← LSE: Public lectures and events
Loading summary
Transcript61 lines
- [00:02]
A
Welcome to the LSE Events Podcast by the London School of Economics and Political Science. Get ready to hear from some of the most influential international figures in the social sciences.
- [00:16]
B
Okay, welcome, everyone. So let me just describe what we're trying to do today. So the format will be more of one of a conversation, initially for about the first half of. We have an hour and a half between me and Partha, and then we will open it out to questions from all of you and take those in groups of three. Can you make sure that your telephones are switched off? And as we go through the conversation, be thinking of questions that you want to pose to Partha?
- [00:54]
A
Yeah, there's no guarantee I'll be able to answer it. Satisfactory.
- [00:58]
B
By the way, I think the place I wanted to start with and sort of follows on the conversation you're having in the green room is what kind of led you to the. Sorry, can you hear. Sorry, I thought you were right here. What kind of led you to, even before this book, to this major focus on resources, environment, ecology? Because, I mean, you, unlike many economists, were doing this for a very long time. So was there something about your childhood, Was there something about your education that led you to this area of work?
- [01:41]
A
Gosh, that's a hard one. I'm not sure I know the answer, but I think I probably am a frustrated geographer. That's the size of it. I had a great geography teacher in my middle school, and I should have studied geography, I think, because he inspired me. I mean, he's taught geography as an analytical subject, but I sort of sleepwalked into physics and maths because that's the route reasonably good students picked at my time in India anyway. But I think it's been around for a long while, I think. But on the other hand, I was uneducated on what we would call now natural capital or the world around us. But I think the book which triggered my sort of professional interest was a book I came across by chance, 1978. I was at that time here as a professor at the LSE by Paul Ehrlich, Anne Ellich and John Holden called Ecoscience. It still is a great book to read, by the way. It's very fat. And what was interesting about it was that each chapter, as I tried to formulate the inherent model that was there, this was a very loosely written book. It didn't have any maths in it. Since I was at the lse, of course, I would try and model whatever I was reading. And I saw it was basically an asset management problem at Every innate chapter pretty much the same model. The parameters were different, whether it was water, whether it was a wetland, whether it was forest, some kind of a renewable resource and that I entered into ecology through that book. And a few years later I met Ehrlich when I was at Stanford and we became very close friends. So we had a deal where we'd go for long walks on the Stanford Hills in the afternoon. He would teach me ecology and I would try to persuade him that economics was not entirely useless and we were not all predatory creatures because he's a great conservationist, as you probably know and read. So friendship has influenced me hugely. I learned ecology through him. And then the next step was in 1991 the the Swedish Academy of Science restarted the Bayer Institute for Ecological Economics. And the director of that, Carly Ron Mehler, was one of my closest friends and co author as well. So he asked me to chair his scientific board. That enabled me to meet some of the great ecologists of our time and not just Ehrlich. He was there, of course, Simon Levin and several others, Jane Lubchenco, who's an oceanographer. So I increasingly found myself hanging out, as they say, with ecologists a lot more than economists. Over time I sort of drifted in there. And so I think friendship has been the source of. It enabled me to learn rather quickly. I didn't have to go to lectures. They were providing me the lectures and long walks and I began to work with them on problems. And the first major paper we wrote was for the group of US and the Bayer Institute was for the Proceedings of the National Academy of Science, which is much cited now. It was a way of trying to articulate the confluence of ecology and economics through specific examples, providing some orders of magnitude and so forth. And I've carried on doing that kind of work since.
- [05:45]
B
I guess the kind of follow on question which is related is that many of us will have seen your descriptor review and obviously many of the papers going back all the way to the 70s on natural resource management. And I think the thing that I had in mind when I was reading the book was what prompted you to write a popular book and how was that process written? Many papers. What was the sort of spark that said I need to get this out to a bigger, more diverse audience?
- [06:19]
A
I think I wanted to write a shorter version anyway because that was the published version of my review. The 651 pages long, the published version in Cambridge University Press published it as a independent book, not just the review. So of course I added some material on Population, which has always been something I've been interested in and not interested in. I think it's absolutely intrinsic essential parameter in any discourse on sustainability or whatever. And it's ignored in the literature. So I wanted to put all that together. But the review itself has an interesting history to me because it was written over nine months, 650 pages. You might wonder how even although I had a good team, but this was during the COVID period so there was some saving of time. I didn't have to come to London to the treasury we worked. My team worked independently of me, so to speak, in the occasional zoom meeting. But I had a huge amount of material I had accumulated over the years because I had a sort of a completely dim witted ambition of writing a colossal book. This kind of, you know, stupid thing idea that academics are prone to have from time to time. Thank God I didn't do it. But I had all these notes that I prepared which was sort of disconnected as it were. It was almost like keeping notes on thoughts that you have. But I had the book in mind but it wasn't going to be a book, it was just all over the place. But when I was asked to do the review I had all that material which I then it concentrated my mind and I put them together and it was done very quickly. As I say it was about eight months actually in which it was written. But largely because the material was in my PC, it's hard to convey the kind of ideas that I had which was I really wanted to bring together in something like an analytical treatise, analytically typed treaties with of course empirical data that will support the analysis of the way we go about our lives, but seen through somebody who's concerned with resource allocation which of course means that an economist lens. So it's. That's the entry into the subject so far as I was concerned and that's reflected in the review. And once that was done, after a while I was actually asked by the. By Penguin, the editor, one of the editors asked me whether I would like to write a briefer piece without annexes, without boxes, without mats. The review is quite technical and it has. I haven't avoided mathematics in it. There were annexes as well as boxes and so forth. So I thought that was interesting, it was worthwhile. The problem is for me, I really can't write for love to write for the general public. But I don't think I've got it in me somehow the other I have to dot the eyes and cross the T's and that can deflect attention because some of the best books I have read, at least the popular books, and they are usually in cosmology or particle physics, those characters write lots of popular books meant for sort of middle level readers who don't know the subject all that well. And I find them on the whole cheats. You think you understand, but you don't. Try and read a popular book on, you know, one of the many books on element particle physics, the latest description of the basics on which the universe is built, and you will think you have understood it, but of course you haven't. It's a way of skimming through and I wanted to avoid that. So I have a difficulty in writing for the general public because I sort of the academic in me, the teacher in me sneaks in all the time. So I can't tell whether this is a readable book, whether it's easy, relatively easy. It shouldn't be that easy because the subject is darn hard. On the other hand, there is one advantage. Any book on natural capital, I mean writer on natural capital has overwriting on particle physics or cosmology, which is it is really about us. And there is an affinity that each reader would have to the subject. It's sort of immediate. You go for a walk and you're faced with some aspects of my book or my book is addressing something that you see and you ask what's going on under the tree, at the bottom of the tree. And there's something in my book on that processes that are shaping the world around us. So there, you know, there is both an advantage and disadvantage in writing on this. I don't know if I pulled it off, I rather doubt it. But I think it's better than the review in the sense that it's easier to read, even though. And it's shorter.
