Economics Nature’s Way
Source details
- Canonical URL
- Economics Nature’s Way
Other formats
Bibliographic details
- Authors: PARTHA DASGUPTA
- Published: September 2, 2021
Overview and thesis
- Good economics demands that we manage Nature better.
- The biosphere underpins human prosperity—from food and air to waste decomposition, recreation, and spiritual fulfilment—but has diminished markedly even as global GDP and wellbeing have risen.
- The article draws on The Economics of Biodiversity: The Dasgupta Review and sets out a framework for including Nature in economic thinking through three broad, interconnected transitions.
Key empirical findings and statistics
- Global GDP has risen enormously since the 1950s and world economic output is 15 times higher.
- Current extinction rates are about 100 to 1,000 times higher than the background rate over the past several million years.
- Between 1970 and 2016, the population of species (mammals, birds, fish, reptiles, and amphibians) fell globally by 68 percent on average (Living Planet Index).
- A recent Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services report showed that 14 of the 18 global ecosystem services assessed were in decline.
- World population: 3 billion in 1960; 6 billion around 2000; the United Nations projects it will surpass 9 billion by 2037.
- Population growth rates: peak annual rates in excess of 2 percent in the late 1960s; about 1 percent currently; projected to be half that by 2050.
- A conservative estimate of the total global cost of subsidies that damage Nature is about $4 to $6 trillion a year.
The three interconnected transitions (framework from the Review)
- Transition 1 — Ensure demands on Nature do not exceed its supply
- The “ecological footprint” has for decades far exceeded Nature’s sustainable supply, causing alarming biosphere degradation.
- Technological innovations (for example, sustainable food production) can help align demand with supply.
- Fundamental restructuring of consumption and production patterns is required, including policies that change prices and behavioral norms across supply chains and enforce standards for reuse, recycling, and sharing.
- Human population growth affects future demands on Nature; community-based family planning and improving women’s access to finance, information, and education can accelerate demographic transition.
- Transition 2 — Change measures of economic success to “inclusive wealth”
- GDP is useful for short-term macroeconomic analysis but is inappropriate as a measure of long-term economic performance because it omits how decisions affect assets—especially natural assets.
- “Inclusive wealth” should account for produced capital, human capital, and natural capital to show benefits from investing in natural assets and the trade-offs across asset types.
- Examples explored in the Review: New Zealand’s “wellbeing budget” and the use of “gross ecosystem product” in China.
- Export revenues from natural resources do not reflect social costs of extraction; the trade of primary products can transfer wealth from exporting countries to importing countries without being recorded in official statistics.
- Investing in Nature requires financial systems that channel public and private finance toward activities that enhance natural assets and encourage sustainable consumption and production; in some cases, investment can mean simply leaving Nature to regenerate.
- Transition 3 — Transform institutions to enable change
- Institutional failure lies at the heart of unsustainable engagement with Nature: Nature’s worth is not reflected in market prices, leading to misallocation and underinvestment in natural assets.
- Open-access resources (for example, the open seas and the atmosphere) have fallen prey to the tragedy of the commons.
- Many environmental harms generate widespread externalities because effects are hard to trace, especially across generations.
- Governments often pay people more to exploit Nature than to protect it, reinforcing harmful incentives.
- Biodiversity increases Nature’s resilience to shocks; diversity within natural-asset portfolios reduces risks to the services on which societies rely.
Policy implications and recommended actions
- Raise global support to improve financial institutions’ understanding and awareness of Nature-related financial risks.
- Central banks and financial supervisors should assess the systemic extent of Nature-related financial risks.
- The IMF can play an essential role in assessing and managing Nature-related risks through surveillance and financial and technical assistance.
- Reimagine economic and financial decision-making ahead of major international events (noted as UN Convention on Biological Diversity (COP15) and UN Climate Change Conference (COP26) in the year discussed) to address the linked crises of climate change and biodiversity loss.
- Commit to transformative change at all levels—from citizens to international financial institutions—drawing on success stories highlighted in the Review.
Partha Dasgupta, "Economics Nature’s Way," F&D Magazine, September 2021.
Content in this bundle
- الاقتصاد والطبيعة
- Partha Dasgupta: Economics and Nature – IMF F&D
- El curso natural de la economía ● Finanzas y Desarrollo ● Septiembre de 2021
- L’économie dans le respect de la nature
- Экономика в гармонии с Природой – Финансы и развитие – Нельзя терять время– сентябрь 2021 года
- 经济学的自然之道 - 金融与发展 - 国际货币基金组织季刊 2021年9月号·第58卷·第3期