Comment on Jutta Kill’s “Economic Valuation and Payment for Environmental Services”
Konrad Ott (Kiel) on behalf of the Heinrich Böll foundation
1. Introduction
Economic thinking is a paradigm case of the dialectics of enlightenment. On the one hand, it can make transparent the many mundane problems of scarcity, alternatives, opportunity costs, external effects, and exchange we humans are confronted with in our highly non-ideal world. On the other hand, such transparency in economic terms may obscure, conceal and distort “deeper” aspects of political, cultural, and moral life. Economic rationality may become hegemonic. The general recognition of this peculiar dialectics between merits of and concerns against economic thinking holds a fortiori if nature is going to be economically valued. The article of Jutta Kill faces this dialectics within the spirit of economic reasoning. Thus, her article is highly inspiring, although I don’t share her conclusion.
Yes, indeed: economic thinking can make nature visible in economic terms and concepts. Such “economic visibility” (p. 2) is dialectical in itself. To understand the dialectics of economic visibility of nature in detail, it seems mandatory to distinguish between a) economics as scientific enterprise, b) economic agency in corporations, c) economic lobbying groups, d) environmental governance via economic tools (as “cap and trade” or offsetting schemes), d) economic rhetoric in media and NGO’s. Kill draws a similar distinction on p. 18, but to avoid confusion such distinction should be drawn right from the start. Under such distinction, however, it becomes clear that nature becomes economically visible to many eyes. There is no such thing as the one and only economic eye by which nature is seen, but there are theoretical, political, and greedy eyes. It makes a difference whether the economic visibility of nature is taken into account from a moral point of view or from a business perspective. Without such distinction, heterogeneous phenomena are meshed together in one large “context”.
2. Scarcity of Nature Being Visible
Foremost, I take economics as science. According to Marshall’s famous definition, economics deals with scarcity of means of production which have alternative uses. Scarcity is a relation between human desires and aspirations on the one hand and assets on the other hand. Scarcity, not abundance is of economic interest. One can reduce scarcity by reducing desires, as sufficiency-proponents hope for, by reducing populations, or by increasing the amount of assets via economic growth. The Western way to reduce scarcity was, for long, economic growth at the expense of nature. Humans can increase agricultural land by deforestation and they can produce more crops at the expense of biotic diversity. They use freshwater for irrigation at the expense of natural wetlands. The list can be prolonged. By doing so, we may alleviate urgent types of scarcity (as food) to some degree, but we are also shifting patterns of scarcity without being able to overcome it finally. Scarcity and finitude belong to the human predicament unless one believes in a communist end-state of human progress.
For many decades, conventional economics has focused on man-made capital, financial assets, and labor. It took decades for the pioneers in environmental and ecological economics (I will be silent on the differences between them) to make economics more sensitive for the increasing scarcity of nature.
In ecological economics, nature is conceived as an interconnected assemblage of assets (resources, funds, services) which are finite, fragile, vulnerable, degradable, and the like. The key massages in ecological economics are:
- The finitude and scarcity of nature should be recognized and should be taken seriously in economics!
- The real-world economy produces growing scarcity of valuable natural assets by which humans are benefitted in different ways. Many benefits are getting lost!
- Economics should make policy makers sensitive for 1 and 2.
With respect to the first message, it can’t be denied that natural sink capacities (atmosphere, ocean) have become desperately scarce. The carbon budget is finite compared to the existing carbon stocks. Due to scarce sink capacities humans must stop mining and drilling on a global scale. Fertile land and freshwater resources have become critically scarce in many regions, too. Last but not least, the opportunities to affiliate with nature and to experience natural locations are becoming scarce, not to mention solitude in the wild. We face shifting patterns of scarcity in our “full world” (Daly). Thus, ecological economics can, in principle, make us aware that nature has become scarce in many respects. If so, business as usual in the real-world economy comes at increasing opportunity costs (2). If so, policies should stop the loss of natural assets by ending, for instance, all open-access structures and all perverse subsidies and incentives (3). If these are the messages of ecological economics, fine. There are merits in economic approaches to make nature’s scarcity visible. My own ideas and strategies on nature conservation (see my “Zur Dimension des Naturschutzes in einer Theorie starker Nachhaltigkeit”, Marburg 2015) are compatible with assumptions about scarcity of nature. No one claims that insights and messages of ecological economics are sufficient to stop the destruction of nature. An economic evaluation of the value of the mangroves is not sufficient to prevent their conversion into shrimps-farms (p. 11). To state the obvious: many case studies in ecological economics are critical of current economic practices.