- [11:59]
B
Yeah, well, I certainly enjoyed it. I mean it's, I think just sort of probing into the book a bit. The some of you were at LSC Environment week last week and what was interesting there, which we discussed before, is this kind of. There's a few major thrusts into this area. One is sort of innovation, clean energy, the kind of alpha in the book and sort of, you know, particular excitement about energy. And I guess the other which is very much bang on is the natural capital living system, so forth. And then the final one, which is also huge is how do we protect humans from the consequences adaptation, particularly in poorer countries. And I guess what I was wondering is for me, what the book did, is it sort of brought to light the nature side of the equation, as it were, the sense that you're beginning to look at what, you know, the regenerative capacity of nature. So I guess one sort of initial question is, you know, people say, well, we're just waiting for the machine to pull carbon out of the air. And the reason I was kind of probing that direction is if you take the Stern Review, which was climate change, that's probably been the clarion call of the environmental movement, is climate change. It's coming, it's present, we need to do something about it. But when I was reading your book, I sort of felt like there was something much bigger there, something much more complex. But how do you see that relationship between natural capital and climate change?
- [13:39]
A
Oh, right, right. Well, climate change, of course, is just a manifestation of a process, one of the processes, one of the zillions and zillions of processes that Mother Nature is engaged in. It's an important one, obviously from the human point of view as well as for all living specimens. But there are many others processes. Soil regeneration is a process which is totally important. And there are many, many others. Cleansing of water, motorcycle and so forth. Now, I think in many ways, so you've asked me a very deep question. It's easy to overlook it. I think the climate change literature has in some sense been unfortunate. It has diverted attention away from a far vaster enterprise that the human economy is engaged in. And it's been unfortunate also because there at the back of your mind is the thought which is exploited in the climate economics literature, that there is a technical fix to it, move to clean energy. And so it's a substitution issue. Very convenient terminology amongst economists. And to an extent, of course, you do substitute across resources, even from ecosystems, that's for sure. But what the climate economics literature missed, and I think very unfortunately, is that it's only one process at work, namely the climate system, and that it carries with it so much else because it's embedded in a nature which is an extremely exquisite impenetrable of processes that just because it's impenetrable doesn't mean you can't model it and do that and get it, you thought around it. And I think that's been a mistake and it's related to something much more important. I think the last 70 years has been in many ways a very interesting. Is it now 70? Is it now? No, it's more than 70, 19, 50, let's say, just as a marker, the post war period. If you look at economic statistics, gdp, global GDP at the global level, global GDP you name it, they're all showing you a huge outburst from about 1950 onwards. This last, this post war period has been unprecedented. Global GDP has increased by a factor of 15 in this period. And you trace it back, look at economic data back 2000 years and you will find mostly subject to fluctuations obviously, but broadly speaking, constant. There were, of course, there was a Black Death and so forth. But if you even out globally, you would find that per capita GDP remained more or less constant and of course very low people who are very poor globally, I mean, global average. And it took off about 1500 and 1750 and more, but the dramatic rise has been since about 1950. Now, I think there is something that we social scientists ought to recognize, which is it's easy to be fooled by recent statistics, the recent experience into thinking that's the norm. And I think we have in many ways been spoiled by the success we have experienced, enjoyed in the post war period. But that success, and if I pulled this off in my book, then I would have succeeded. But that success is in fact in some ways an illusion because the underbelly of this success has been the mining of Mother Nature, which is not reflected in the statistics we look at. When we think of the success of the human enterprise. We look at life expectancy, we look at literacy rate, we look at income per capita, and all of them have been shooting up and we think, and of course they are marvelous things, something to be very pleased about, proud of and great human achievement, thinking of how people had lived all these centuries. And it's been an extraordinary period. But the underbelly of it is the mining. Now, in many ways the simple model that we economists use in undergraduate lectures, actually, if you want to, works very well for the entire biosphere. You can think of a small fishery, a lake fishery, and it's a stock of fish and has a regenerative rate. Fish die and new fish, they're replaced. And if left alone, there will be something like a subject to fluctuations, randomness and so forth, a stationary stock of fish, the carrying capacity of the fishery. We come in, humans come in and tap. And if the rate at which you we harvest exceeds the rate of regeneration, and of course the stock declines. But that's all right because there's quite a bit you can do. You can settle down at a place where you reap as much, harvest as much as it reproduces, and it will. And that's. That kind of study has been done many times by economists. You can have a state station, steady state, where you are actually picking up exactly the regeneration rate and you've got fish to eat on an annual basis. But if the rate at which you harvest exceeds, then of course the stock declines. And that model is useful here because the statistics that we national accountants produce for us don't pick up that we look at the output side of things, gdp, for example. Now gdp, of course, is the, the market value of the final products that an economy produces. And because it's gross domestic product, it doesn't deduct the depreciation of capital and it's the depreciation. When you look for the depreciation of capital, you're looking at the underbelly, the source of the output. And basically my book was an attempt at rebuild debating economics in the language of the supply side, the basis on which the economy rests. Our vocabulary, the vocabulary of economics is about the output side, what comes out. And if you want to understand the processes, if you want to understand what's running it, then you have to look at the stocks on the basis of which the output is created. And that's where the ecology comes in. And I think, to come back to the first question that you asked, my friendship with ecologists was very helpful in making me see that. Now when I say it sounds absolutely obvious, goes without saying, but it's the dotting of the I's and crossing of the t's, which takes time. In my case, since I'm slow, it's taking me several years. But that's the, the basis of. I think we economists ought to be studying the basis on which the economy, the foundations of an economy, we look at the output, what is achieved on the foundations. I don't know if I'm making myself, but if you think of it, GDP will be telling you about what comes out of the system. But what is going on underneath it is what's, what's allowing us to have that output is missed.
- [21:43]
B
But I guess just to kind of follow on from that, the difficulty, I think the difficulty in some of that, in the impact inequality is how do you measure the regenerative capacity? And maybe if we could just for people here just to sort of. Because obviously we understand the economics on the other side, but that side is a bit more nebulous.
