|Measure for measure|
|Tuesday, 15 May 2012|
"What you cannot measure, you cannot manage." This is especially true in the perspective of what is now called "green economy."
Green economy not only means making livelihood and business friendly to the environment. It also means taking a primarily economic view of the problems and needs of environmental protection, rehabilitation and management.
Evolving a green economy is the core of sustainable development, one that is economically productive, socially equitable, and environmentally just. This is the emerging overarching perspective of the United Nations Environment Program (UNEP), which is taking up a leadership role in the coming Rio+20 summit in June.
The paradigm is depicted in a schema of three concentric circles where society in the middle circle is placed as part of the outer circle of the environment while the economy as the innermost circle is situated at the core of both society and environment. (see diagram)
Social history as well as our environmental record lent much support to the paradigm defining the central role played by the economy on a global and national scale. And this may be true as well for the future of both society and the environment. Some academics may find this perspective too "economic reductionist" for comfort. But it is worthwhile to note that economic analysis in its most meaningful and relevant sense and application inherently embraces political, cultural, and moral dimensions, such as public policy, social justice, social acceptability, and other issues important to quality of life, well-being, and the common good.
The conventional template for measuring economic accomplishments and goals is economics, as we now mostly know it. And yet, for sure, the mainstream economics, which guides the plans, programs, projects, and day-to-day work of international financial institutions, governments and various state agencies, central banks as well as private business, has a less than sterling record and reputation for predicting and preventing recessions and depressions, and spreading economic wealth and social equality between and across countries.
As noted by UNEP in its 2011 report Towards a Green Economy, "This recent traction for a green economy concept has no doubt been aided by widespread disillusionment with the prevailing economic paradigm, a sense of fatigue emanating from the many concurrent crises and market failures experienced during the very first decade of the new millennium, including especially the financial and economic crisis of 2008."
Unfortunately, neither have that paradigm and its mainstream economics done much better in predicting and preventing market failures to protect and manage the environment. In its report, UNEP ticks off several major indicators as telltale marks of global environmental failures under the prevailing economic paradigm.
Deforestation continues at 13 million hectares per year. The net forest loss (deforestation minus reforestation) remains at a still huge five million hectares. Organic farming is practiced on a paltry two per cent of farmlands. Renewable energy (defined by UNEP to include large dams) accounts for only 13 per cent of total global energy produced. In the language of UNEP, the world remains largely tied down to a "brown economy" built on fossil fuels, chemical fertilizers, and deforestation.
Like the brown economy, mainstream, conventional economics measures economic progress and wealth principally in terms of Gross Domestic Product (GDP), the total "value" of goods and services produced and sold. It is fixated on how big GDP is on the whole and on average per person, and how fast overall it grows. It is focused on the question of productivity in market output, or generating and expanding sales and market income for the society as a whole.
In the brown economy measured by GDP, businesses, countries, and governments will, if unregulated, normally treat the environment as one titanic dumpsite or target for plunder, since the damage created anyway would not change the actual accumulation and accounting of market wealth from costs to sales to net income. In short, pollution and environmental degradation in the language of economics are "externalities" - concerns of society and the public at large but really outsiders to this process of private market wealth generation.
Thus, the UN Conference on Environment and Development in Rio de Janeiro in 1992 called attention to what was absent in mainstream economic accounting - the depletion or degradation of what it called "natural capital" by pollution and by unsustainable extraction and lifestyles. In adopting its sustainable development action plan called Agenda 21, the Rio Summit called for the integration of environmental and economic accounts. This meant a marriage of sorts between environmental science and mainstream economics, including concepts such as GDP.
At the same time, Agenda 21 argued that whatever benefits the environment provided to society such as regulation by forests of the supply of abundant and clean water were to be acknowledged as services previously unpaid but now requiring government subsidy or commercial payments for ecosystem services (PES). How much the subsidy or payments should amount to eventually boils down to how much the values of the ecological services adds up to.
While noting the limitations of the GDP-oriented paradigm, the UNEP nevertheless attempted to marry GDP and environment-oriented economics with a study comparing an evolving green economy with a business-as-usual (BAU) brown economy in terms of generating GDP along with other conventional benchmarks like employment in 2015, 2020, 2030, and finally 2050.
Focusing on 10 sectors of the global economy and using system dynamics and computer modeling, the study projects how much GDP and employment, among others, a global green economy could gain by investing two per cent of GDP each year from public or private sources in renewable energy, organic fertilizers, massive 50 per cent reduction of deforestation by 2030 and massive reforestation, fishing moratoriums, public transport, and other radical green measures. It concludes that only up to 2020 will the BAU brown economy maintain an edge in terms of GDP and employment size and growth, but only slightly. The relative short-term weakness in employment for the green economy will be due to a projected loss of 10 million direct jobs in fishing and forestry. Beyond 2020, especially in 2050, however, the green economy would surpass the BAU economy in GDP by over two per cent in 2030 and nearly 16 per cent in 2050, which is well and good.