Jutta Kill will also endorse enlightening and critical messages from economic science, but she is critical and suspicious of economic visibility of nature in other aspects, as pricing, monetization, payments, market integration and the like. I share these concerns for the following reason.
The recognition of nature’s scarcity also provokes strategies in the real-world economy, including investments brokers, portfolio designers and consortia of companies, to acquire scarce natural resources via property rights and mobilize return of investments and payments accordingly. The theoretical look upon nature’s scarcity often turns into a different look: How can entrepreneurs make a profit out of it? How to design business models accordingly (credits)? All economic tools of environmental policy making can be assessed according to their potential to “make money out of it”.
Having made nature’s scarcity visible once, it is hard to avoid such looks at natural assets. Kill’s article deals with many instances of such business models which many naturalists may find repugnant. Kill also shows how proponents of Green Growth are campaigning in favor of economic evaluation of nature.
Recognition of nature’s scarcity can direct our attention either to questions of conservation and distributive justice (however specified) or to “rational” strategies to acquire scarce natural assets (land, credits, water rights, concessions, quotas). Under the economic definition of rational choice, acquisition of scarce natural assets is rational if it contributes to the overall utility of an economic entity (person, household, company). Large scale land acquisition (“land grabbing”) is a paradigm case, but one can also think about the acquisition of concessions for timber and fisheries, acquisition of carbon credits, acquisition of beautiful places as tourists’ destinations and the like. Such acquisition strategies may impair local livelihoods, as a broad NGO discourse indicates.
Withstanding mere lament against neoliberal commodification of nature, a more basic question occurs: Do such business models, acquisition strategies, and campaigns reveal the hidden truth about the economic visibility of nature? Kill seems to answer this crucial question in the affirmative, as she writes that economic valuation eventually may put a price tag on nature’s destruction (p. 2). This result would run counter to the intentions of ecological economics. To which extent is ecological economics, seen as science, to be blamed for acquisition strategies just mentioned? Marxists would answer: To a large extent because conventional economics is the ideological superstructure of real capitalist economy. Economic practices objectively reveal economics as ideology, whatever intentions may be.
But there are other answers to the question whether the economic visibility of nature implies commodification of nature, market solutions, or private property rights upon natural assets. Given the ordinary definition of logical implication, the answer is No. How many additional premises are needed to move from scarcity to Walrasian markets or to cap-and-trade-schemes? Here, economists should emphasize that taking nature’s scarcity into account fully does not imply any specific business model, any regulation or deregulation of acquisition strategies, any property rights’ designation, any payment schemes and the like. Ethicists should add that our capacity to think about nature is not reduced to economic concepts even if economics has made the scarcity of nature visible. In the remainder of my comment, I wish to emphasize this claim.
3. Implication and Context
Jutta Kill concedes that “economic valuation of nature does not necessarily imply pricing and trading” (p. 19) but she sees an overall economic “context” (p. 19) as a seamless web of economic approaches that range from economic theory over belief in market-solutions, deregulation, governance tools, GDP-accountings, to specific business strategies. Jutta Kill assumes some underlying “logic” of valuation of nature which integrates nature “into capital circulation” (p. 6) and stands in fear of the power of economic agents. “Economic evaluation thus turns out to be just a repeat of previous rounds of appropriation of nature by capital” (p. 9). Perhaps, Jutta Kill seems to hold some more basic thoughts on capitalism, seen as entirety, in her theoretical background. If so, the entirety of capitalism as an overall context would allow to move from economic theory to Indonesian palm oil corporations and back in order to understand the “new quality” of the economic valuation of nature. The actuality (“Wirklichkeit”) of such context would also support the claim that economic valuation of natural capital eventually brings more nature “under the control of capital markets” (p. 8).