- [22:08]
A
So let me, let me try and get back to the remarks that I've been making are directed at the idea that we ought to be looking at stocks, not so much as flows, because the stocks of assets are the things which are. Yeah, okay. In this case, of course, stocks are natural capital rather than produced capital. And we economists talk about it, produce capital, human capital and ideas, which is sort of, which is also stock. Production of ideas will be output, but stock of knowledge is a stock. So we economic models are comfortable about this three way partitioning of stocks of assets. This book is about the fourth category of stocks, which is natural capital. Now the, the model that I was talking about mentioning, that of a fishery, suppose we just play with it for a bit and you can see how we can articulate the human economy's activities in terms of what it does to the biosphere. So if you think of the biosphere as a renewable resource, like a fishery, it's churning out services and goods, all the provisioning goods that we see, timber, water, food and so forth, cleaner air, all the recycling that is being done by nature. If you think of that as a service that's provided, and you look at the production of these services and goods, goods and services, lay that aside. And we then ask, how much of this are we harvesting for ourselves? Keep the fisheries model in mind. The former was the regenerative rate, the rate at which timber, water, cleansing and so forth are being provided by nature free of charge. The other side is what we take from it, like in harvesting of the fishery. Now, what we take from it, how do we measure that? One way of doing that is to ask. Well, at the end of the day, what we observe is our final products that we create. But the final products can be traced to what we take from nature just by decomposing. This table has so much of this, so much of that, so much of that, and so much of natural capital. Then all the other aspects, those other objects which are not natural capital, you can again decompose. And finally you come back to natural capital. It's not quite like the labor theory of value, it's not like that. But you can nevertheless come back to the natural capital component of all the manufactured commodities that we enjoy. Okay, now the output is of course the gdp. That's one way of measuring it. And there's a lot of output which is missed. But that doesn't matter because you could make a correction to GDP to see how much what human activity involves in terms of the produced commodities. The next step is to ask, well, suppose this is our human activities leading to so much of final products. How much of nature's goods go into this production of these final products? There are ways of trying to estimate that. And so from looking at the final product, if you infer how much of natural nature's goods and services have gone into it, and then you ask whether the amount that's gone into it exceeds or is less than the rate at which Mother Nature is regenerating herself. We have exactly the kind of demand and supply that economists like to have. So if we're taking more out of nature, which is reflected in the output of goods and services that we are enjoying, than the nature is able to supply, then we are tarnishing her. And that's what, what we mean by dead zones, that's what we mean by leached coral reefs, that's what we mean by exhausted water supplies and so forth, or deforested landscapes. Of course there's a huge aggregation problem here goes out saying, but that's all right in principle. Economists long ago had a grammar for organizing this aggregation exercise. So that's not new economics. The nuts and bolts of it is hard work, but it's been going on for a long time and we try. So the problem arises, valuing the goods and services which we are using up because many of them don't have markets. Okay? So the trick is to try and find the value of something which doesn't have a value in the market. And of course here this trick is all pervasive because that's one of the calling cards of natural capital. Much of natural capital doesn't have markets. The atmosphere is a sink for our pollution doesn't have a market. The oceans don't have a market. And yet without them we are finished. We use the oceans, for example, I was sending it in my email to you. I suggested that currently the volume of traffic on the oceans amounts to something like $2 trillion a year on merchandise that are shipped across the seas. But we don't pay, we don't pay for the use of the oceans. That is because it's a free good, it's an open access resource. Now, 2 trillion, can you imagine if you put a 5% tax on it? I mean you would have a hundred billion dollar revenue which would of course also dampen the use of the oceans because we're not paying a price for it. So in some sense the message is very straightforward. Pay for what you consume. The New York Times had a parody on me some few years ago and it summed up the entire review in one sentence. And I think he did it very well. It was correct, said pay for what you consume. And the source of our problem is that we don't, because we don't have necessarily a mechanism for many of the things that we consume for payment because there is no recipient, nobody who is charging. But that's not always a problem in local authorities, after all, are charged for the usage through taxation. So it's a matter of governance here, of a very tall order. Goes without saying, but we haven't really got to grips with these issues. And one of the things I was trying to do, the thing I've been trying to do in my writings, is to bring nature into the open as an asset, as an economic asset, that we should discuss and see how to put the institutions right. If you read the Economist, which I do every week, it's a great newspaper, goes without saying, but it has a very, very uneasy relationship with nature. It's very embarrassed. It can handle examples. Of course, there'll be a page on something going wrong, but it doesn't quite know what to do about it in the way it can do on financial markets or many other things. So I don't think I'm overstretching the point that I think our education as social scientists and economists in particular has been such that we're ginger about thinking of this stock in a way we are not. When we talk about buildings, roads and so forth, we are quite comfortable. Even though they don't have necessarily prices. The road doesn't have price. Well, it's for the local authorities, like the local roads, so the national government to extend the highways and so forth. We're comfortable about that. We're not comfortable about what to do with coral reefs or the bats who reside in a local, clear, dense undergrowth near our home. That's where we are uncomfortable. And I think in many ways.
- [30:26]
B
At.
- [30:26]
A
Least around where I live in Cambridge, some of the most insidious moves are being made, which is at each stage of development, it's always a marginal one, an extra housing here, and that destroys a bat family, Let us say, well, development trumps that marginal case. But if it keeps on trumping at each marginal case, then of course you have a denuded nature and biodiversity laws that. So I think one needs to be careful about this in the sense that the market is not going to give you the countervailing argument because many of these objects don't have prices. So we have to be careful as citizens to try and come up with, recognize that it's. Of course we do need development, but there are. That's the easy one. The hard one is to say, well, maybe it'll cost a little more if you divert the road, but is that not an idea? Instead of ruining an ancient orchard, which is one of the things that's happening in Cambridge just at the Moment, because at the margin you might say, well, what does it matter? Yet one acre are lost. But gradually you keep on doing that. You wouldn't have any orchard left. Now, that's a very small beer. But in a way that's what's happening right to the world. And of course, the extreme examples will be the terrible mining that takes place in, say in the Brazilian rainforest. And fracturing ecosystems is very harmful in the sense that the productivity of the fractured ecosystem is far lower than the unfractured ecosystem. That's one of the insights that ecologists, one of the rules of ecology that I've learned from their writings. So it's. We need to understand the factory that is generating these goods and services. In a way we understand factory, which turns out motor vehicles or steel or food processing plants, but we don't.
- [32:44]
B
I guess the thing that kept coming back to me when I was reading the book is absolutely bringing that to light. But how does one know that you're reaching the point where this is really breaking down and human welfare is going to decline? How do we know when we're hitting the point where human welfare is sort of being impacted enough that they want to take action on these things? Because clearly the measurement, you know, the Planetary Limit staff is suggesting on all sorts of dimensions stuff is going on. But in general, if you speak to people in any country, pretty much the point about living standards continuing to rise is the preeminent jobs, et cetera. So where do you think we are basically in terms of that interaction? Because that's the thing that would bring mass action. I mean, climate change in many ways did that right, because it was. You can see the heating. People are getting worried about that, deaths that can be attributed to it. Where do we see that in more than the natural capital space happening?
