

We also depend upon the generally favorable climate of the earth. We and the plants and animals that we depend upon for food and other resources are well adapted to the present climate, but human-caused global warming is underway that will change our social, economic, and ecological adaptations to climate. Unfortunately, as discussed in Chapter 5, several technological optimists are currently arguing that future technological advancements will allow us to cope with global warming, so that we need not do anything now to reduce emissions of the greenhouse gases that are causing a rapid change in climate. How can these modern optimists be any more certain about the timely arrival of their technological cavalry than Custer was about his cavalry? Would it not be more prudent to take steps now to mitigate and avert problems resulting from global warming and, at the same time, work on developing possible future technological solutions?

Fallacy 3. False Complacency from Partial Success
(or "Not Beating the Wife As Much As Before")

The environment has progressed from a fringe issue in American politics in the sixties to a mainstream issue that pollsters and politicians take very seriously as we enter the twenty-first century. The Clean Water Act and the Clean Air Act of the 1970s have significantly improved the quality of surface water and air in the United States. Some polluted rivers and lakes that used to catch on fire are now clean enough for swimming. We have reduced poisonous lead emissions into the environment with the use of unleaded gasoline. A number of writers have pointed to these successes as evidence that environmental pollution is no longer a serious problem, but would you respect a man who says he no longer beats his wife (or Mother Nature) as often as he did before? A bit of progress is no reason for complacency in a world where forests are being converted to ranches, farms, and abandoned land at an astounding rate, where the genetic diversity of plants and animals is declining and species are going extinct at unprecedented speed, where fisheries are collapsing, where soil is eroding faster than it can be regenerated, where heat-trapping gases are accumulating in the atmosphere, and where groundwater is becoming depleted and contaminated.

Most of the progress that has taken place came after hard-fought battles. In the 1970s, for example, the oil industry vigorously opposed the phase-out of leaded gasoline, claiming that unleaded gasoline would cost too much, that it would adversely affect the GNP, and that the harmful effects of lead were still unproven. They were clearly wrong. Gasoline in the United States is now cheaper, when corrected for inflation, than it was when it was leaded. Taking the lead out of gasoline has had no discernable negative impact on the GNP or on our economic prosperity. The effects of lead poisoning on children's neurological development are now well documented. This victory for the environment and for our health required both the social and political will to change (rejecting complacency and recognizing an unacceptable environmental pollution problem) and a technological solution (development of affordable unleaded gas).

Ecology, Economics, and Technology in Partnership

The following chapters examine environmental deterioration of soils (Chapter 2), air (Chapter 5), water (Chapter 6), and forests (Chapter 8), showing how the three fallacies -- narrow economic perspectives, the assumption that technology can replace essential natural resources, and unwarranted complacency from partial successes -- have led to severe environmental problems. Rather than predicting environmental gloom and doom, however, I believe that these fallacious economic assumptions can be removed from economics and that economics and ecology can become mutually supportive. For each of these environmental problems, we already know enough, or nearly enough, to avoid or solve the problems, just as there was a solution to pollution from leaded gasoline. Knowing what needs to be done from an ecological perspective, however, is not enough. Proper economic analyses and policies are also needed to help provide incentives for designing and implementing those solutions. The combined skills of technologists, economists, and ecologists are needed.

A back-to-nature approach will not work -- there are too many of us for that; and those who have been forced to live close to nature, like my Zairian peasant farmer hosts, live a very hard life. In searching for solutions, however, we must avoid the illusion that market economics, alone, makes the world go around, that technology will solve our environmental messes in time to avoid hardship, or that enough progress has already been made to afford complacency.

How humbling it is to realize that despite our sophisticated technologies and complex international economies, we still need to eat, drink, and breathe and that we depend on natural resources to provide the food, water, air, and climate to do so! Although this fact is no surprise to many readers, it is remarkably absent from editorial pages, news magazines, and talk shows. Instead, we hear more and more about the excesses of environmental protection -- "ecoterrorism" Rush Limbaugh calls it -- and the harms of environmental protection to our economy and to the GNP.

This common shortsighted view sees economics and ecology as incompatible, when, in fact, these two disciplines must join forces if humans are to continue to prosper. Several tools and habits of mainstream economics, such as cost-benefit analyses (Chapter 3), discounting (Chapter 4), and ignoring externalities (Chapter 5) are often misused, but each can be turned around to be a positive force for environmental management.

Several new thinkers in economics, who call themselves ecological economists, are trying to do just that. Like mainstream economics, this new form of economics relies on the profit motive of the marketplace. However, unlike mainstream economics, ecological economics attempts to define market values for the essential services provided by the environment that are not currently being traded effectively in the marketplace. As described in the following chapters, finding clever ways to inject the value of the environment into the marketplace creates economic incentives that reward and promote ecologically sound management practices and that help maintain a healthy environment. How do we place values on soil (Chapter 2), forests (Chapter 3), air (Chapter 5), groundwater (Chapter 6), and diversity of plants and animals (Chapter 8) when these are items that you can't buy in a store and that are hard to work into a cost-benefit analysis? Moreover, how do we assess the value of these essential resources for future generations? The tools of both ecology and economics are needed to address these questions. When these disciplines are combined, they show that a healthy environment yields food that you can eat as well as provides the basis for a prosperous economy.

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©Woods Hole Research Center, 2008