Details of Module and its Structure

Module Detail

Subject Name Sociology

Paper Name Ecology and Society

Module Name/Title Relationship between economics and ecology

Pre-requisites

Objectives

Keywords

Structure of Module / Syllabus of a module (Define Topic / Sub-topic of module)

Summary

Role Name Affiliation

Principal Prof Sujata Patel Professor, University of

Investigator Hyderabad, Hyderabad
Paper Coordinator Dr Himanshu Upadhyaya Asst Professor, Azim Premji
University, Bangalore
Content Prof. Milindo Chakrabarti Professor, Sharda University,
Writer/Author (CW) Greater Noida, UP
Content Reviewer Dr Himanshu Upadhyaya Asst Professor, Azim Premji
(CR) University, Bangalore
Language Editor Dr Himanshu Upadhyaya Asst Professor, Azim Premji
(LE) University, Bangalore
RELATIONSHIP BETWEEN ECONOMICS AND ECOLOGY

We don’t inherit the earth from our fathers, we borrow it from our children.

INTRODUCTION
Concerns for sustainable development are getting more and more evident over the last four decades
since the Stockholm Conference in 1972 followed by a host of others. Rio+ 20 in 2012 came out with a
document titled “The Future We Want” and called for ensuring the promotion of an economically,
socially and environmentally sustainable future for our planet and for present and future generations.
Such an effort also set the stage to plan for a detailed agenda for future course of actions that took the
form of preparing another important document “Transforming Our World” that is going to guide our
quest for Sustainable Development during the coming 15 years. It develops a list of 17 sustainable
development goals and 169 targets to achieve them. Five areas of critical importance for humanity and
the planet are identified in that draft 2030 Agenda for Sustainable Development that was released on 3rd
August 2015. They are the 5Ps:

1. People: elimination “of poverty and hunger, in all their forms and dimensions, and to ensure
that all human beings can fulfil their potential in dignity and equality and in a healthy
environment”.
2. Planet: protecting “the planet from degradation, including through sustainable consumption
and production, sustainably managing its natural resources and taking urgent action on climate
change, so that it can support the needs of the present and future generations”.
3. Prosperity : ensuring that “all human beings can enjoy prosperous and fulfilling lives and that
economic, social and technological progress occurs in harmony with nature”.
4. Peace: fostering “peaceful, just and inclusive societies which are free from fear and violence (as
those who framed the document firmly believe that) there can be no sustainable development
without peace and no peace without sustainable development” and
5. Partnership: mobilizing “the means required to implement this Agenda through a revitalised
Global Partnership for Sustainable Development, based on a spirit of strengthened global
solidarity, focussed in particular on the needs of the poorest and most vulnerable and with the
participation of all countries, all stakeholders and all people”.
In a nut shell, the document calls for a strategy that ensures inclusive growth for humanity in the coming
days and simultaneously protects the planet from rapid degradation that, unless tackled sensibly from
now onwards, can threaten the very existence of human life in particular and the ecosystem in general,
in the foreseeable future. While the first concern falls traditionally in the domain of Economics, the
second concern is within the realm of Ecology. The present section looks into the apparent
contradictions between the two branches of knowledge in terms of their “conceptual framework” and
also tracks the recent efforts at an interdisciplinary approach to reduce the evident conflicts between
the two.

A Facebook meme, which went viral recently, reads:

“The earth is 4.6 billion years old. Let’s scale that to 46 years. We have been here for 4 hours. Our
industrial revolution began 1 minute ago. In that time we have destroyed more than 50% of the world’s
forests”.

A few stylized facts from Barbier (2014) will also be in order in this context.

 “Since 1970, the World Bank’s World Development Indicators have provided estimates for most
countries of the adjustments to national income, income growth and savings that arise from net
depletion of forests, energy resources and minerals. This rate of natural-capital depreciation as
a percentage of adjusted net national income over the past four decades is alarming”.
 “The decline in natural capital has been five times greater on average in developing economies
than in the eight richest countries”.
 “Natural capital depreciation in all countries has risen significantly since the 1990s. There was a
dip during the global recession of 2008–09, but as the world economy has recovered, so has the
rate of resource use”.
 “According to the worldwide Millennium Ecosystem Assessment, approximately 60% of major
global ecosystem services have been degraded or used unsustainably, including fresh water,
wild fisheries, air and water purification, and the regulation of regional and local climate, natural
hazards and pests”.