- [33:53]
A
I think my way of thinking, the right way to think about it is not to look at global statistics, but rather to look at regions, even ecosystems. And if you talk to indigenous people, which I have correspondence since after my review was published, indigenous populations in Alaska, in Brazilian rainforests, I think they will give you a picture of what can go wrong. Their lives are shattered, their culture is shattered through the development process. Now you might. Numerically, they don't amount to hell of beings numerically in terms of. But they are a symptom. And the other symptom would be from economic history. Societies have gone under, communities have gone under, they've gone under in. And they continue to go under. And of course in South Asia, in Africa, and they're written about but they don't hit the newspapers. I get them a lot. Because somehow or the other problems that occur over groups who have been evicted from their land because the landscape has deteriorated to the point they cannot survive there, the natural reaction for us urbanized would be they should migrate, but that's the cost. And most important, suppose they don't want to. And so I think there is a clash of cultures here as well. But the cause of this migration, forced migration, if you like, is of course, natural capital degradation, local natural capital degradation. And that to us, as we go about our daily lives, doesn't matter very much because we don't see that happening. One of the things we forget is that economics was developed in essentially in England, it's an English subject, if you like, and then of course, went to the States. But it's been built on an idea of societies which have essentially outsourced their need for biodiversity and natural capital that comes from elsewhere, from the tropics. The raw materials and primary products on the basis of which our economies rest come very largely from the tropics. A substantial proportion comes from the tropics. We've outsourced that. And we don't necessarily see what's going on there and the conditions of life. So I think these social issues are a part of what I'm trying to do in my book. At the end of the day, the issue isn't what we should. I don't have any prescription in my book. There's no finger wagging for the reason I don't know how to wag the finger or at what. But it is important to have the grammar right. And I don't think our economics as a discipline had the right grammar. It's not a fault of economics, it's been the fault of the economist, because nature has not been part of the fabric of economic material in the subject that has developed. And you won't find it in Smith, you won't find it in Ricardo. Ricardo had land, but land was of different grades, so you moved to inferior land as you went to marginal and marginal land. But land was indestructible in Ricardo. And that model has shaped so much of our modern economics. But of course it's gone beyond that by saying, well, land doesn't really matter because ideas and physical capital will swamp the importance of land in the production process. And in some sense, over the last 70, 80 years or 100 years, we've seen that happening. And I think it is useful to pause and see how much of our understanding of such a complex system as the human economy in nature can be learned and understood with such a tiny period of evidence, the evidence from such a short period of hundred years, 200 years or so. And I think we are in danger of having been seduced into thinking that the last 70 years is the, the norm or the new norm. Or we could go on the past if economic history doesn't seem to suggest that is wise and the history of communities which have gone under shows that it is wrong.
- [38:51]
B
Yeah, I mean, I think just, I guess for me, I mean, I started doing ecology and biology and then moved to economics. I completely agree that the capture of natural capital in economics has been weak, but I think that is changing very, very quickly. And so I guess I was struck by a couple of things in the book. And we're not going to talk about solutions to everything, but one interesting sort of departure I would say that you have in the book is the emphasis on population. And I think it's interesting to kind of explore that because I was doing some graphing of stuff and clearly you're absolutely right. The population of Asia is falling. The population of Africa is rising very quickly and by the end of the century it's going to be about 40% of humanity. And that's exactly where at the moment damages not just from climate change, but all forms are highest. So explain to me a little bit why you, you know, I think rightly have focused so heavily on population.
- [39:58]
A
Well, so the coming back to the demand and supply model that I was talking about, I mentioned what we take from nature and the rate at which nature can replenish herself, that that model, then on the left hand side we're looking at what we take from nature and that depends on that's reflected in what is reflected in the output space. So if you look at global GDP as a measure of our human activity and you translate that, as I was mentioning earlier, to what we are taking out in order to be able to meet that global gdp, if that exceeds the regeneration rate, we have a declining biosphere, okay? So it's important if you want to bring that into sustainable development, if that means anything, must mean something like a balance between what we take from nature and what the way, the extent to which it can regenerate itself. Equality between the two must be a necessary condition for sustainability. Otherwise you're eating into it and it's declining and eventually there'll be collapse, as happens in small cases, small ecosystems, you do collapse. Now the GDP is of course the product of population and the standard of living. If you like, and what we take out from nature is GDP divided by the efficiency with which we are using nature's goods and services to produce that gdp. That's pretty straightforward. All right, so GDP has to appear in part of our demand of nature. So, so basically we're converting GDP into nature's goods and services by looking at the efficiency with which we convert nature's goods and services into gdp. Now, there's plenty of estimates of that. So population enters because it's one of the components factors in gdp. Global gdp, global population size multiplied by per capita gdp. It's. That's a tautology. So that's where the conflict between standard living and numbers come in. Because if the two together make for the demand side, subject to the efficiency with which we are taking goods and services and converting it to gdp, then population enters directly into our demand side. That's why it's extremely important to take population seriously. Now, again, what's happened is that the. In my way of looking at it, in my book, I actually have a. I scold the Economist, which for its very dismissive views on Malthus, is that Malthus got it wrong, sure, but that's not the issue. What he was talking about deep down was essentially a comparison between what we take from nature, the imbalance between demand and supply of nature's goods and services. He thought that the only way it equilibrates is population going up and down and keeping everybody in poverty. And that's why he's dismissed as irrelevant by so many people. But the issue he was raising is exactly what my book is about and what any ecologist would say we should be thinking about, which is the demand and supply that we make. And numbers, human numbers, of course, enters into it. So the demand that we make will be human numbers, standard living, and the technologies and the institutions we have which facilitates the deployment of nature's goods and services into the final products that make for gdp. Those are the three things. Now, if you concentrate only on the third and think that institutions send ideas, technology, cleverness will come to the rescue no matter what, then of course you can say, yes, we can have more human numbers and our standard of living because we can become cleverer and cleverer in terms of the use, use of nature's products, either through ideas or institutional reforms and so forth. Now take that further and say, well, all right, we can go on having improvements in our. We can have new ideas, institutional reforms, which make it more efficient, more and more efficient to take nature's goods and services and convert into, into gdp. Let's say, all right, final products. So GDP can rise, we say, if we become more and more efficient. Remember the right hand side. But supply is finite because the earth is finite. But we say that doesn't matter. If we're clever enough in choosing our institutions correctly and become more and more efficient of how much we take from, we can keep on increasing our gdp. Okay, question is, can that be done indefinitely? And when I say indefinitely, of course I mean over the long haul as to whether it'll pinch. Because you can say, well, you know, we become more and more efficient in doing it because we learn more and more, find new ways of transforming goods and services, nature's goods and services, into our culture. But remember, this learning also requires resources. It doesn't come free. It's not as though you go to sleep one night and having a dream and tomorrow you have you fixed it. You require material goods and services, labs and ideas to be able to carry out this enterprise. So the question is, can you what at the margin, as your ideas go on exploding, making you more and more efficient in using nature's goods and services at the margin, does it require vanishingly small resources in order to have the ideas? So if you say yes, it does, then you're saying that in the limit you would have escaped the earth because you'll have negligible need for goods and services to have more and more ideas. As ideas go, that's a theorem. And I was really proud when I got realized that that's what in effect people are saying when they say, well, look, there is no end to the ideas we can have. And so therefore we can have growing GDP at a finite base because we'd be more and more and more efficient in transforming the finite base into final products. The logic of that really means that at the margin we will not need any resources in order to be able to produce ideas. At the margin.
