Nature, Gross National Wealth and the New Economics of Biodiversity

Dr Ross Jeffree, NPA Counsellor, Southern Sydney Branch

Gross National Product (GNP)! Its increases put a smile of re-elective optimism and triumphalism on the faces of Prime Ministers, State Premiers and Treasurers – although it regularly scales with increasing carbon emissions, environmental degradation and biodiversity losses. Economics always trumps ecology…and Australia gets the gold medal among nations for biodiversity loss in 2021. It’s hard to feel optimistic for the future, based on increasing GNP, when scientific consensus tells us the future is falling apart. Is there any way out of this impasse between seeming economic prosperity as defined by GNP and the demise of the Nature?

Yes: there are internationally eminent economists who now challenge the primacy of GNP as our default measure of collective well-being, and include Nature in their new economic calculus of the Wealth of the Nation. Their views are drawn upon in this article as beacons of economic reason based on the protection and restoration of nature, protected places and biodiversity; particularly Partha Dasgupta’s recent The Economics of Biodiversity (2021) and Tim Jackson’s Prosperity Without Growth (2017).

Gross National Wealth (GNW) includes Nature

Whereas as GNP measures the total market value of all final good and services produced in a country in a year, its central weakness is that it does not include any depreciation of the national asset base – whether they be produced capital (roads, machines, buildings etc.), human capital (health and education) or particularly natural capital; including the biodiversity which enables ecosystems to flourish and supply the wide variety of environmental services, resilience to nature’s shocks and ecological ‘spare parts’.
By contrast Gross National Wealth (GNW) is a stock that measures the social wealth of the economy’s entire portfolio of assets- produced capital, human capital and natural capital. Our sustainable dependence on nature and its biodiversity then requires us to manage this portfolio of assets so that GNW increases over time. Such an approach allows the following economic interpretations with regard to conservation issues

Ecological restoration projects, rather than representing a social cost, are an ecological investment that increases inclusive wealth, where the value is the Present Discounted Value (PDV) of the flow of net social benefits it confers on Society over the entire period of its existence. The discount rate for assets that have inter-generational continuity will be low, hence increasing their present net value.

Such projects that enhance biodiversity in protected areas offer greater present discounted value compared to other private sector land tenure arrangements because of their greater certainty in the longer term. By the same economic reasoning, the declaration of a new national park adds to GNW because the PDV is enhanced by a low discount rate, resulting from greater certainty of biodiversity protection over time, compared to other land uses.

An Operational Definition of Sustainable Development

Our sustainable dependence on Nature requires that development is conducted in such a way that our asset portfolio – produced capital, human capital and particularly natural capital – is managed in such a way that inclusive wealth (GNW) increases over time. The pivotal question to be addressed is: are decisions taken today likely to sustain, or even raise, the well-being of those that come after? GNP minus depreciation of these three forms of capital must be greater than aggregate consumption to achieve sustainable development. Investment in Nature through its conservation and restoration increases our store of natural capital and its regenerative rate. By contrast, the most visceral sign of the depreciation of our natural capital is species extinction.

Governments almost everywhere enhance the adverse effects to natural capital by paying people more to exploit the biosphere than they do to protect it, thereby enhancing GNP… but reducing GNW. It is in the interests of the conservation community and particularly supporters of national parks to now become familiar enough with the new GNW paradigm to be able to argue cogently – on purely economic grounds – against the GNP, for establishment of more national parks and their regeneration to enhance the National Wealth.

Dasgupta, P. (2021). Final Report – The Economics of Biodiversity: The Dasgupta Review (London: HM Treasury).
Jackson, T. (2017). Prosperity Without Growth: Foundations for the Economy of Tomorrow.

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