These facts underscore the conflict between quest for economic growth and maintaining the ecosystem
in its desired state that ensures sustainable livelihood for human beings for many years to come.
Thomas Malthus was perhaps the first to raise a concern about the possibility of such a conflict that
coincided with the height of Industrial Revolution in Europe. He argued that while the capacity of earth
to produce food had been growing in arithmetic progression, human population, aided by the
continuous growth in economic activities, had been growing at geometric progression, striking a
cautionary note about the possibility of limits to growth – an issue taken up in right earnest by the “Club
of Rome” during the early 1970s. It showed the possibility of exhaustion of finite resources – namely
mineral reserves – at its existing rate of use juxtaposed with the prevailing rate of growth of economy
and population, unless new reserves and sources were identified to enhance the supply of those
resources. In spite of severe criticisms hurled at the data and methods used and conclusions arrived at,
the believers in limits to growth soldiered on and produced its last sequel in 2011 when Ugo Bardi
asserted that "The warnings that we received in 1972 ... are becoming increasingly more worrisome as
reality seems to be following closely the curves that the ... scenario had generated."

ECONOMICS AND ECOLOGY: THE FUNDAMENTAL DIFFERENCES

What are the fundamental differences between the fundamental premises follows by an Economist and
an Ecologist?
 While an ecologist considers human beings to be a part of the ecosystem and linked to the
other natural resources – both living and non-living – in an integrated chain of relationships, an
economist considers the human beings as located away from the ecosystem with the capability
to use its components in ways that optimize human welfare in a material sense.
  Economists believe in optimizing human welfare by increasing its capacity to produce and
consequently consume goods and services that gets captured in steadily increased GDP and, of
late, Human Development Index. The different components of nature are to be utilized to
facilitate movement of the economy along such a desired pathway with earth being used both
as a source of resource and sink of “bads” produced in the process but not fit for consumption
by human beings. In so doing, economists do not distinguish between the resources that are
man-made and those produced by nature. There had also been a strong belief among
economists for years that technological developments will facilitate man-made production of
most of the natural resources as and when such necessity occurs. Ecologists, on the other hand,
do believe that most of the natural resources, if not all, can only be consumed by human beings
but may never be produced by them and hence should be used with restraint. Further, use of
nature as a sink for “bads” can jeopardize the functioning of the ecosystem in a manner that
can lead to ultimate collapse of the ecosystem threatening the survival of mankind as one
species of the thousands found on the Noah’s Ark.

The concern for “sustainable development” and the realization that neither economics nor ecology can
pursue their disciplinary pursuits oblivious of the contrasting leads emanating from each other, has led
to attempts at reconciling the “conceptual” conflicts. A recent article by Herman Daly captures the
diverging world view of economists and ecologists and a possible way of reconciliation in a very succinct
manner. According to him, such an integration is attempted through three distinct strategies:
 Economic imperialism
 Ecological reductionism and
 Steady state subsystem.
Economy is considered as a subsystem of the finite ecosystem in each of these three strategies.
However, the strategies differ in terms of their pathways.

ECONOMIC IMPERIALISM
The strategy of economic imperialism “seeks to expand the boundary of the economic subsystem until it
encompasses the entire ecosphere. The goal is one system, the macro-economy as the whole.” In a
typical neo-classical world view subjective individual preferences in the aggregate are taken as the
ultimate source of value. And the expansion is considered legitimate as long as the costs of such
expansion – cost of degradation of ecosystem – are internalized, i.e., all costs resulting out of
degradation of ecosystem will be identified and added to the value of the products or services. Only
those who are willing to and capable of paying such enhanced price will get to consume them with the
rest kept out of bounds1. With increased extent of ecosystem degradation and the consequent hike in
the prices of goods and services so produced, there will be an in-built control mechanism that will limit
the extent of degradation before it reaches a sustainable level. Following diagram explains the
perspective in detail. Consumption of goods and services produced out of an economic system provides
utility. Following the law of diminishing marginal utility, the utility derived from an incremental unit of a
good or services will decline as consumption increases. Internalization of costs of ecosystem
degradation – both in terms of use of natural resources beyond the limit of its natural growth and use of
nature as a sink of production wastes – will also add to disutility of consuming a product. And the
incremental disutility will increase with increased consumption of the goods or services in question. So
the marginal utility curve slopes downward to the right, while the marginal disutility curve moves in the
opposite direction. In a typical neo-classical framework, the point of intersection between these two
lines gives the economic limit to growth. If resources are still consumed to ensure increased level of
production and consumption, the nature may reach a tipping point of environmental catastrophe – akin
to a collapse of the ecosystem. Ideally, the point of economic limit to growth is expected to lie to the left
of the point of environmental catastrophe and hence provide some precious time to mankind to wake
up to the desired course of action. The futility limit marked at the far right corner of the diagram refers
to the point of complete satiation on the part of the consumer – one derives no increment in total
utility, beyond this point. It is felt that in case the costs of degradation of ecosystem are internalized in
the process of production and consumption, environmental catastrophe will strike well before the point
of complete satiation is reached.