The “spirits” of economic thought are getting out of control, as in Goethe’s poem “The Sorcerer’s Apprentice” (p. 19). To take another metaphor: Economic evaluation is like a slippery slope. At its bottom, our attitude towards nature has been commercialized completely. Economic enlightenment may become, to rephrase Horkheimer/Adorno, total. Having become total, it turns into intellectual serfdom.
I would rather analyze this overall economic context and the relations that hold or don’t hold between its elements and remain critical against rhetoric and pseudo-implications. Why, for instance, should the full recognition of nature’s scarcities motivate us to replace the legal protection of nature reserves by payments for ecological services to holders of property rights? Why should we favor markets over states’ legislation? Do we dislike “cap-an-trade-schemes” because the cap is too soft or because there is trade with emission entitlements? (Daly revealed one pseudo-implication on p. 18.) Kill suggests that the “openness” (p. 18) of economic ideas to flaws, misconceptions, and misleading pseudo-implications “provide its appeal”. I am uncertain of how to understand this critical remark. Does economic valuation of nature invite (with or without intentionality) many other economic agents to understand this approach as they please?
Can economics make us aware about nature’s scarcity and, nevertheless, warn us against clever strategies to acquire what has become scarce? I tend to answer the question in the affirmative. This would require economists not to move from theory to business and lobbying affirmatively, but to reflect on nature’s scarcity in close connection to environmental ethics, distributive justice, and sustainability science. Thus, we remain free to talk about “power and privilege, about justice and ecological debt” (p. 20). The economic visibility of nature’s scarcity not just allows, but requires such disputes. The trail that has started with the environmental movement decades ago and has taken another step by full recognition of nature’s scarcity is not necessarily a slippery slope towards a totalized commodification of nature.
4. Ecosystem “Services”
Economists wish to model the general theoretical insights in nature’s scarcity in some detail. Models such as “total economic value” and “ecosystem services” have been proposed. The prominent approach of “ecosystem services” (MEA, TEEB) tries to bridge the gap between nature and human welfare. I endorse the general idea to bridge this gap, but I am also highly critical of some details. Under the ES-approach, the notion of nature is restricted to a concept of natural capital first. It is true, that natural capital is constituted by a selection process (p. 9 with reference to Jax & Heink). Only such natural entities by which humans (or other sentient beings) are benefited count as natural capital.
In economics, “capital” is a technical term that refers to stocks and flows by which humans are benefited. These flows are dubbed “services”. Major types of “services” are distinguished: provisioning, regulating, and cultural. These “services” are valuable and beneficial to human welfare. Personally, I dislike the term “service” as Kill does also, because it stems from the economics of service providing industries and may transport misleading connotations. Nature does not “provide services” as a laundry does. It is not delivering services. Falling prey to this terminology, we may end up perceiving nature not in its ecological naturalness and its fertility, resilience, diversity and richness and not even as experienced nature but as large service industry.
To avoid this pitfall, I use “service” as a purely technical term which indicates in how many modes nature can be beneficial to humans. These modes I found of great interest throughout my academic career as an environmental ethicist. Usually, we do not describe the modes in which nature is beneficial to us in terms of services. We experience intense beauty at specific sceneries, but not eight units of aesthetic services being worth at least as much as entrance fees into art galleries. There is no commitment in economics to shift to such language. Here, Kill mentions a threat: Economic parlance being used in techniques may “re-define the previous conception of nature” (p. 7). Yes, this may be the case, but not by necessity or implication. We could permit ecological economists to use a technical language of “ecosystem services” as just one language game (Wittgenstein) among many language games that refer to nature.
