The Value of a Sceptical Economist

The summer is here and that means that at last there is time for some reading. I have finally had the pleasure to enjoy Jonathan Aldred's The Skpetical Economist, which has sat on my book tower no. 3 for several months. What I enjoyed most about the book was the way that he has put the mental effort into expanding my somewhat airy comment to students that costing the aspects of life we value most is 'spiritually offensive'. Aldred explores our objections to such processes and finds them not only ethically coherent but rationally sustainable.

Much of the content of the book was familiar territory for me, but the argumentation was excellent and the references to heterodox work, and work that tests the neoclassical theory in the real world and finds it wanting, are now all handily on one place. His central point is about the social and ecological threat of the system which respond to Gus O'Donnell's pithy phrase: 'If you treasure it, measure it', and more specifically, price it. Here is Aldred summarising his view of the risks this attitude poses:

'It is the practice of valuing things in terms of money which in itself leads us astray. Almost all of us have an instinctive sense that some things should not be valued in terms of money. But what exactly are we objecting to? . . . As well as the practical difficulties, monetary measurement presupposes a common scale of value; but the thing being measures may have multiple dimensions or attributes, with different kinds of values not reducible to being measured along a common scale. Or the thing being measured may have inherently qualitative attributes, which cannot be measured on any quantitative scale.' (p. 207).

The chapter that offered me most new and interesting insights was Chapter 7: 'New Worlds of Money: Public Services and Beyond'. This is the best account I have read so far of how the project to marketise the public sector has been driven by those who would privatise it and has been grounded in weak intellectual reasoning unsupported by evidence. Aldred makes a convincing case that ethics and motivations in the public sector are just different from those in those in the private sector. Assuming similarity, and introducing inappropriate systems of audit and incentive, is likely to reduce the quality of the service, while increasing its cost and impairing the performance of those who provide it.

Towards the end Aldred reaches one of his most pungent points: the danger of the performativity of economics. Performativity is one of those abstract, academic concepts that I can never keep quite clear in my own head, but how it translates is that if you spend enough time acting as if something were the case, it becomes habitual and starts to actually become the case for you. This was familiar turf for Dale Carnegie and exponents of assertiveness training, but its consequences in terms of economics are more sinister:

'The self-fulfilling nature of some economic analysis is one instance of a more general phenomenon: economics can be 'performative'. That is, the act of doing or performing it, of studying the world using the ideas and tools of economics, may change the world being studied. In other words, merely using economic theory can help to bend the world to fit that theory.' (p. 223)

Thus our own moral system may become skewed: we may begin to imagine trees with price-tags or to feel like looking after our patients less well because we have undergone a pay freeze. This is why the onward march of economics into the priceless areas of personal relationships and natural treasures should be strenuously resisted. Whenever somebody shares with you the now nearly common sense that you don't value something unless it has a monetary price, please join me in pointing them in the direction of their own children.
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Nature is Not for Sale

As we saw in the discussions at Rio, the marketisation of nature, through the development of concepts such as 'ecosystem services' and 'natural capital' has, in recent years, become an influential new way of thinking about the ecological crisis. Environmental problems ranging from habitat and biodiversity loss to climate change have been framed in terms of the need to create markets for pollution and to create shadow markets for a whole range of environmental 'goods' and 'services'. The National Ecosystem Assessment indicates that this is the dominant discourse of the UK government.

Many pro-environment NGOs have now fallen comfortably into this new discourse, so that we find WWF supporting a project encouraging payment to protect the health of local water systems. And here we find RSPB producing a detailed guide to exactly how you can go about putting a price of various aspects of the natural world. In view of the heavy support for this discourse from government, NGOs show a remarkable lack of scepticism towards terms like 'natural capital' and 'ecosystem services' that sound as though they were invented in boardrooms and no doubt serve these interests of those who inhabit them.

To be clear about what we mean by valuation, commodification and pricing is of crucial importance. Just as the ecological footprint was a useful metaphor for bringing home to people the impact of their consumption on ecological systems, so the idea of 'ecosystem services' is a useful metaphor for communicating the vast and essential value of the natural world to our economy. However this concept has broken its metaphorical bounds and is now exerting considerable agency amongst powerful decision-makers. The slippery nature of this measure-cum-metaphor is being exploited by those who seek to use the desperation and naïveté is some environmentalists to dismember and make available for sale the very natural world they seek to protect.

