Pricing the priceless

Paula DiPerna’s Pricing the Priceless is an excellent general introduction to the questions of measuring the value of nature, and the use of economic instruments to improve the sustainability of economic activity. The author has been involved in environmental campaigning ‘at the forefront of finance and climate policy’, as the blurb puts it.This included a pioneering privately-created carbon market in the US. Her aim is to persuade those concerned about the environment – and I take this as her target audience – that better outcomes will result from pricing nature, even accepting its intrinsic value.

The first chapter covers the flaws in the use of GDP as the metric of economic success – familiar territory. It’s somewhat unfairly dismissive of the efforts that have gone into the Sytem of Environmental Economic Accounting, that will bear fruit in the 2025 revision of the way GDP statistics are defined and measured. But as the chapter points out, the efforts to measure digital intangibles have helped parallel efforts to measure nature and ecosystem services.

Subsequent chapters take specific contexts and types of instrument – carbon markets, water markets, rhino bonds, carbon offsets and so on. They make for interesting reading. The chapter on China’s interest in carbon markets was particularly interesting. I hadn’t realised that it measures carbon intensity (per unit of eocnomic output) rather than the aboslute amount of CO2-equivalent.

For people who are already persuaded of the need for tools such as markets and payments for ecosystem services to improve the chances of a sustainable path to prosperity, the attraction of the book is in the vivid detail. The author has quite a florid writing style, but has a lot of insights and interesting detail, and it’s quite fun to read about her audience with the Pope (who was converted to the carbon markets idea). For the unpersuaded, the ecologists and environmentalists who find this approach repugnant (in the sense of Roth’s repugnant markets as well as the normal sense), I don’t know if the book will change their minds. I hope so.



One of my long weekend reads (alongside a detective novel – Death Before Evensong – and Metamorphosis, amazing memoir by Richard Douglas-Fairhurst about his diagnosis with MS) was Henry Dimbleby’s Ravenous: How to get ourselves and our planet into shape. The three sections cover health, nature, and what to do. Much of the material it covers is in his terrific Food Strategy document, which the government commissioned and ignored. But here it is written in compelling manner – this is an excellent and anger-inducing read. In short, the food system is making us obese and diabetic (because processing food is so profitable and is under-regulated), massively contributing to global warming, the depletion of biodiversity and other environmental harms (fertilizer use, red meat eating), lacks resilience to shocks (including because of near-monoculture production), and is inhumane to animals and birds that are industrially farmed and processed.

The food strategy has many sensible recommendations, reproduced here, including the use of taxes to cut the use of sugar and salt, more free school meals, changing the approach to farm subsidies and land use, and starting to tackle the UK’s unhealthy food culture. It is not an easy task though because there are several policy aims and some trade-offs. The aims: better health, greater equality of nutrition in an unequal society, more nature-friendly farming and food trade/consumption, improved food security, better treatment of farmed creatures. For instance one implication of several of these is that food prices should be higher – but this works against reducing food inequality and shifting the British diet to a healthier mix. So while some policies are no-brainers (tax sugar in food processing!) others are less obvious.

The first chapter starts with obesity as a system outcome rather than a failure of individual willpower. Not the ideal read as one tucks into an Easter egg (where lack of willpower definitely comes into play). Still, I hope the book makes some impact – not least shaming the government into action despite the lobbying by the food industry.




It’s not easy being green

Or so sang the famous frog.

I’ve been dipping into a couple of new how-to books about sustainability. Growth for Good: reshaping capitalism to save humanity from climate catastrophe is by Alessio Terzi, an economist in the European Commission. The book starts with a spirited defence (against degrowthers) of the need for growth, making both the negative case (politically impossible, growth is necessary for job creation) and the positive (what Benjamin Friedman set out in his 2006 book as the moral case for economic growth, and the spirit of Enlightenment discovery). It does an excellent job of pointing out the silences and the inconsistencies in degrowth arguments. After all, we look set to experience degrowth (aka recession) this year and it’s unlikely to be a good experience. And if we’re going to degrow, what do we do about innovation – stop new vaccines? Not all degrowthers are the same but there are certainly some vocal ones who manifest deep ignorance about what is in and out of GDP and what its growth consists in.

The second part of the book is an exploration of what steps can turn the growth we have into the sustainable variety, and sets out a green strategy. It does include the economist’s favourite tool of carbon pricing, but also government strategic regulation and investment, and the role of finance and business.

Which takes me to the second, The Unsustainable Truth: How investing for the future is destroying the planet and what to do about it by David Ko and Richard Busellato. They are investment managers and their peers are one of the target audiences. This is an extended sermon on the need for the investment industry to take the future into account in a broader sense than financial returns. They offer the almost-certainly unpopular thought that funding pensions of the future through their industry is not compatible with sustainability: “We do need to consider a life without our pension investments. This does not mean that we should not invest, but it does prompt us to rething how we support each other as we age, and investments need to arise from that context.”

The book, which is full of anecdotes and lively examples, also urges everyone to try things out that will help with sustainability – car sharing, walking further, spending more time with our neighbours. Businesses too – try out small changes that might make a difference. It’s an appealing case, but it seems to me the self-motivated small changes will never add up to be big enough. Governments are going to need to get involved and make us do things differently, just as they have already with the incentives for recycling waste and the switchover to electric vehicles.

But, as Kermit knew, it’s not easy. Particularly when there’s a government that believes in the magic of the market to solve all problems.



