What's the economic value of nature? Ask Robert Costanza He views air, water as dollars, cents

March 29, 1993|By Arthur Hirsch | Arthur Hirsch,Staff Writer

In the world according to Robert Costanza, the nation's accounting of profit and loss would include not only dollars, jobs and production, but also wetlands, clean water, forests and open space.

The economy, in Robert Costanza's world, is but a fragment of the Big Picture, contained and limited by nature.

Dr. Costanza, head of the Maryland International Institute for Ecological Economics in Solomons, is either advancing the cutting edge of a strategy that promises to save the industrialized world from itself, or rehashing creaky theories with a high-tech gloss and a bundle of grants.

It depends on whom you talk to.

The institute -- established with $1.1 million in private grants -- is a child of the University of Maryland, part of the Center for Environmental and Estuarine Studies, which for 20 years has operated a marine biological laboratory in a resort town at the southern tip of Calvert County.

Since 1991, Dr. Costanza and a small crew of scientists have been using computer calculations and field research to better understand the ways in which the economy and the environment interact.

Their goal is ambitious: to show that in a world of limited resources, the free-market economy cannot sustain itself unless it takes into account the limits and the monetary value -- yes, the monetary value -- of the natural world.

Dr. Costanza, who holds a doctoral degree in systems ecology, says it's time to stop looking at the economy and the environment in competition, as in: spotted owls vs. logging jobs, snail darters vs. hydropower development, wetlands vs. condominiums.

The planet can no longer afford this approach, says Dr. Costanza, whose work is cited in "Earth in the Balance," the book Vice President Albert Gore Jr. wrote while he was a U.S. senator from Tennessee.

The phrase "ecological economics" has been used at least since the early 1980s, when Dr. Costanza and economist Herman Daly traveled together to Sweden for a conference on the potential links between ecology and economics. The two men met while teaching at Louisiana State University and soon began talking about how members of their respective disciplines seldom communicate with each other.

Although some of the terminology and the methods are new, Mr. Daly, a senior economist at the World Bank in Washington, says the roots of ecological economics can be traced to economists Thomas Malthus and John Stuart Mill, who worked in the 18th and 19th centuries.

Mr. Daly says ideas that make up ecological economics are "making inroads. One cannot say they're being wildly embraced. There's a certain resistance on the part of traditional economists."

That's putting it mildly.

"The ideas of ecological economics are disbelieved, and worse, by the mainstream of economists," says Julian Simon, professor of economics at the University of Maryland atCollege Park and an adjunct fellow at the Hudson Institute, a conservative think tank based in Indianapolis. Dr. Simon, who rejects environmentalists' claims of dwindling resources and the dangers of overpopulation, calls Dr. Costanza's approach a "recurring nonsense" based on a "profound and subtle misunderstanding of economics."

Steve Hanke, environmental economics professor at the Johns Hopkins University, goes a step further. He compares the institute's attempts to create computer "models" of economic and ecological systems to the failed strategies of socialism.

"I know of no ecological/economic modeling that's led to any answers," said Dr. Hanke. "We don't live in a world that we can model. . . . They're just barking up the wrong tree. It's a colossal waste of money."

"The unconstrained market is not going to tell us where we want to go," says Dr. Costanza. "It's an efficient servant but a bad master," he says, rewarding decisions that seem inexpensive in the short term, but eventually wind up costing a lot more in money and natural resources.

In practice, ecological economics would use a system of tax incentives and performance bonds in an effort to balance the short-term benefits of business decisions with the potential long-term impact on the environment. In other words, the cost of a decision is put right up front, where it can be seen.

That could mean that a chemical company would be required to put up a bond to cover the maximum potential environmental damage of a new plant as determined by government-sponsored research. If the company claimed the amount was too high, it could present its own research, or lower the bond amount by using a different approach.

Under such a system a paper company might be given tax incentives to use selective tree harvesting, rather than clear-cutting.

"It does require government intervention of some sort," says Dr. Costanza. The goal, however, is free market rewards for decisions that benefit the environment in the long term.

"As long as the short term does not reflect the long term, you will make the wrong decisions," Dr. Costanza says. "We get ourselves into these short-term traps."

Seeing the long-term costs, however, requires a new way of looking at the natural world. It requires some system of assessing the value of natural resources in terms of dollars and cents, as an economist would look at any marketable commodity.

A swamp, for example, can be viewed in terms of its value as flood protection, water purification system, wildlife habitat and aesthetically pleasing open space. By taking into account all the potential benefits of coastal marshland in Louisiana, Dr. Costanza says, it is possible to say that an acre of it is worth between $2,500 and $17,500, far higher than the actual market price.

The same approach could be taken to lakes, shoreline, streams or forests, he says. It's all part of what could be considered part of our "natural capital." As it stands, none of this is considered when economists calculate the Gross National Product.

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