This strategy gives rise to the specialized discipline in economics, referred to as Environmental
Economics. The approach, nevertheless, is unconvincing. Many of these costs are not foreseen, let alone
imagined, following the argument of bounded rationality put forward by Herbart Simon. Simon argued
that human beings are not capable of perfect prediction about all future events as is assumed under the
condition of rationality. Complete internalization of the cost of ecosystem degradation is thus difficult to
achieve in reality. Further, even if, some such external costs are visible, proper enforcement
mechanisms often take a long time and may be partial in effecting the desired level of internalization.
The still inconclusive debate on climate change is a case in point. Thus the effective internalization
process may not be perfect, either, leading us to a similar situation that characterizes the deviation from
an ideal market system posited by the neo classical school of economic thought in the form of lack of
complete set of perfect market. Here we end up with the lack of a mechanism to ensure complete and
perfect internalization of ecosystem degradation.

1
This is referred to as the polluter pays principle
It will be pertinent, at this juncture to refer to a question raised by Daly:
“Are we better off at the new larger scale with formerly free goods correctly priced, or at the old smaller
scale with free goods also correctly priced (at zero)? In both cases, the prices are right. This is the
suppressed question of optimal scale, not answered, indeed not even asked, by neoclassical economics”.

ECOLOGICAL REDUCTIONISM
Ecological reductionism believes that human behavior can also be explained by the same sets of natural
laws that explain the behavior of other components of nature and thus proposes to erase the boundary
of economic subsystem and subsume it within the natural system. Daly argues that it “begins with the
true insight that humans and markets are not exempt from the laws of nature. It then proceeds to the
false inference that human action is totally explainable by, reducible to, the laws of nature….. Taken to
the extreme, in this view all is explained by a materialist deterministic system (of nature) that has no
room for purpose or will (that distinguish men from other components of nature).”

The argument of ecological reductionism derives its strength from the Second Law of Thermodynamics.
It was N. Georgescu- Roegen, in his book “The Entropy Law and the Economic Process”, published in
1971, who argued that it was the phenomenon of free energy tending to disperse and getting lost in the
form of bound energy, that drives an economic process. He is thus considered one of the founding
fathers of Ecological Economics, even though he termed his new approach as bioeconomics. His
arguments centered around the fact that human beings, like all other living beings, depend on energy
available in usable form the natural resources – referred to in the literature as free energy. However,
once the resources are used and the fact they are not fully recyclable, with some portion being thrown
back to nature as wastage, we tend to generate energy that is no longer available for consumption. They
are called bound energy. Entropy, as per Georgescu- Roegen is the measure of the unavailable or bound
energy that is created within the natural system we live in. It is posited that “humankind has the
distinction of currently being the most significant contributor to entropic degradation by the increasing
 rates of extraction of natural resources and elimination of wastes into the environment”(Gowdy and
Mesner 1998, P 147). Other living beings also feed on low entropy sources of energy to build and
preserve their complex structures, and dissipate the energy in a higher entropic state. However, their
contribution to the rise in the entropy level is insignificant compared to that by the human beings.