A most unhappy soap opera

Mountain Tales: Love and Loss in the Municipality of Castaway Belongings by Saumya Roy is an absolutely gripping read, but don’t expect a happy ending. (The book is called Castaway Mountain in the US.) It’s a sort of soap opera about an extended family and community who eke out their living as pickers sorting through the giant Mumbai waste mountains of Deonar. Braided with the events of their lives is the sorry tale of the city’s inability to tackle the toxic and dangerous waste, despite court cases charging them with taking action. CIty and state governments can’t agree, money runs out, for years nothing happens. Meanwhile fires break out covering the whole city in a cloud of dangerous particles and smoke,  toxins leach into the water, and the giant and growing metropolis simply dumps everything from medical waste to rotting food to plastic bags and broken glass. Needless to say, accidents and illness feature prominently. So does gang violence, lack of schooling, hunger and poverty.

The author came across the community of pickers through a micro-credit agency she co-founded in 2010, and the tale stretches over several years. The book makes one feel rather helpless: the characters featured simply pile up more debt, or borrow elsewhere to repay the micro-loans. Weddings and illnesses chew up all available resources and lead to more debt. The local government is clearly incapable. And even if they could close and remedy the waste mountain (as clearly they should before a major disaster strikes), how would the pickers earn at all? So this is not an easy read, compelling as it is, and the book is not in the solutions-finding business. It is a clear-eyed, sympathetic but realistic, description of a way of life none of its readers could have imagined. And even though I’m no hoarder of stuff, it also made me determined to send even less waste to landfill. How much more plastic do we need to throw away?


Growth, stagnation, and degrowth

There’s a new wave of interest in the degrowth idea, recently summed up in the New Yorker by John Cassidy. The degrowthers are mainly inspired by environmental concerns – how can consumption possibly continue to increase without limit without destroying the planet? – and the article also refers to Vaclav Smil’s recent book Growth, which adds to this seeming common sense the intellectual heft of energy physics and logistic curves.

I have no ideological commitment to the view that measured GDP growth will always revert to 1.5-2%, and found much food for thought in Smil. However, there is a misunderstanding in the degrowth movement about what growth implies for physical material and energy use, well explained by Noah Smith in his recent Bloomberg column. My colleague Dimitri Zenghelis also does an excellent job here of debunking degrowth, arguing it is not the best or only way to be green.

Smith refers to another recent book, Fully Grown: Why a Stagnant Economy is a Sign of Success by Dietrich Vollrath, to make the point that we can probably expect slower growth (Smil’s S-curve is flattening out) but this is very different from degrowth or zero growth.

The basic point is that the degrowth argument doesn’t either acknowledge intangible output growth or explain what somehow needs to be taken away from the economy when there is a new innovationto keep growth below zero. On the first point, think about oral rehydration therapy or mini-aspirin – new uses of existing materials which produce improved health outcomes that people are willing to pay for, whose value far exceeds the materials costs (sugar, salt and water; salicylic acid). On the second, if somebody invents a new item everybody wants to purchase – the way smartphones arrived in 2007, say – then what would we stop them buying to keep total growth at zero? And how?

Prof Vollrath’s book, which I read at the proof stage, is tremendous. He portrays the recent slowdown as an inevitability, the result of economic success. Past gains in health, and lower fertility rates due to reduced infant mortality and higher incomes, explain population ageing in the rich economies. Demography is reducing potential growth. We are on the whole also taking more leisure, with a trend decline in hours worked. Purchases of services are taking over from material goods as a share of expenditure, and productivity growth is slower in the service sector (for familiar, Baumol reasons). These two trends go a long way to explaining reduced growth.

The second half of the book explores other potential reasons for the growth slowdown, such as increased market power (see Thomas Phillippon), inequality (Piketty) or too much government tax and regulation – and sets out the data explaining why none has a big enough effect to explain a lot of the trend slowdown. “I see no obvious reason why the growth rate would accelerate in the near future,” Vollrath concludes.

I really enjoyed Fully Grown, which gave me much food for thought. It also is simply excellent on the data sources, growth accounting, and trends. But I don’t think it tells the whole story about innovation either. Vollrath accepts (as Robert Gordon does not) that there are significant technological advances under way; but he sees these as making production more efficient and thus accelerating the shift to services: an ever-smaller part of the economy is becoming super-efficient.

The catch, I think, is in using real GDP per capita as the sole indicator of growth. It is a conceptually flawed measure for an intangible/services economy. Consider a haircut, a service for which there is at least a volume measure (which many services do not have). If the price of haircuts goes up, real GDP as constructed goes down; but if the price is rising because people are substituting from cheap cuts at Big Jim’s Trims round the corner to expensive cuts in Covent Garden, it actually means that they are purchasing a haircut plus a bundle of quality attributes – lovely salon, free cup of tea, head massage, an hour’s talking therapy from a charming hairdresser….. In some four-fifths of the economy, the Price x Quantity = Revenue equation used to construct the growth statistics does not work. Either we should be quality-adjusting many more purchases (and this has its own problems) or there isn’t even a volume measure (what is a unit of management consultancy??)

Anyway, read Vollrath and Smil, devote energy to cherishing the environment. Read our Benett Institute report out in 10 days on how to take a more rounded view of economic progress, including environmental impact, by considering wealth. But ignore the fashionable lure of degrowth.