Contrary to Kill, I would not assume that there is a firm “previous conception of nature”. I don’t see why the “previous” conception of nature as a “complex web of inter-related and ever-changing relationship” should be more appealing in terms of conservation or restoration.
To add a philosophical note in this respect: Nature is exhaustible by destructive human forces and by the greed of billions, but, perhaps, it is inexhaustible by human language. There can be scientific, geographical, poetical, and religious ways to talk about nature, there are narratives, novels, maps, proverbs, and rituals. I could, in parallel, learn from some studies about replacement costs of regulating services and enjoy Hölderlin’s poems or Thoreau’s “Walden”. Given this lingual richness, I can live well with an additional economic terminology in terms of “ecosystem services”, if we hold close to the original ideas: first, bridging the gap between nature and welfare and, second, point at different beneficial modes of nature, and, improve conservation. This language game is far from predominant and it is unlikely that it will replace other language games.
But, as Kill rightly argues, there is a dialectics embedded in this approach. The terms “capital” and “service” may blind us against the naturalness of both. I agree with Kill that this danger is looming, especially if economists try to monetize services. I like to add, however, that there is no conceptual or logical necessity to fall prey to such dangers. We should emphasize not the generic term “capital” but the specific qualifier “natural”. Dealing with forests, wetlands, coastlines, species and other natural entities, we should always keep in mind: “It’s natural capital, stupid!”
Prudent economists concede that there are limits of monetization with respect to ecosystem services, especially the many cultural ones. The dimension of cultural “services” is often underrepresented in ecosystem-service-studies since they are hard to monetize. This is true for all de-re-locations, as Kill rightly mentions. It would be wrongful to ask within a contingent-valuation-survey: “How much for your sacred site?” Even mundane persons value particular places from sublime ones over the exotic ones to places at which we feel at home. There is much unwillingness to accept compensation and such unwillingness is a preference, and preferences are to count in economics. We should explore the domain of cultural values of nature in ethical terms and should not pass it over to contingent valuation or travel-cost analysis. In environmental ethics, there is broad agreement that the so-called eudemonic values which are close to the “cultural services” deserve close attention (see my “Umweltethik zur Einführung”, Kap. 4). If, as E.O. Wilson argues, the natural world is a refuge to the (biophilic) human spirit, we should better not try to monetize such refuge.
Since only human desires count, economics is restricted to an anthropocentric perspective. So is the ecosystem service approach. This approach conceals the problem of inherent moral value in nature (demarcation problem) which has been widely addressed in environmental ethics. Therefore, economic thinking may bias us in favor of anthropocentrism. Environmental ethics has to remove this abstraction. Economists have lessons to learn with respect of de-re-valuations and inherent moral value within nature. Thus, not the general idea behind ES-approach is flawed but there are many biases and flaws being hidden in strategies to monetize nature’s “services”. We should not throw out the baby with the bath water.
5. Substitution and Offsetting
Economists like to point at alternatives and trade-offs. Any choice has some opportunity costs. If I spend some hours writing this comment it costs me time which could have been spent otherwise. If we decide to preserve old-growth primary forest, opportunity costs are the price for timber. Economics makes opportunity costs visible. Fine, for it removes naivety among conservationists. Nature conservation and restoration incurs opportunity costs as well as its degradation and destruction. In connection with insights in nature’s scarcity and its many beneficial “services” there are sound reasons to argue that the overall costs of ongoing destruction have become intolerable. The option: “Now we know the price of destruction and can plan accordingly” (p. 10), clearly remains, but it is hard to argue for this option within a public sphere of environmental deliberation. The more nature’s scarcity is fully known, the less likely such options are to be proposed within a public sphere of reasoning. Hidden agendas are risky strategies, if civil society is awake.