The proof of human beings contributing to the alarmingly rising entropy in the ecosystem can be located
in plenty in the existing literature. Increased entropy manifests in several ways in influencing the human
life and welfare. Some of them are direct and some others are indirect. For the direct impacts, we have
already mentioned above the observation by Berbier (2014) who found that the share of natural
resource depletion in adjusted GNI of most of the countries was quite significant. As per a document
available on the website of National Geographic some impacts from increasing temperatures are already
happening.
 Ice is melting worldwide, especially at the Earth’s poles. This includes mountain glaciers, ice sheets
covering West Antarctica and Greenland, and Arctic sea ice.
 Researcher Bill Fraser has tracked the decline of the Adélie penguins on Antarctica, where their
numbers have fallen from 32,000 breeding pairs to 11,000 in 30 years.
 Sea level rise became faster over the last century.
 Some butterflies, foxes, and alpine plants have moved farther north or to higher, cooler areas.
 Precipitation (rain and snowfall) has increased across the globe, on average.
 Spruce bark beetles have boomed in Alaska thanks to 20 years of warm summers. The insects have
chewed up 4 million acres of spruce trees.
It also notes that if warming continues.
 Sea levels are expected to rise between 7 and 23 inches (18 and 59 centimeters) by the end of the
century, and continued melting at the poles could add between 4 and 8 inches (10 to 20 centimeters).
 Hurricanes and other storms are likely to become stronger.
 Species that depend on one another may become out of sync. For example, plants could bloom earlier
than their pollinating insects become active.
 Floods and droughts will become more common. Rainfall in Ethiopia, where droughts are already
common, could decline by 10 percent over the next 50 years.
 Less fresh water will be available. If the Quelccaya ice cap in Peru continues to melt at its current rate,
it will be gone by 2100, leaving thousands of people who rely on it for drinking water and electricity
without a source of either.
 Some diseases will spread, such as malaria carried by mosquitoes.
 Ecosystems will change—some species will move farther north or become more successful; others
won’t be able to move and could become extinct. Wildlife research scientist Martyn Obbard has
found that since the mid-1980s, with less ice on which to live and fish for food, polar bears have
gotten considerably skinnier. Polar bear biologist Ian Stirling has found a similar pattern in Hudson
Bay. He fears that if sea ice disappears, the polar bears will as well.
[see http://environment.nationalgeographic.com/environment/global-warming/gw-effects/]
Now for the indirect effects. Bartoloni (2003) argues that negative externalities generated in two forms
contribute to the economic growth process of human societies. They are positional externalities – desire
of human beings to acquire a higher relative position in the social ladder and environmental
externalities that reduce the extent of availability of free goods to human beings. For example,
economic growth ensures that pure drinking water is also getting priced today, which was freely
available all around the world even a few decades back. Thomas F. Homer-Dixon (1994) identified six
types of environmental change as plausible causes of violent intergroup conflict:
 greenhouse-induced climate change;
 stratospheric ozone depletion;
 degradation and loss of good agricultural land;
 degradation and removal of forests;
 depletion and pollution of fresh water supplies; and
 depletion of fisheries.

He tested three hypotheses to link these changes with violent conflict and them to be positive. “First,
decreasing supplies of physically controllable environmental resources, such as clean water and good
agricultural land, would provoke interstate "simple-scarcity" conflicts or resource wars. Secondly, large
population movements caused by environmental stress would induce "group-identity" conflicts,
especially ethnic clashes. And third, severe environmental scarcity would simultaneously increase
economic deprivation and disrupt key social institutions, which in turn would cause "deprivation"
conflicts such as civil strife and insurgency”.

The followers in Ecological reductionism firmly believe that like the “tragedy of commons” elaborated by
Garrett Hardin [1968], we are also in for “tragedy of entropy”. The process of increasing entropy cannot
be reversed. Daly disagrees and suggests that collective actions like those successfully avoided the
tragedy of commons [see Ostrom, 1992 for details] are necessary to overcome the “tragedy of entropy”.
One should not give up and profess a process that suggests erasing the boundary between ecosystem
and human economic system. The literature on linking social and ecological systems and the issue of
their resilience [Holling 2001, Berkes & Folke, 1998] also highlights the role of collective action and social
mechanisms for building resilience, in managing the rising entropy.