The confusion amongst economists and policy-makers is not helped by the fact that many involved in this debate are operating well beyond their expertise. The refusal of many economists to take seriously the empirical realities of climate change, preferring to remain barricaded within their mathematical abstractions, has left the debate around the economics of the environment to those with experience in the hard sciences but little knowledge of the history of theories of economics. The winners of the Blue Planet prize are a good example. While we pay tribute to their work in forcing this issue into political agendas at the highest level, we would suggest that they allow some space for the expertise of scholars of economic and social systems. And to the latter we issue a heartfelt plea that they make this a greater priority of their own research interests.
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Pricing the Priceless

In the era of ecosystem assessment it is essential that we all understand how limited are the techniques for pricing nature. This post is rather dull and technical but shares what I hope is useful information about what the ecosystem assessors are up to. There are a number of actual techniques that can be used to create pseudo-prices for aspects of the environment. According to David Pearce all have two stages: first the economic value must be demonstrated and measured; second, it must be captured or ‘appropriated’.

Conventional Market Approaches

This is the most straightforward method, since it begins with the existing market cost that needs to be paid to restore the environment to its pre-existing state. If the environmental problem we are considering is pollution from a factory, for example, the price is whatever it would cost to clean up that pollution. If this price is not enough to protect the intrinsic value of the watershed which absorbs the pollution, then a technique of ‘shadow pricing’ might be used as well—adding to the cost of the clean-up an additional value which reflects what people would be prepared to pay to have their watercourse restored. Sometimes these market approaches aim to restore the value of something that has been destroyed by pollution, for example paying a farmer the value of a crop that could not be sold because it had been contaminated.

Household Production Functions

This name appears to bear little relation to the technique it describes, which involves costing the substitute that can be offered to the consumer who has lost out because something they value in the environment has been destroyed. Examples might be the cost of installing insulation to prevent noise from aircraft destroying the peaceful enjoyment of the home or the cost of travelling to a park that is far from a person’s home because the nearby park has been used as development land by a supermarket.

Hedonic Price Methods

Hedonic pricing involves using markets that do exist that approximate to the goods or services that are destroyed and using the prices that are paid in that market to impute a price to the non-tradable commodity. The price that exists in the real market is considered as an implicit price for the missing market. A popular example is the ‘hedonic housing market’, which relates the price premium for homes in a certain area to the value people place on the peace, proximity of green space for leisure, low levels of noise pollution and so on in the local environment.

Experimental Methods

The previous methods are all conducted by environmental economists working from existing data and in the quietude of their offices. In experimental methods they venture into the world and discover how much people value aspects of the environment by asking them directly what they would be prepared to protect it. In a method known as ‘contingent valuation’ people are asked what they would be willing to pay to protect their local park or to avoid having a nuclear power-station built in their community, for example. The method known as ‘continent ranking’ or ‘stated preference’ involves how much they value an environmental good relative to other goods which are actually bought and sold in a market, enabling the researcher to fix the relative price of the environmental good that they are interested in.

It is clear from these various techniques that they are hugely complicated (and expensive) to calculate and that the prices that are arrived at can never be considered to have a definite relationship with the value people place on the environmental good or resource that is under threat or has been lost. An environmental economist would argue that, in a society where markets dominate, pricing the environment, no matter how inadequately, affords the environment the best protection. Critics might suggest that a more pragmatic conclusion would be that there are areas of life too precious to be included in the sphere of the market.
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There is No Wealth But Life

Finally, in a move that became inevitable once bogus methods of valuing nature were invented by economists with the very same mental framework that produced sub-prime lending and credit-default swaps, a price has been put on the natural beauty of our land. Our country has been degraded into an accounting unit; our beautiful land has been marketised.

This, in my view, is the only possible interpretation of the UK National Ecosystem Assessment, an attempt to put a monetary value on everything that we, the human species, gain from our fellow species and earth's sacred existence. It styles itself as 'the first analysis of the UK’s natural environment in terms of the benefits it provides to society and continuing economic prosperity' and is 'part of the Living With Environmental Change (LWEC) initiative'. That is what we have to do of course: learn to live with environmental change, rather than learning to cherish and respect nature's way. The ideology here is very much about nature learning to live with us, in contrast to the opposing lessons of permaculture.

