Here are the conclusions. I tend to agree with much of what is written here.
The Place of Nature in Economic Development [PDF]
In this paper I have reviewed what seems to me to be the most salient issues in ecological economics when the subject is applied to the field of economic development. My aim here has not been to be scholastic but to examine the lives of the world's poor so as to unearth the role of natural capital there. I will have succeeded if the account here of the processes that characterise human-nature interactions reads differently from the accounts in recent surveys of both
development economics and environmental and resource economics.
I began with the micro-foundations of rural institutions in poor regions and offered a picture of rural poverty in terms of household access to the local natural-resource base. The findings documented bring to date those I reported in Dasgupta (1993). This article is a natural extension of the earlier work and has advanced very much the same viewpoint as that did about the processes that shape world poverty.
The concept of sustainable development was explored in a macroeconomic setting and an empirical study was conducted on the character of economic development in the world's poorest regions in the last quarter of the previous century. Natural capital was for the most part seen as "private" goods, in the sense of not being jointly consumable. In the final section there was a discussion of global climate as a "public" good.
What can we conclude from our analysis? It seems to me the following should be noted:
(1) The socio-ecological processes that shape extreme poverty in the world's poor regions run at different speeds and operate at different spatial scales. Disasters occur frequently in the poor world, but unlike famines, civil wars, and hurricanes, their occurrence is localised and confined to small groups. That is why it is easy to overlook them.
(2) The externalities that the use of ecological capital gives rise to are not confined to market failure, they are expressions of institutional failure in its widest sense: failure at the international level, the level of the state, of communities, of households. The locus of failure depends, among other things, on the ecological capital in question. The cause of eutrophication of a village pond in
West Bengal is very different from the cause of dead zones in the Gulf of Mexico.
(3) We should be circumspect about market-friendly solutions to environmental problems. Externality markets are inevitably thin, meaning that without a sympathetic involvement of the state, the elite would be expected to enjoy the spoils from ecological services.
(4) The protection and promotion of ecological capital is encouraged in systems where payment is made to owners for the ecological services provided by their capital assets. Whether payment for ecosystem services should be made by the beneficiaries or the state depends on the context.
(5) The persistence of rural poverty is tied both to the fragile state of the local natural-resource base and the rate of population growth. But the causality isn't unidirectional. Each variable would be endogenous in any model that speaks to human-nature interchanges.
(6) Both economic theory and empirical studies have shown that devolution of management powers over the local natural-resource base is, generally speaking, good for the environment and good for poverty alleviation. But as elsewhere in economics, mixed systems work best. Textbook states would ensure that the local elite don't take a disproportionate amount from the commons. Where the state is weak or corrupt, NGOs can play a major role in keeping the state at bay and the elite from enjoying the bulk of the services from nature.
(7) As a macroeconomic statistics of social well-being, GDP per capita is singularly bad. So is the United Nations Human Development Index (HDI). Among other shortcomings, GDP per head and HDI ignore depreciation of capital. The deficiency can be alarming in the world we live in (Table 1).
(8) The statistic that moves in unison with social well-being (by the latter we mean an aggregate of the well-beings of the present and all future generations) is a comprehensive measure of wealth, which is the social worth of an economy's entire stock of capital assets, including not only reproducible capital, human capital, and knowledge and institutions, but also natural capital.
(9) Comprehensive wealth (or wealth for short) can be used both for evaluation exercises and for assessing whether development has been (or is forecast to be) sustainable.
(10) Although there are still only a few rigorous studies in social cost-benefit analysis of environmental projects, the message we should take away from them is that projects that protect and promote natural capital can be socially very profitable.
(11) The relative appeal of alternative policies toward mitigating or adapting to climate change is sensitive to the choice of social discount rates. As we still have little intuitive understanding of parameters reflecting ethical values, evaluation exercises should contain sensitivity analysis.
(12) Statistics (albeit very crude) suggest that in the final quarter of the twentieth century South Asia and sub-Saharan Africa experienced a decline in wealth per head, even though South Asia enjoyed positive growth in GDP per head and improvements in HDI, while sub-Saharan Africa enjoyed an improvement in HDI but experienced a small decline in GDP per head. The data suggest that China in contrast followed a path of sustainable development. It bears emphasis though that the empirical exercise involving Table 1 is so crude and incomplete that the Chinese
data misrepresent the situation there. Despite the caveats, the moral is that the macroeconomic history of nations looks very different when nature is included as a capital asset in economic activity.
(13) The problem of climate change as faced by poor countries can only be addressed at the collective level of nations. But case studies suggest that so far the environmental problems the rural poor face have been caused by institutional failure at the national and community levels. The composition of commodity demands from rich countries can certainly veer poor countries toward unsustainable resource use. But poor countries usually have choices. Moreover, there is enough inefficiency in poor countries to enable governments there to identify policies that both protect
and promote natural capital and alleviate poverty. The idea that the poor world can enjoy sustainable development only when there are significant improvement in the international economic architecture is belied by evidence on village life in poor countries.
The overarching moral that emerges from the studies I have presented here may appear banal, but is salutary:
Development policies that ignore our reliance on ecological capital are seriously harmful - they don't pass the mildest test for equity among contemporaries, nor among people separated by time and uncertain contingencies.
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