Economics for a Sustainable Planet

From the Foundation's 1995 Annual Report


Not until late in the twentieth century has society begun to face the simple truth that economic growth cannot continue unfettered by environmental considerations. This realization has given rise to a wide array of efforts — legitimized internationally by the UN Earth Summit in Rio de Janeiro in 1992, nationally in the United States by the President’s Commission on Sustainable Development, and within many nations including our own by countless national, regional and local projects and programs—to help communities and businesses at all levels make economic choices that are environmentally responsible.

We find ourselves facing this challenge for a few basic reasons. Most fundamentally, the human economy now functions on a scale comparable with biogeophysical processes. In the past, the Earth seemed so vast in comparison with human activity that it appeared infinitely capable of absorbing our waste and providing undiminished bounty. Over millennia, even if one valley became too polluted to support healthy resources, there was always a next. Even if one forest was shorn of its timber riches, there was always another. Now, the next valley has become a myth—it is already occupied. The next forest is no more—it has already been cut down.

Habit, greed and ignorance all contribute to this predicament; old behaviors persist, especially when fueled by self-interest and indulged without a full understanding of their consequences. More subtly but at least as perniciously, the complex set of feedback loops, economic incentives, and indicators that guide economic choices often fail to include signals indicating environmental harm. Simply put, the economy does a fantastic job of churning out goods and services but fails to internalize the environmental and social costs of this production. The Foundation concentrates on a small number of issues to help develop an environmentally sustainable approach to economic activity. Several of these topics received major attention in 1995.

Tax Reform

Current economic incentives set by federal policy often penalize responsible environmental behaviors and reward irresponsible ones. These incentives include subsidies encouraging ecologically damaging behaviors, such as over-grazing and timber extraction on public lands, and tax policies favoring current energy dependencies.

In 1995 the Foundation supported a set of related activities that examine how environmental considerations can be injected into the ongoing national and state policy discussions about tax reform. As the United States searches for new and just foundations for its tax policies, it is important that the environmental implications of various choices be recognized and evaluated. Fundamental tax reform—away from a system that taxes income, savings and investments toward one that taxes consumption—could lead to dramatic innovations in environmental protection based on economic incentives rather than upon government regulations.

Valuing Biodiversity

Many environmental goods can be assigned economic value only with difficulty and imprecision. As a result, economic decision-making is often blind to environmental protection. The soft numbers assigned environmental goods in economic cost-benefit calculations are rarely competitive with the hard edge of profits to be gained even from financial decisions which have deleterious environmental side effects.

This disparity is large in environmental matters related to public health. With respect to biodiversity, it is gargantuan. The Foundation therefore encourages work related to the valuing of biodiversity on two fronts: analytical work that examines the contributions that biodiversity makes to economic activity and to human affairs, and public education efforts to expand popular understanding of the role that biodiversity plays in supporting human prosperity.

Balancing Economic and Environmental Needs

Communities struggling to find local solutions to support economic vitality while maintaining environmental quality have faced the additional challenge during the 1990s of anti-environmental organizers throwing disinformation and discord into the public calculus. This is especially true for rural, resource-dependent communities whose traditional economic base has been eroded by the rapid exploitation of natural resources. The diminished economic opportunities of people within these communities combine with a distrust of government to create fertile ground for anger, blame and polarization. Anti-environmental organizers—many from the misnamed, extremist "wise use movement"—feed off of this fear and economic uncertainty to undermine environmental goals. Emboldened by tepid responses from federal law enforcement agencies, as the decade has advanced these backlash extremists have resorted increasingly to intimidation of and violence toward environmental activists as well as toward federal land managers from the U.S. Forest Service and Bureau of Land Management. This local anti-environmentalism resonates on a national level with some politicians who would remove environmental constraints from business practices and weaken laws designed to enhance community safety.

In response, the Foundation has supported a series of efforts designed to provide information to local communities about environmental backlash and to promote scientific and economic understanding of the issues in debate. This initiative has provided support for local grassroots activists enabling them to work constructively within their communities to advance environmental protection. Another layer of work, at the national level, has sought to develop information resources and to make them readily available to community activists.

During 1995 the Foundation also began exploring grantmaking approaches that would assist local, resource-dependent communities in developing economic alternatives consistent with long-term environmental goals, seeking the common ground that links environmental and economic prosperity. This exploration of ways to encourage economic prosperity based on the sustainable use of natural resources, or conservation-based economic development, will continue in the coming years.

Promoting Wise Policies in the Multilateral Development Banks (MDBs)

In many regions of the developing world, for the last five decades the World Bank and its regional counterparts have been dominant sources of development finance, with loans extending across a wide range of virtually every productive sector. Their principal objective has been to promote economic growth and alleviate poverty. Especially over the past decade, in part as a result of encouragement by nongovernmental organizations, the MDBs have given increasing attention to the environmental consequences of their loan activities. Even though meaningful reforms have been implemented and more are contemplated, some MDB activities continue to undermine environmental protection.

In 1995 the Foundation continued to work on encouraging MDB reform. Yet, perhaps ironically, even as the World Bank improves in its attention to environmental and social issues, its preeminence as a source of finance for development diminishes. This turn of events has nothing to do with World Bank reform and everything to do with dramatic increases in the amount of private capital flowing into developing economies. In China, for example, last year’s official development assistance from all public sources, including the World Bank, totaled approximately $2.5 billion, while private investment topped $32 billion. The manner in which this huge flow of private capital is deployed now has a far greater impact on China’s environmental future than how traditional public sector support is spent.

As the private sector supplants the public sector as the primary engine of growth in many industrializing countries, whether this growth will be sustainable depends in large part on the frameworks and incentives used by governments to channel private investment. Multilateral financing entities and source country governments are shifting away from direct lending for publicly owned companies toward supporting development of frameworks for private investment. The bank reform effort must adapt to this transition, which is likely to lead to greater collaboration rather than confrontation, particularly if the World Bank continues along its current path of evolution.

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