The naivety of the respectable, well-meaning but misguided scientists, like Bob Watson, Chief Scientific Adviser to Defra, who have become embroiled in this exercise is baffling. The majority appear to be natural scientists, and this, alongside the large-scale funding that was presumably available to support this research, appears to explain their mistaken decision to become involved. Perhaps they genuinely do not understand how economists can, once given something 'scientific' to work with, warp and distort values until they arrive at the answer that suits their profit-driven objectives. The process of discounting is just one such technique.

Knowing exactly how much people would pay not to lose a bit of woodland is a real step forward for a developer. He only has to find this much money and give it to the local authority and he has solved the problem of the devastating loss of the trees. A little bit of carbon mitigation, a few bus fares to travel to the next closest park, and the problem of local resistance to concrete is solved. Profits expand and the irritating impediment to economic growth from nature and those who love nature has been eliminated.

The impossibility of substituting money for nature is a central tenent of a green approach to economics; to imply that we can somehow find a price for nature, a price for life, only proves that those who come up with such calculations need to be removed from positions of authority. If they are allowed to continue to dominate our national life it is clear that our future and that of many of the species we share the planet with is doomed.
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Earthly Gifts

Part of the job of an environmentally focused economist must be to keep a clear awareness of how valuable the planet is to us, but what does that value mean and how, if at all, can it be measured? To attempt to bridge the gulf between ecology and economics the concept of 'eco-system services' is growing in popularity. Here is how one excellent critique introduces the concept:

'What are ‘Ecosystem Services’? At first hearing, they sound like a firm of consultants who help you repair your ailing ecosystem. In fact it’s the other way round, the sevice is provided by people with ecosystems to people who no longer have one, and who need one. For example if your forest, or your peat bog is absorbing carbon, it is providing a service to other people who are producing excessive CO2 and need something, somewhere to absorb it. Other ecosystem services include climate regulation, maintenance of biodiversity, water conservation and supply, and the preservation of aesthetic, cultural and spiritual values. The emerging view is that the people receiving these ecosystem services should start to pay for them.'(Sullivan, 2008).

Ecosystem services formed a major focus of the recent study known as the Millennium Ecosystem Assessment (MA), which reported that ‘60 to 70% of our world’s ecosystem services are deteriorating, with dramatic consequences for those who are most dependent on their steady provision, such as subsistence farmers.’ There is an explicit admission that the concept of ecosystem services has been designed to increase the attractiveness of talk of environmental protection to the corporate sector: ‘The attractiveness of the “ecosystem services” concept is also largely due to its capacity to provide a unifying language between the economic, business and environmental communities; as beneficiaries of valuable services are identified, previously uninvolved actors are recognizing that they have a stake in conserving the environment’ (UNEP, n.d.: 2).

However, it may be an important cost if the planet’s intrinsic spiritual value is lost in the process of ‘costing the earth’. There are also difficulties in terms of establishing ownership rights over the areas of the world where ecosystems remain intact, largely due to low levels of industrialisation. Since the people living in these areas have less economic clout they may not be well placed to protect their rights over their land and their lifestyle which, paradoxically, is precisely what has preserved the ecosystem. As environmental pressures increase, subsistence farmers in the world’s poorer nations are threatened with displacement and loss of livelihood as their land is traded to provide carbon sinks and other ‘ecosystem services’ for the peoples of the richer world.

I also wonder what it does to us and our relationship with the planet when we think of it as providing us with services. What becomes of the awe and reverence that are more appropriate reactions? How is this attitude of expecting service different from that of exploiting resources which has surely caused our environmental problems?

Reducing this deeply spiritual relationship to one that can be counted - and even compensated - in monetary terms is to denigrate and belittle it. How could we think of paying our mother for breastfeeding, or even for making us a Sunday lunch. Imagine wiping the napkin across your mouth and then reaching for your wallet. Just as you mother does not offer you services which can be bought and sold, neither does the planet.

Ecosystem services is a dangerous concept and a piece of discourse we should consciously eschew. From a green perspective the earth is an abundant and generous provider. What we receive is always free, always given without expectation of reciprocity. So I would suggest that we deliberately counter this pernicious term with that of 'earthly gifts', which helps to reinforce a sentiment of gratitude and respect. Tweet