In early November, 70 Harvard University students walked out of their introductory economics class. They wrote to Prof. Gregory Mankiw that the biased nature of his course "perpetuates problematic and inefficient systems of economic inequality in our society." Mankiw is the author of Principles of Economics, a textbook used by almost every economics student in the Western world.
The walk-out was part of a larger event organized by Boston's Occupy protest, and it echoed a key element of the worldwide Occupy movement. Like these students and protesters, I've been thinking about our dysfunctional economic paradigm. I share the anxiety that we are sacrificing too much to a system driven by three fallacies: that well-being can only be measured in money, that distribution does not matter, and that the economy can grow forever. And like so many people today, I question whether our economic system is serving the goals that are important to society. After all, an economy is a means to prosperity, not the end.
This economic system is relatively new. In the 1930s and '40s, world leaders had to address unemployment and underproduction. Many of our current economic measures were developed when natural capital (the benefits that nature provides) was plentiful but built capital (buildings, machinery, infrastructure) was not. In providing more manufactured goods and services, we developed a blind spot to the economic importance of natural systems. Labour, built, and financial capital are typically considered as the primary factors of production for economic development. Land and natural systems have seldom been included.
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With growing human populations and profit-driven, consumer-based economics, more land is being eaten up by development, habitat is being destroyed and degraded, and resources are being exploited at unsustainable levels. Natural capital is disappearing.
For example, salmon were abundant on B.C.'s West Coast in 1900. More built capital, such as nets and boats, was required to harvest them for food. By 2000, there were no shortages of nets and boats, but the fish and the habitat they need to survive had become scarce. As natural capital and the goods and services it provides have diminished, interest in this area of economics has increased.
Economists are also starting to recognize that human well-being depends on more than having manufactured products. A great deal of research shows that things like leisure time, equality, and healthy relationships are more important to people's happiness than greater consumption. This is starting to change our economic models.
But we still have far to go. The services provided by nature and the qualities that contribute to human well-being are still invisible in the marketplace. Because we have elevated economics above everything else, this is dangerous. When you have a society that largely equates the quality of life with economic indicators, such as gross domestic product, and those indicators fail to track the health of its fundamental inputs, you end up on shaky ground.
How do we address this? One tool is natural capital valuation. Putting a price on nature's services is a complicated subject. Although nature's full worth is unquantifiable, its ecosystems undeniably provide services to society that have real and tangible economic weight. For example, wetlands filter water and reduce natural disasters such as flooding, and forests manage water runoff and provide habitat for pollinators.
By making nature's value visible, decision-makers can take into account the true benefits and costs of conservation and restoration. These economic benefits have even received the attention of the World Bank, which plans to assist countries in tracking natural capital assets and including them in development plans, in the same way we track other wealth using the GDP index. And more recently, former Canadian Prime Minister Paul Martin has advocated including natural capital in national accounts.
These measures won't completely change our current economic paradigms, but they could at least slow the rampant environmental devastation and its consequent impacts on human health and well-being that are a symptom of our profit-driven corporate economies. They may also help us to think about what we truly need to be healthy and happy as humans, and to see the trade-offs inherent in our activities. Until we do this, we cannot hope to address the inequalities the students and the Occupy protesters are rallying against.