We may refer to some of the pertinent debates in India vis-à-vis conservation versus development. A
recent article in Economic and Political Weekly entitled “The Debate on Biodiversity Conservation in the
Western Ghats” by Nagarajan and others [ July 25, 2015, pp 49-56] can provide us with the point of
departure in extending our argument. The study contrasts between the findings by the Western Ghats
Ecology Experts Panel [WGEEP] headed by Madhav Gadgil and High Level Working Group [HLWG]
headed by K. Kasturirangan. In response to the same set of terms of reference the former proposed the
whole of the Western Ghats as ecologically sensitive – close to the philosophy of ecological
reductionism, while the latter declared only 37% of the area as sensitive from an ecological perspective
– akin to the ideas of economic imperialism. The two studies used methodologies and data that were
altogether different from one another, reflecting their respective worldviews. And interestingly, none of
them considered the ground level political situations that would set the contours of possible collective
actions in an effort to reach a mutually acceptable point of agreement.

The debate on the issue of conservation around the Western Ghats also raises a fundamental issue vis-à-
vis the entropy literature. Even though human activities on a macro level contribute to the rising
entropy in the ecosystem, there are communities who live in close harmony with nature and hardly add
any irritant to the process of upsetting the ecosystemic balance. Neither do they use natural resources
at a rate that goes beyond their natural growth rate, nor do they generate wastes that are highly bio-
non-degradable and hence beyond the capacity of nature to absorb on its own. However, these micro
entities are not powerful enough to influence the discourse on what measures are to taken to bring
about a balance between economics and ecology to maintain mother earth a livable planet on a
sustainable basis. Consequently, they are held hostages by both the groups professing economic
imperialism and ecological reductionism and often are severed from the intimate relationship they have
been maintaining with nature for time immemorial. Argument in terms of collective action calls for their
effective inclusion in the process of dialogue.

THE STEADY STATE SUBSYSTEM

The idea of a steady state subsystem owes its origin to John Stuart Mill (1857) who coined the concept
of a stationary state – when the population growth and growth rate of capital accumulation would both
be zero. A zero growth rate of population would mean equality between birth and death rates, whereas
a zero rate of growth in capital stock would imply production equal to depreciation. Such a state would,
however, require the rates to be equal at a lower level, indicating high human longevity and durability of
goods and services produced, subject to maintenance of sufficient stocks for a high quality of life.

Under such a steady state, the boundary of the economic subsystem is no longer required to be
eliminated through either expansion or contraction. Daly, argues that such a boundary must be
recognized and drawn at the right place. Such an exercise would also underscore the acceptance of the
qualitative difference between human economy and natural ecosystem. Daly maintains “The scale of the
human subsystem defined by the boundary has an optimum, and the throughput by which the
ecosphere physically maintains and replenishes the economic subsystem must be ecologically
sustainable. That throughput is indeed entropic, but rather than maximizing entropy the goal of the
economy is to minimize low entropy use needed for a sufficient standard of living–by sifting low entropy
slowly and carefully through efficient technologies aimed at important purposes. The economy should
not be viewed as an idiot machine dedicated to maximizing waste. Its final cause is not the maximization
of waste but the maintenance and enjoyment of life”.

BY WAY OF CONCLUSION
In an earlier section we identified the difference in the worldview between mainstream economics and
ecology. The discussion so far has clarified the need to build a working bridge to take care of such
fundamental differences. The difference in approach also feeds into the divergence in the
methodological toolkits available to the economists and ecologists to settle the issue of sustainable
development. Recent efforts at developing “green national accounts” are a move in the right direction.
“Inclusive Wealth Report 2014” prepared by a group of experts under the leadership of Partha Dagupta
also sought to fill some of the data gaps with a well-comprehended framework to conceptualize
inclusive wealth that would help us get into a path of sustainable development and simultaneously
thrive to ensure intra-generational equity coupled with an inter-generational one.

However, there are some methodological challenges to be overcome to identify the desired pathways in
settling reconciliation between economics and ecology. A conceptual framework that facilitates to
understand the linkages between humanity and nature at the micro level and is capable of being blown
up at the macro level is urgently required today. Otherwise we shall get trapped into arguments calling
for solutions that offer highest social and environmental returns in our quest for sustainable
development. Needless to add, such an approach will fail to distinguish the implications of the macro
policies on multitudes of species and human communities at the micro level. Further, a welfare
economics framework is needed that incorporates nature as a prominent stakeholder. Given the several
non-convexities and non-linearities found in the production and consumption behavior of nature and
the rest of her non-human species, the conceptual challenge will be pretty difficult.