Still, the study at most illustrates that such a global green economy, with its environmental sustainability, can also be economically productive at least by conventional GDP standards. What the study fails to monitor, measure, and factor in are social equity and sustainability, essential elements of sustainable development, thereby making the study incomplete.
Ironically, the study's shortcoming largely rests on its continued reliance on GDP economics. GDP as a concept and basis of measurement contains a number of major inherent weaknesses.
One, GDP-based figures such as average per capita income tends to paper over the reality of economic equality within a society and in the global economy. One key indicator that the study seems to have overlooked is the Gini coefficient measuring income distribution and appears to be missing in the study.
Two, GDP is based on the conventional subjective view of economic value. It assumes that prevailing market prices, being those amounts buyers are willing to pay for goods and services, necessarily equal more or less their true values.
Three, the study attempts to measure values of forests and their ecosystem services in terms of opportunity cost or equal to the average income earned per hectare from farming and forest products. Unfortunately, this latter figure - US$ 1,800 per hectare - is based on existing per capita GDP (value added) accounts in agriculture and forestry or on how much buyers were normally willing to pay small farmers on average for produce at grossly undervalued terms at the onset. Deep in debt and starved for cash, small farmers are hardly in a position to demand what is fair and due them, measure for measure. Measured in terms of undervalued crops and forestry products, therefore, forests and their services can only end up undervalued and underpaid.
Four, while the UNEP report recognizes the importance of relative prices, such as export and import prices in world trade, it ignores a similar problem but on a global level. Developing countries are commonly caught up in an asymmetrical global monopsonist buyers' market such as those for ecological services and resource-based primary product exports, including timber and ores. Having no industrialization and robust home markets of their own to stand on, resource-exporting developing countries such as the Philippines lack real effective bargaining power and control over what developed countries end up paying for the use of their green and ground water, forests, and other natural resources. Since such global markets are by nature voluntary and inadequately regulated, buyers can dictate how much to pay, to the disadvantage of the sellers.
As pointed out by a growing number of environmentalists, this market-driven economics tends to undervalue vital ecological services. And it is not just carbon sequestration largely provided by the tropical forests and governed by the Kyoto Protocol since 1992. This may well hold true for other such ecological services of tropical countries such as freshwater supply and regulation, soil fertility, pollination of crops (see news article), and the ocean biodiversity, such as that provided by the Philippines, estimated but likely undervalued at US$ 67.4 billion by a biologist.
By the same token, it can be argued that these true and full values of ecological services are yet to be factored into the prices of various resource-based exports such as tropical crops, ores, and fishery goods when they are traded in the world market. Thus when ecosystem services such as water supply, soil fertility, pollination and biodiversity are unaccounted or undervalued, the crops, ores, and seafood they help generate end up undervalued in the global markets.
Standards of social equity within and between countries in global trade drive environmental economists forward in hot pursuit of the full and true value of ecological services, similar to those previously attempted by UN agencies regarding tropical exports of primary products and raw materials. Still, these initiatives remain works in progress and over the past 20 years are yet obtain adequate, equitable, and true valuation.
Scientists concede that methods of valuation thus far have yet to measure up to the environment's level of complexity. Estimates tend to remain under-estimates, perpetuating unsustainable use of natural resources and underfunding of ecosystem management. Some contend that certain elements of the environment defy measurement at all in money terms, simply because they are intrinsic, immeasurable, and priceless. The road to sufficient valuation is thus extremely tricky and difficult.
The problem is that when full, true values of such largely tropical products and services are unaccounted, the true and real national incomes that tropical countries and communities generate tend to be undervalued in GDP-based numbers and under-realized in global trade payments. As a result, the accuracy and effectiveness of the GDP-based national income accounts and economic analysis and master plans are placed in grave doubt, making major corrections or alternative indicators a must if social equity is to be truly attained.
The weakness of market-driven GDP-measured economics is played out in the buying and selling of carbon sequestration services of tropical forests. Here, highly financed buyers and speculators manipulate prices, often drastically downwards. Unfortunately, many of them are the same major players and drivers of the monumental 2008 financial meltdown and lingering recession. Since the Rio Summit in 1992, the marriage at least on paper between economic and environmental principles is still one-sided, one where measurement by GDP still rules.
Once achieved, however, full, true valuation should be able to provide the funds - a conservative minimum US$ 160 million each year per ecosystem according to an estimate cited by UNEP - and personnel needed by the government and empowered communities to protect, regulate, and ensure the sustainable use of forests, oceans, and other natural wealth. But social equity still requires price subsidies and differentials in favor of poor households and micro-enterprises so that even with their low incomes, true valuation will not deny them access to enough clean and safe water and other vital ecological services until such time that higher and adequate incomes eventually render these subsidies no longer necessary.
As long as true values of ecosystem services and natural resource exports are not fully measured, set, and realized, tropical countries and communities reliant on these services are sorely challenged to achieve a future of social equity, economic security, and poverty eradication.
The new measurement-based paradigm for the highly complex and truly green economy, though already stirring in the womb, is yet to be born. But the hopes for finding the full true ecological values that will attend its birth, whether in Rio+20 in June or beyond, are very much alive and kicking.