- [46:36]
B
So what is your. I mean, one thing you hear a huge amount about which is very related is technological innovation. And probably the thing that we hear the most about is what's happening with solar and wind and EVs in China and how that's going to spread across the world and decarbonize everything. But of course that's not the same thing as fixing natural capital, but many people, or we're going to get a machine that will pull out carbon from the atmosphere. So it's all carbon stuff.
- [47:09]
A
Yeah, this is.
- [47:10]
B
So how do you view that? Because that is something you hear a lot, that we're just going to wait for Innovation to fix the carbon problem through innovation diffusion or carbon capture. And then we can go on doing all the things that we're doing. And that's a view that I hear a lot around.
- [47:30]
A
Indeed. But if only you stick to the carbon problem, the energy source, then you do have that viewpoint. But that viewpoint is sort of not working for me. At least that's what I've been trying to say here. When you move to other processes. Now, I did say the idea of indefinite technological progress is not on because of the resource required for it. But then you might say, how long is the long run? This is an asymptotic result. But then who cares about the asymptote? The problem is that we currently, and we haven't discussed this yet, is that currently the estimates of what we take from nature in terms of the demands we make and nature's ability to supply on a sustainable basis, the ratio of the demand and that sustainable supply is far greater than 1 current estimates. And they're, you know, ballpark figures, but they're, they're not all the figures that I've seen estimates. They're all in the range of 1.5, 1.6, 1.7 and so forth. So we are already mining nature. That's the bottom line. It's shown in. It's reflected in dead zones, it's reflected in coral bleaches and so forth. Those are the anecdotes that we read about in the newspapers. But the hard science of it is that we are actually mining nature in a big way. The ratio is greater than 1 demand supply. So I come back to this model of the fishery. Remember I told you I'd be using it relentlessly. I'm still on it in the sense that that model allows us to look at the biosphere in a simple form in terms of what we take out and what the biosphere can regenerate. On a basis, the ratio is about 1.7 now, 1.6, 1.7 now that's not sustainable. And that's a first clear sign that if nothing else, we're overdoing it. That's globally. On top of that, of course, there is another class of evidence which ecologists point out is species extinction, which is about a thousand to a million times the rate of species extinction. I mean, currently in the last hundred years or so is about thousand times higher than the background rate that is the last million years or so. So there are many ways of getting into it. I haven't really thought about the species extinction side of things, largely because that's something that I can't. I haven't really understood the ways in which it's measured. It's done through insects. Population is, of course, a great source of that literature, the data, but I don't know it well enough to be able to be confident in saying other than what they're saying. But on estimates of what we take out to what the nature is supplying, that ratio is, I do understand how it's done, and it's about 1.7. That's not sustainable. So that's one way, another way of saying that we are overdoing it. And of course, we have studies of communities overdoing it. If you read Jared Diamond's collapse, which came out some 20 years ago, that was a historical tract of communities, societies going under over the past 2000 years or so due to resource exhaustion, usually water exhaustion and soil degradation. Migration was a possibility and was very commonplace in the past. But the migration wasn't costly, costless. People didn't welcome the migrants, so there were warfare and so forth. So that's another side of the story. But the idea that communities don't run out of resources, that's false. It's a very recent picture. We have painted over the experience that we have had in the west in particular in recent years. But again, we should keep in mind that we in the west depend on the biodiversity and primary products of the poorer parts of the world. So it's easy to overlook the excess demand that we are making because we don't see what's happening in the ecosystems from which we are drawing the commodities that we consume.
- [52:03]
B
Yeah. Before we turn to the audience, I've become one of the advisors to the COP30 president, which is now in Brazil. And I guess my question for you is what are the areas of credible hope? I completely agree that natural capital has been ignored relative to climate change. But what are the areas where you think there's credible hope that some improvement can be made? I mean, not just broadly, because I think that's an important question. Do we need more research? But what are the areas where you see some sort of path to improve things relative to the situation we're in today?
- [52:48]
A
Well, remember, I'm not an ecologist, I'm an economist. So what I would be advising them is over policies, tax policies, so forth. So one of the things I would do is, of course, a tax policy over the oceans. It's a cop, after all, it's a conference of nations, conferences, parties, and the parties are nations. So I think, yes, the, the message I would have is that there's an awful lot of open access resources out there. And that's very. They are fundamental. They are supplying us with the basic raw materials on which our economies depend. And there's not just the oceans on the surface, but you know, I was talking about transport, but also the mining that's going on. They're not paying for the right to mine, they're paying for the drilling. Yes, but that's the private cost. But the fact is perturbing a hugely important ecosystem is not picked up in the financial calculation. So I think, yes, I would say that should start from basically economics 101. You look at the assets that we have, the global assets, and ask how many of them have institutions backing them for preserve, protecting them from being destroyed. And I think we work backwards from that to see what needs to be done. I don't see any evidence people are looking at it that way. The discussions are all over commodity supplies, energy supplies, and of course climate change. But I think climate change has really, in some ways, of course it's terrifically important without saying, but I think it has really deflected our attention from a far wider class of issues which are connected to climate change. But we think it's an isolated one. And I think one reason the economists have picked up on climate change is that it's in some sense it looks as though, but it's a wrong. It's your mistake for us to think with them is that there's a quick fix. The fix is to move to clean energy. If you do that, all this, we can go on living the way we have done because you go to cheap energy and then it's a sort of technological solution to a problem of indefinite growth of output. And what I've been trying to do this last hour is to argue that, to show that if you look at the basis on which our final products are manufactured, then the story looks very different. That's the underbelly. And we keep on forgetting to look at the underbelly of what it is that leads to the output which we see. And our national statistics are not doing us any favor because they are not supplying us with data on the stocks on which are all the things that we observe are created. So we have flow accounts, GDP and so forth, investment, consumption, but not the evolution of stocks of assets. And I think we ought to. Economics is really concerned with asset management. I know that sounds like financiers worry about asset management, but economics as a subject is about asset management. It's the stocks that Matter. Remember the Adam Smith's book was called the wealth of Nations. Wealth is a stock. It's so many dollars, period, whereas GDP is a flow, so many dollars per year. And it's the stock, the value, which really matters. The rest is sort of epiphenomenon. And the stocks that I'm concerned with here, and you are this, this evening is natural capital, because that's the one which gets. Except as footnotes. The Economist is a very good example of how economics is discussed because there's always. Each issue will have something on natural capital, but it'll be one page and it'll be an anecdote. And something may have gone wrong, but has been fixed or hasn't been fixed or should be fixed. But these anecdotes suggest that they're all marginal cases. And that's, I think, where the error lies. We really need to put nature central to the human economy.
- [57:11]
B
Fantastic. So the way we're going to operate is people put their hands up and then just say who you are a little bit and then we'll take groups of questions. So maybe let's start at the top because you tend to be the girl there. Thanks.