The theoretical problem is not about such unlikely options but about substitutability of specific natural items against others under a “no net loss” rule. Even if one adopts Daly’s constant natural capital rule, as I do (see Ralf Döring’s and mine “Theorie und Praxis starker Nachhaltigkeit”, Marburg 2008), the problem of substitution doesn’t vanish.
Economists often generally suppose that there is much space for substitution. Kill is critical against this perspective on substitution, compensation, and offsetting –and so am I. Economic thinking about substitutions at the margins may pave the way for making nature replaceable and fungible. This may shape our attitudes toward nature negatively, as Kill argues. I share her concern. Again, we face the dialectics of the economic approach.
The economics of substitution can be, indeed, rather axiomatic, as in a Cobb-Douglas-function (σ =1). But what are the assumptions behind such axioms? The real world of production and consumption is, as a matter of fact, full of substitution, compensation, and offsetting. Some substitutes are environmentally beneficial since they allow to phase out toxic or harmful substances (as FCKW). In principle, all functions of an asset A might be substituted well by an asset B. If the “services” of nature are merely functional ones, one might look for substitutes. But substitutes can be perfect or imperfect and there are also limits of substitutability. There is no such thing as constant elasticity of substitution in valuable nature. Watching a movie about hiking in the mountains might be a highly imperfect substitute for actual hiking in the mountains. The effect of alcohol on the brain might the same, but to many people cheap rum is a highly imperfect substitute for fine wine. “Beloved ones” can’t be substituted. Many persons count as individuals (as good friends) and some locations count as de re, as Kill rightly argues. But not all locations are sacred sites or precious de-re-locations. There are also many semi-natural locations which have been converted to managed forests, pastures, or greeneries in historical times and allow for considerations about alternative future uses. Thus, we have to decide which sites are more or less precious than others.
If some interference in nature is to be permitted, it counts as advantage to have offsetting schemes. The so-called “Eingriffs-Ausgleich”-regulation is a major achievement in Germany’s environmental legislation. Even if the best option is not to interfere with nature, we need compensation schemes as second-best solutions. Clearly, the best option is not to use an aircraft. If one does, however, offsetting is better than nothing.
6. Final Remarks
To Kill, “creating the visibility to the economic eye requires abstractions that may in the end result in much more far-reaching changes to how we understand nature than initially imagined ” (p. 16). There are three claims implied in this statement. First, economic visibility of nature requires abstractions. This is true, since any approach to conceive nature rests on abstractions. Biology abstracts from poetry. We can’t approach nature in its entirety. Forgetfulness about abstractions, not abstractions in themselves, are problematic. Forgetfulness about abstractions results in epistemic dogmatism. Abstractions, as Kill writes, “may” ultimately result in far-reaching changes. This claim is more predictive and, as prediction, remains uncertain. Given the advantages of economic evaluation, this prediction seems reasonable but not sufficient to discard economic valuation altogether. It is our task to falsify the prediction. The third claim is more implicit: Ultimately, we see nature not just differently, but adopt a disrespectful or even cynical attitude towards nature. The old “modern” longing for mastery and controls may turn into a “post-modern” attitude to shift services across locations and time, to endorse offsetting, substituting, price tagging, compensating, restoring and rehabilitating as “we” please. Nature becomes dominated not by mere destruction but by being designed and molded. This concern is reasonable for it points at the heart of the ongoing dialectics of economic enlightenment (p. 16).
Kill quotes from Goethe’s poem “The sorcerer’s apprentice”. The apprentice is a still learning novice. He is able to mobilize the spirits which are helpful in the beginning but behave destructively in the end. The apprentice is, however, unable to stop and get rid of the spirits because he is ignorant about the magic word. But why should we see ourselves in the role of an apprentice with respect to both economics and economy? Economics is not witchcraft we are helpless against. We should see ourselves in the role of “masters of economics” who can say “Stop!” at certain points of economic reasoning. Or, quoting Goethe again: “Back now, broom, into the closet!” And turn to other song lines of reasoning about nature’s values, leaving economics behind.
