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The Forum > Article Comments > Bankers link natural capital to national wealth > Comments

Bankers link natural capital to national wealth : Comments

By John Talberth, published 12/11/2010

It's possible to account for the environment in the economy.

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This assumes the competence and disinterestedness of the World Bank or the UN to ‘better manage natural environments’.

A horse laugh to that was my initial response, but the rest of the article gives no more reason to think the World Bank, the UN, or the author, are capable of “accounting for the economic value of natural capital”.

In fact it is impossible and the article demonstrates that the author doesnt understand why.

Capital means the *produced* means of production. But the author is using the term ‘capital’ to refer to means of production that are not produced, and so are not capital in the traditional sense, but are general conditions of human welfare.

General conditions of human welfare only become economic goods when they become scarce enough to put a price on them. They then enter into economic calculation and capital accounting.

“Architects of green accounts must grapple with three measurement challenges: how to define standardized units, how to measure physical quantities and how to assign values. None of these tasks are easy.”

In the absence of economic calculation, these tasks are impossible. Why? Because the whole purpose of the exercise is to conserve resources so that they are used only for their most urgent and important uses, as best we know how, in other words, to economise our use of them. Any relevant “standardized units” must refer to the purpose of all economic activity - subjective human satisfactions. Similarly, the values to be “assigned” refer to dispersed individual subjective values. They cannot be measured, quantified, or standardised.

The defects of GDP accounting are not a reason to substitute an even more defective system of green accounting based on nothing but arbitrary rules and regulations dreamt up by unaccountable bureaucrats.

It would be more to the point to ask, what do the World Bank, UN, IMF, and governments think they are doing trying to manage the economy and the environment in the first place? They can’t even manage their own finances – what makes you think they can manage everyone else’s *and* the world’s ecology?
Posted by Peter Hume, Friday, 12 November 2010 8:58:54 AM
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Actually some part of what the author thinks should happen has already happened.

Farmers, for example, take steps to deal with salinity in their soil because if they don't it affects the sale price of their farms. Water for irrigation is now priced and traded.. As for most other parts of caring for the environment, its best to deal with it by regulation. Putting a price on carbon has had the oddest result in the European Union scheme - so odd that even the green groups have been protesting.
Posted by Curmudgeon, Friday, 12 November 2010 11:13:59 AM
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Hi Peter, isn't capital what is used for production? Be it money or a factory. Hence natural capital would be a good term for forests, farmland etc. Up until now, as far as I understand, economic output has been measured, but what about the resources that the country has? It's akin to being asset rich but cash poor.

Curmudgeon, I think the author is indicating a way to measure these adjustments and changes. Australian farmers may be up to the task especially with salinity but other countries have their own issues and a way to measure and compare between countries is what has been needed for a long time. As for carbon pricing in Europe, I'm not very familiar with this but at the pace that it all seems to be moving I'd be surprised that business groups and environmental groups aren't protesting.

As for the article, it's difficult to measure all these things as subjective assessments can easily flow into the equations. The other option, which is what we seem to be moving to, is to devise a world-standard, super-complicated calcuation method for natural capital to
allow for a balanced comparison of each region/country.

Kind of reminds me of Australia's tax system...perhaps Australia could be the base for training and devising this new methods?

As an "out-there" concept, wouldn't it be great to take into account or greater account a variety of items when calculating company value or national GDP? For example: workforce satisfaction, environmental damage, stress levels, pollution etc.

http://currentglobalperceptions.blogpost.com/
Posted by jorge, Friday, 12 November 2010 4:27:41 PM
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“Hi Peter, isn't capital what is used for production?”

No. That’s not what capital means.

For example, time is a scarce resource that is used in all production. But time, of itself, is not capital. Sunlight is used for production. But no-one accounts for it as capital.

Think of the matter in terms of your own balance sheet. Do you enter a money value to represent the value to you of all the time that you have available? No.

Why not? Because it’s meaningless. You need to exchange money against it for it to be meaningful: that’s why we can’t account for the niceness of our grandmother.

“Be it money or a factory.”

Money is the generally accepted medium of exchange. Of itself, it is not capital. Goods that you can buy with it may be capital.

“Hence natural capital would be a good term for forests, farmland etc.”

It’s not a matter of arbitrary definitions of terms. Capital accounting comes from the private ownership of the means of production. It goes to profit and loss. If the income is greater than the expenditure, the result is a profit; if less, a loss. The purpose of profit and loss accounting is to show how much the owner can consume without reducing the capital, that is, without reducing the productive capacity of the property he started with.

The reason for the difficulties both of traditional GDP measurements, and the green accounting the author is attempting, is because their perspective is not that of the owners of the property.

For example, you can figure out the money value to you of your real estate. That is a meaningful figure.

But you can’t figure out the money value of all the real estate in Australia, because the resulting figure is meaningless. All the real estate is not for sale, and if it were, that fact alone would make the end result unknowable.

The reason why both GDP and green accounting are invalid, is because the *purposes* of accounting in that way are inconsistent with the private ownership of the means of production.
Posted by Jefferson, Saturday, 13 November 2010 8:48:07 AM
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I think the issue of putting a price on ecosystem services or natural capital is very worthy in terms of making economists aware that many externalities aren't external at all but very much integral to the economy.

I say all that with a sense of sadness, however, as I would really like to believe that all nature is priceless and worth preserving for its own sake, not for how much value we humans place on it. So bugger the human economy...
Posted by popnperish, Sunday, 14 November 2010 5:40:44 PM
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Popperish, then why don't you put a price for everything in the world in your own list of assets and liabilities? If you can't do it, what makes you think "economists" are in any better position? You don't treat nature as priceless, you treat it as instrumental to achieving your individual ends, and so does everyone else in the world. A world in which nature was treated as priceless is a world populated not by real human beings, but by disembodied wraiths. Your argument is completely phony, one hundred percent pious fraud.

"I say all that with a sense of sadness, however, as I would really like to believe that all nature is priceless and worth preserving for its own sake, not for how much value we humans place on it. So bugger the human economy..."

Then why don't you stop eating, drinking, wearing clothes, living in a house ... using electricity and fuel? Why should other animals and plants die for your mere benefit? Why should water, and air, and electrons be disturbed from the natural courses just to satisfy your selfish desire for physical benefits?

Prove that you really are sad about human use of natural capital, and not just pretending.
Posted by Peter Hume, Monday, 15 November 2010 1:28:24 PM
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