- [57:31]
A
Hi, I'm interrupting this event to tell you about another awesome LSE podcast that we think you'd enjoy. LSE IQ asks social scientists and other experts to answer one intelligent question like why do people believe in conspiracy theories? Or can we afford the super rich? Come check us out. Just search for lseiq wherever you get your podcasts. Now back to the event. Professor Duzgupta. Thank you. My name is Nia Simeonova and I am a reporter for Dow Jones covering carbon and biodiversity. So my question is, to what extent do you think biodiversity credits are a good way to incentivize companies to invest in projects and achieve their ESG goals. Goals, but invest specifically in projects that restore and preserve biodiversity according to a specific set of metrics for each unique ecosystem. Like for example. I guess this is a different example, but the biodiversity net gain here in the uk. But the broader question is to what extent do you think biodiversity credits are a good way to. Well, to solve this. Translating the question I didn't quite capture.
- [58:52]
B
About basically whether biodiversity credits are a good idea.
- [58:57]
A
Ah, okay.
- [58:58]
B
So I think let's do group them because there's lots of questions, if you don't mind. Sorry, we're going to have a group for three.
- [59:04]
A
Sure, of course.
- [59:04]
B
So there was one gentleman there.
- [59:08]
A
Thank you very much.
- [59:09]
B
I will come back to people.
- [59:12]
A
My name is Bilal Mohan. I'M an economist. Something's always made me uncomfortable about the phrase nature is how nebulous it is and how many things it sort of encompasses. Right. And when you sort of, as an economist approach capital accounting, you have sort of a division of human capital and then in your framework, natural capital. But that's quite, in my opinion, a bit of an unusual dichotomy because humans do form part of this natural system as a resource. Right. So do you not feel that's a bit of an arbitrary distinction insofar as how do we account for the fact that A, we are natural beings, but B, sort of the resources that go into producing human labor are also the same resources that go into natural capital? And hence would that not sort of make most of our capital accounting just a form of natural capital accounting to begin with? Have you taken that down? Yeah, I estimate Andrew Ross from Global Garden Assets under management. The insurers control $23 trillion of assets under management and the bond market turns over 100 trillion. Why is it so difficult to develop a natural capital bond for them? Because they need to insure all the world's corporates and they can't do it. Who owns the problem?
- [60:34]
B
Okay, so do you want to go with those?
- [60:36]
A
Well, working backwards, I think one problem is that so much of natural capital is not owned by anybody and that really causes a problem. I mean, I was using the oceans as just one example. I think that's one of the problems. I mean, that is a problem. And ownership concentrates the mind, as it were, over the asset in question. And if it's not, then this part of it is very econ one, so to speak. If an asset is not owned, then it's likely to be ruptured. It's the ways in which it's ruptured and the scale at which it's happening is what I think I tried to convey to you today. Not the fact that there is a problem if there's no ownership. Now what are the other two questions?
- [61:27]
B
One person, the distinction, correct me if I'm wrong, the distinction between natural and capital accounting. Sorry, the distinction between natural and capital accounting. Yeah.
- [61:40]
A
Oh, right, right. I'm not sure about the tension. There is human capital assessments, of course. There's been going on for quite number of decades. Methods have been developed to create the human capital that's embodied in us. But the natural capital accounts would be. There are stock. You might want to ask what a wetland is worth then. Okay, so the questions you've asked is really important in one way. The earlier Literature on natural capital was characteristically came from the United States. And they looked at amenities, beaches, public parks. And so the valuation exercises were based, built on willingness to pay. You ask citizens, how much would you willing to pay for the preservation? That's one class. Another would be for places of scenic beauty, travel cost, how much are people paying? So you try and elicit the value people impute to these goods. The kind of what I've been trying to develop here this evening was away from that picture of amenities to the entire productive base of economies. These are not just immediacies. They're absolutely essential for survival, soil preservation, conservation and so forth. It's not an immediacy in the sense that people aren't going there to look, look at the soil and enjoy the beauty of an acre of soil is to do it with their worms there or what the biota looks like. So for that reason, it's important to look at the productive side of nature as opposed to the immediate value that we may draw from nature. And that's not coming quite to your question, because the human capital has to do much with the productivity of the individual and of the human person. And that's maybe related, but it's not anywhere near to the valuation of a coral reef or a patch of forest. So, yes, human capital is very different from natural capital. The reason why one of the things we were concerned, your question arises because we have models of economics in which we look at labor and capital, let's say producing goods and services and manufactured capital usually. But what does labor mean? It's not just human numbers, but the productivity of the human person. And one of the innovations of the 1950s and 60s in economics was to say, well, let's try and see how to decompose, deconstruct the productivity of your person. It's not just muscle, it's to do with brains and skills and so forth. And how do you measure that? Because you will still want to have human capital as a factor of production. So that's what. That's how the literature went. But these models do not have natural capital. And this one is about natural capital. Now, there was one on biodiversity.
- [64:43]
B
Yeah. So the one on biodiversity. But if we also bring in sort.
- [64:47]
A
Of markets for credits and qualities, I think it's a very good question, largely because I wouldn't be able to answer it. Well, and the reason I won't is that I'm slightly inexpert on the link of ways to estimate biodiversity. Now, what in my book I've done is to, I Have read quite a bit on the subject, subject and of course I've discussed it with ecologists. It's not an easy thing to talk about biodiversity. It's a catchphrase. And the catch doesn't mean that I'm debunking it. It's a very good idea. But the idea here underlying it is if you just ignore the value of living organisms just for the sake of argument, just for the. Then you might ask what is the value of biodiversity? If you just for the moment set aside the value of living organisms and there is a literature, the idea really is that the productivity of ecosystems is affected by the extent to which there is diversity of species in the ecosystem, functional species. It's not just the headcount of species, but the types. It's almost like an ecosystem, systems functioning is influenced by the mixture of living organisms living there. So it's like almost like a factory churning out goods and services again as ecosystems do. But the factors there are would be of course the material, the non, non living material, but also the living material, the bugs, the snails, the biota. Okay, now how do you measure biodiversity? This headcount is not going to be what you're looking for is the productivity. And one of the thoughts there has been is not to look for biodiversity, but to look at the spatial scope of ecosystems. And of course it's again, an acre of temperate forest is different from an acre of desert, that's different from an acre of wetlands in the tropics and so forth. So correcting from those differences, what you are looking for is some measure of productivity of ecosystems in which of course biodiversity does play a role because they are working in tandem to produce, say, energy flows, to produce cleaning of the natural pension process and so forth. So the biodiversity is important for that purpose. And it doesn't help to look for biodiversity. That's because you don't know where the critters are. Many of them are unobservable anyway. Think of what's there in the soil. A spoonful of soil will have zillions of organisms in it, microscopic organisms. So biodiversity, you don't actually observe biodiversity, you look at the result of biodiversity. That's the way I want to put it. Yeah, that's right. You look at the productivity of ecosystem and you say, well look, this ecosystem is healthy because it's got the complementary sets of species there working in harness with the non living material to generate the health. It's working backwards, so to speak, rather than forwards. By saying let's look for biodiversity, you won't know what to look for. I've gone into it in my book quite a bit on this. Thank you for asking.
