Economics

From the Foundation's 1994 Annual Report


It would seem almost too obvious. The human economy takes place within the physical environment. Economic activities are therefore constrained by environmental limits. How close to limits we are depends upon a host of factors, including the sheer abundance of people, our lifestyles, and the technologies we employ, but the finite nature of the planet means that there are fundamental limits.

Perhaps because so much of human history has unfolded at a scale small with respect to the global environment, because so much of our collective experience has developed in settings where the next valley was always open, where the rivers could always dilute more waste, where the planet's riches seemed inexhaustible by human action, perhaps because of these and the apparent vastness of Earth, it has taken until late in the twentieth century for us to recognize that there are environmental limits. Because of these limits, the human economy must become environmentally sustainable.

What will that take? It will require new information about the environmental consequences of economic action, new insights into the intended and unintended side effects of existing economic policies, new measurements of economic progress that reflect environmental consequences appropriately in their calculations. It will demand changes in the structure of economic incentives and disincentives that society currently employs to foment and steer economic development. It will require that investment decisions acknowledge environmental concerns -- concerns reflecting the costs that doing business imposes on others, and the liabilities that environmental mismanagement creates. It will require new technologies that can lessen the environmental impact of activities deemed necessary for human prosperity.

Taken together, these are not minor changes in the structure of modern commerce. For any to be achieved, the public discourse that will take place -- indeed, that is already unfolding -- must be informed, clear-sighted and inclusive. To date, it has been anything but. Instead, it has developed as a rancorous political fight pitting economic progress against environmental protection: "environmental regulations place inappropriate burdens on business"; "environmental protection costs jobs."

A growing body of experience, evidence and analysis, however, suggests that environmental measures can also boost business competitiveness and create new jobs. These conclusions are emerging even in the Pacific Northwest, the site of what had been proclaimed by many as the apotheosis of environmental protection's damage to economic growth. In retrospect, owl protection did cost local jobs, but it also enabled new ones. The environmental protection that took place around the spotted owl helped maintain a quality of life that attracted, and continues to attract, a skilled labor force and new jobs to the Pacific Northwest. In fact, a 1993 survey by the Oregon Business Council found that 75% of Oregonians want to maintain a quality environment that can attract people and companies to Oregon. Pacific Northwest states have seen their job base grow by 18% between 1988 and 1994, the total personal income of the region's households increase by 24%, and total earnings increase by 24%. The Northwest economy is now stronger than it was before owl protection; its health and the dramatic growth in jobs available in the region have been in economic sectors that have a future, not in sectors, like logging, that are in decline.

This debate, and others like it, have coursed across the American landscape throughout the 1990s. Their reverberations and crosscurrents have fueled a backlash against environmental protection, one that stands in odd contrast to the broad-based commitment of the American public to environmental values. The backlash has many faces. It involves advocates for property rights who perceive that environmental regulations constrain their economic liberties, who in their complaints ignore the fact that regulations and government activities most often enhance property values. It involves mining companies that resist reform of the flawed law that governs their access to minerals on public lands, a law enacted during the presidency of Ulysses S. Grant. It involves ranchers who seek cheap access to public lands at prices below market value, resulting in grazing pressures too heavy for the land to support over the long term.

While part of the backlash movement arises from wealthy special interest groups bent on protecting their assets, it also arises from people in local communities who see the economic tide moving against them, are worried about the future, and seek to cast blame. Environmental regulations become easy targets. They have an immediacy that makes anecdotes about regulatory abuse, however contrived, the grist for lampoon, exaggeration and endless repetition, especially because some of the stories have an element of plausibility at their core. The debate becomes "jobs vs. owls" instead of "these jobs vs. those jobs" or "wetlands vs. farmers" instead of "water cleansed by free services from nature vs. water cleansed by costly filtering plants, for which the public must now pay."

This backlash in its most virulent form has involved threats and actual violence against individuals in their local communities who have engaged in environmental protection. Tragically, these events are becoming more frequent now in the mid-1990s.

Ironically, it is often those most at odds with one another at the localest of levels who have the most to gain by joining forces. Continued logging or mining at unsustainable rates is no more helpful to local communities seeking a solid, long-term economic base than to conservationists wishing to preserve a shred of wilderness. Research shows both sides of the debate share fundamental values: an appreciation of nature, enjoyment of its natural resources and concern that the environment be managed for the long-term. Differences -- and the devil -- arise in the details, but there is too much in common to warrant today's frequent pitched battles.

The Foundation has supported efforts in four areas that relate, ultimately, to forging a system of economics that is environmentally sustainable. A central part of this program has been activities to inform the debate about "environment vs. economics" and recast it constructively, especially in assisting local organizations to counter the flawed analyses and strident organizing tactics of the environmental backlash. While some of these grants have been to national organizations, the Foundation has sought diligently to support local grassroots organizations confronting backlash in their own communities.

Many of the arguments that arise over resource management spring from a disparity in public understanding. The economy appreciates all too well the monetary value of resources extracted, and all too poorly the services that functioning ecosystems provide to human well-being, services such as clean air, clean water, and fertile soil. As part of a program in sustainable economics, the Foundation is therefore supporting work both to further the analytical understanding of biodiversity's economic values, and also to advance public appreciation for those values.

Additional analytical work is underway to address a more purely "economics" issue: that the full environmental costs of commerce are rarely fully manifest in market prices. Some portion of these costs lie external to the market. These "external costs" -- be they the cost of health care for people harmed by air pollution created by automobile exhaust or the loss of salmon (and salmon fishing jobs) caused by sedimentation caused by logging -- introduce distortions in the market that give advantage to an activity which otherwise might be uncompetitive, were its environmental costs not "externalized." Foundation grants support efforts to estimate these costs and to promote policy approaches that would address them. One promising avenue involves approaches to replace elements of the current tax code with pollution taxes, or a "polluter pays" system.

At the international level, the Foundation maintains a long-term commitment to reform of the multilateral development banks' (MDB) lending practices. These organizations, such as the World Bank and the Inter-American Development Bank, are involved in virtually every productive sector of developing countries, including agriculture and rural development, energy, industry, transportation, forestry, telecommunications, water supply and sewage. Directly through their own loans and indirectly through co-financing with government and industry, these banks leverage investments that total hundreds of billions of dollars. Their decisions affect lives and environments throughout the world but unfortunately their decisions have yet to embrace environmental concerns fully.

The MDB reform movement has been built largely upon United States commitments to environmental protection. Because the United States has been a large funder of the World Bank and related agencies, it wields important influence in their decision-making. In 1994, the Foundation began supporting work in Europe and Asia to alert other lending governments about prospects for MDB reform.
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