- [68:19]
B
So I think could we have one or two, maybe one. So many hands? Online question.
- [68:27]
A
We have an online question from Mohammad Salim Shai who is asking how can developing countries balance the urgent need for economic growth and poverty reduction with the preservation and sustainable use of their natural capital, which is often exploited by wealthier nations and multinational corporations. And Alison Rousseau is asking, having recognized the value of natural capital in economic theory, how could ecological tipping points be factored into the equation?
- [68:56]
B
Excellent. Okay, so what I suggest we do, given the number of hands, is maybe collect three more. So there was a woman here and then there was a gentleman there. That's two. But let's hear first.
- [69:11]
A
Hi, my name is Ellie Price. I'm an economist. In the instruction to your book, you say it's better to be approximately right than precisely wrong. You've also quoted some numbers around 1.7. For example, in terms of environmental overreach, to what extent are data gaps the binding constraint to solving these problems?
- [69:29]
B
To what extent are data gaps and issue.
- [69:32]
A
To what extent are data gaps binding constraint to solving that gap? That's gaps in the available data or statistics to analyze these problems. To what extent are these absences of data a binding constraint?
- [69:45]
B
Binding constraint. Great. Okay, then there was gentleman. Just, just. No, no, no, sorry. Yeah. And then here in the middle, that's the third one.
- [69:56]
A
Okay, yeah, thank you. Professor, my question was as a consequence of your argument, even if, let's say global production shifts to a function of production that does account for the. That doesn't produce an excess demand on nature, would still global production require to go through a necessary period of degrowth in order for us to achieve long term sustainability? Or is the growth not a necessary stage for us to reach sustainability?
- [70:34]
B
Okay, so I think these are fantastic questions, but maybe just one more here. Have you got the mic? Okay.
- [70:41]
A
Hi, I had a question regarding the wealth of the countries. Now that we incorporated natural capital as one of the assets of that they may have. How can the perception of this wealth change under this framework? Not to translate this.
- [70:57]
B
Sorry, did you just. I didn't like.
- [70:59]
A
How does the wealth of countries may change now that we include the natural capital as one of their assets?
- [71:06]
B
I guess, yeah. How does the wealth of nations change if you incorporate natural capital into that into. Into the. Into the measure of wealth? Right, so the inclusive. Oh yes, but maybe that's a lot of questions.
- [71:19]
A
Yes, let me try since I've Just heard the last one. Let me get that and work back. Yeah, okay, that makes sense. Very good question. The so we have tried to do that. What we've tried to do is to estimate. There is a paper that can arrow and myself and the three other wrote some years ago trying to disappoint. Incredibly crude. And I'll come back to the question that was raised about the quality of data in a minute. It's very frustrating doing this exercise because the data weren't available. But be that as it may, we tried to do that and trying to estimate the wealth of nations by looking at precisely measuring natural capital and then adding it to human capital and produce capital. So we have three way category of. Of capital assets and we did that and that's been published. So I can give you the reference to that paper if you like the question that probably is in your minds but nobody has asked it yet. But I'm long term professor so I do sort of anticipate what might be going through your head. What about cultural capital? What about social capital? What about religious capital? Institutional capital? Let's call it. How come that's not in this. In this classification And I think this classification among my. My own thoughts. I mean the way I see it is that it was a arbitrary decision to stick to these three categories because they are tangible, human, natural and produce capital. These are tangible. Now the intangible capital assets like institutions get reflected through the prices pricing of the tangible ones. We call them shadow prices or accounting prices. So good institutions mean that the value of these capital assets is higher because more can be achieved with them. They're giving better value. That's the way we sorted that out. At least now I don't know the figures. I can't give you the figures about the inclusive wealth of nations but I can give you the source of the. And our idea was to try and see whether national accountants could move to wealth accounts as opposed to income accounts and wealth accounts because they were concerned with stocks. So I come back to this idea of reorganizing our understanding of the economic world by looking at the problems as stock adjustments or allocation of stocks of assets. And that would require of us to have data on this. Coming to the absence of data it's a very good. It's very data are there if you ask for it, there's not a demand for data. It won't be supplied. So if you think of what we now know, what there is in the natural world today as opposed to 50 years ago, there's a vast difference no question about it. Fifty years ago, I wouldn't be able to give anything like give you the examples that were in the back of my mind and some of which I shared with you here. It just wasn't there. And there will be more data forthcoming if we ask for it, and we can only ask for it if I. Nomic model models tell us that they are needed and the importance of having good models, models that are picking up the things that you think are important, the models are models should be driving data rather than the other way around. And I think my discussions in recent years with national accountants has been essentially to have a dialogue in which I express economic theory, theory to the accountants to see how they can translate it to the kinds of things they ought to be looking for. I don't know if that makes sense, but the expression that you used is. It's an old adage that it's better to be roughly right than precisely wrong. I don't know, it goes back to. I think I saw it in a essay by Pigou who attributed to somebody else, 1920s. I think it's right because we think put a zero value to something that's a precise number, but it's dead wrong if it turns out to be positive. We may not know how positive it is, it's 5 or 10 or 15 or 20, but we certainly know it's not zero. And that's the context in which your question arises, because natural capital is given value of zero in so much of our activities in our calculations, and that's precise, but it's dead wrong.
- [76:05]
B
Okay, There was online, I think there was one about how does one balance the need for poverty reduction with protection of the natural environment? Sorry, how does one, particularly in poorer countries, balance the need for poverty reduction?
- [76:24]
A
I think, yes, that's a very, very nice question, and I wouldn't be able to give you a satisfactory answer, but I think I'm very suspicious of governments in poor countries saying we can't afford to look after nature. I used to be told that regularly, by the way, by friends of mine who were the now senior people in government in India in particular, telling me, well, apartheid's all very well, but, you know, we need to develop. But yes, if the model doesn't have natural capital in this, then we are back to what we've been discussing all evening, that development means you don't worry about something which is vanishing under your. But the trade allows you, of course, to overdo something locally. If you can buy, pay for it from outside, that's one of the advantages of trade. The problem is that the price that is paid when an ecosystem goes under during the process of development is false. Is paid by some of the poorest people who have far less political voice. It's happening over and over again. You see the Chipko movement was one of the earliest in India in Madhya Pradesh where villages clung to the trees that were going to be harvested. That was a place called Chipko C H I P K O in Madhya Pradesh in India. This must be 30, 40 years ago, maybe even older. But that's. It's symptomatic of what's. What happens when natural capital is taken for development purposes. Now this is not to say you don't take it but it's a question of paying the price for it. Of course the poorest people who are. They don't have rights to the land in the sense of legal ownership properties so they can be displaced. This is happening over and over again. The letters I've received since my review was published from particularly from Brazil from indigenous population is just makes for appalling reading of how they're. Because they don't have the necessary legal documents of ownership so they can be kicked out and then the resources plundered there. So this is happening all the time. So there is a close connection at least in places which generate primary products and poverty. We tend to forget it because we think of the nation and the people we talk to are the people who are actually running the country. They haven't the faintest idea what's going on. My friends in Indian government have never actually visited a forest patch. At least the ones I know. And that's. That's a terrible thing given the fact that the. They're not very. They don't. They're not. They may be vocal but they're not listened to necessarily. They don't have political power. This is what now this is a byproduct of what we are discussing. Not so much. It's. It's not intrinsic to the problem of natural capital. It so happens so much of natural capital of every primary sort is housed in places which have indigenous populations or people who are poor. But they haven't really. And one reason that is the case is that it's still virgin territory and now we are moving in there. So it's. You know the story of let's say what happened with the Native Americans when Western societies moved in there was. Exactly. Is being replicated elsewhere too. But of course that's past history. But think of the encroachment of Their natural capital of immigrants who came in and took away the. So that's all history now, but it is replayed in smaller parts in many parts of the world now. But it's not intrinsic to natural capital. So I haven't discussed it. But since questions arose, the relationship between poverty and natural capital is a very striking one.
- [80:24]
B
So I guess one question that came, I think from the gentleman up here was this big question of degrowth. Is degrowth the answer? Do we have to pause growth in order to get the balance?
- [80:38]
A
No, I think I don't really think it helps to think. Think about de growth versus growth because ultimately growth in what. And what we've been discussing here really is that we should be clear as to what growth we're going for. And one of the questions was about wealth. And the analysis that I presented in my review came out of joint work with Karl Iran Mailer and then Ken Arrow and others in these published works was the idea that it is inclusive. Well, okay, I'll give you the theorem. The theorem goes as follows. You have to. Let's have you. Let's imagine you have a conception of intergenerational well being, today's well being, tomorrow's day afters and so forth, which is sort of bread and butter in intertemporal economics. Ramsay's work was. Frank Ramsey's work was concerned with that. So you have a conception like that doesn't have to be utilitarian, by the way. It could be anything. Whatever it is, you give it to me that it could be Buddhist or you name it, but some notion of well being of the human person across the generations. Now that well being is generated amongst other things by assets that communities hold, produce capital, natural capital, and so forth and so on. Now, the theorem goes as follows. There exists a measure of these inputs, these stocks of assets which are necessary for human well being. And that measure is called wealth at some prices. I'll come back to that in a minute. Such that if wealth goes up, then so does well being across the generations go up. And if well being across the generations goes up through some policy change or whatever, then wealth goes up. So there's a complete equivalence between the. Now, the reason it should not come as a great surprise to us because we use income as a measure of well being. And there is a deep theorem in the past which relates national income to social welfare goes back to Samuelson and Harrow and others. What I'm giving you now is the dynamic counterpart of that story, because that was the income and well being or social Welfare connection was obviously that of a steady state of a static economy. The dynamic version is, not surprisingly, has a stock element to it, which is wealth. So intergenerational well being and inclusive wealth, wealth computed with all the stocks that are relevant, including natural capital estimated at shadow prices, obviously will move in the same way, will move in tandem with intergenerational well being, and will move either through time as the economy unfolds. So if one is going up, the other is going up. If the other is going up, the one is going up, and if one is going down, the other is going down and so forth. It can happen through time or through changes of policies. Now, this latter expression, you might think, is sort of a throwaway remark, but it's not. When you choose an investment project, and I'm addressing the economists here, an investment project, and ask is it worthwhile from societal point of view, what you do is to look for something like a present discounted value of social profits of the project. Okay, if that's positive, you say that's a good thing. I mean, assuming you've got the prices right and so forth. Okay, if it's negative, you say no, but what is the present discounted value amount to? Remember, present discounted value is the sum of flows discounted, of course, at the social rate of discount, but the sum of flows is a stock. So when you estimate the present discounted value of a project, you're essentially asking yourself is equivalent to asking, what does this project do for. For wealth? Is wealth going up or down due to the project? If it's positive wealth goes up, it's contributing positively to the wealth. It's accumulating wealth, if you like. Okay, not accumulating over time, but reduced to today. When I estimate wealth, if I take this project and accept it, if it's good, it must mean that today's wealth will have increased from what it would otherwise be. So we've been doing wealth accounting without even noticing that we have been doing wealth accounting. We've been doing present discounted value of profit and telling the students about that and telling them how to estimate them and so forth and case studies. But that's wealth accounting. So the theory that I've just now given you is really comprehensive. It tells you that the way to look at public policy is through the lens of wealth. But what we are discussing here has largely been one component of wealth, namely natural capital, and that needs to be included. And the overarching idea is to think of public policy in terms of inclusive wealth, because that corresponds to Intergenerational welfare. I don't know if it's pretty obvious, isn't it, that it should be so great.
- [85:54]
B
So I think we're going to draw things to a close. I think just a couple of things. One is I think Parth has done an amazing service, not just in this book, but in the review and work to kind of bring natural capital into the light. And I think that that has been really needed because a lot of the study of environmental degradation has been largely outside of economics. I think bringing that into economics has been wonderful. The other thing which is noticeable, just kind of a mention, is that the interest in natural capital and in the environment, at least within the confines of the lsc, has been pretty staggering. So just an example, During COVID some PhD students in economics started looking at industrial environmental papers and there was two or three of them, there's now 26 of them and there's now a course in PhD environmental economics. Undergraduate environmental economics. We just have a new school of sustainability. So whether how far we'll get, we don't know. But I think the other key thing which relates to this area is just the amount of measurement. Going back to the question of data, just amount of things one can measure in the natural world relate to policy. So we actually have some outcomes to connect to policy.
- [87:18]
A
I can't resist, even though this was your concluding remarks, but we are in the academic environment so I can't resist taking up your points and taking a bit further. And in saying that yes, I think we should be thinking of policy as directed asked wealth, how do you increase the wealth? How do you assessment of policy should be based on wealth? And we don't do that. And I think I wanted to emphasize that we should do that largely because economic theory tells us that that's the right way. If you do economic theory correctly, that's the message that we have. It is wealth accounting that we should be concerned with.
- [88:01]
B
Fantastic. And then the main, most important message is there's copies of Partha's book outside on the tables outside and he's happy to sign them. And I wanted to kind of Join me in thanking Parthur for a wonderful conversation.
- [88:29]
A
Thank you for listening. You can subscribe to the LSE Events podcast on your favourite podcast app and help other listeners discover us by leaving a review. Visit lse.ac.ukevents to find out what's on next. We hope you join us at another LSE event soon.