In the classic essay “The Economics of the Coming Spaceship Earth”, the renowned British economist K. Boulding (1966) compared the economy’s conventional vision with that of a “cowboy economy”. The old time cowboy always had another `frontier’ or a place to move to when resources were exhausted. The earth was a place with open spaces without borders and unlimited resources.
Boulding argues that this is a mistaken view, because the economy develops within a system with finite natural capital. He sees planet earth as a spaceship with limited reserves.
In our spaceship earth, the vigilant astronaut, who has no way of expanding his frontiers, must manage his assets, including natural capital, in such a way that he’s able to secure a supply of goods and services in the long run.
GDP, WEALTH AND NATURAL CAPITAL ACCOUNTING
Even today, the view that the environment has an infinite capacity to provide services and address adverse effects of economic activity persists.
To a large extent, this perception is the result of a poor representation of natural capital in conventional measures of the economy, as in the case of gross domestic product (GDP), the most widely used indicator of the System of National Accounts (SNA).
The total contribution of natural capital does not appear in the GDP. Forestry is an example: timber resources themselves are recorded in the national accounts, but others ecosystem services such as air filtration, are ignored.
In addition, GDP takes into account only part of the economic performance of a nation – income – but does not account for total wealth, including the value of the natural capital that underlies it. For example, when a country uses its minerals, it is actually depleting its natural wealth.
SIGNALS OF THE COWBOY ECONOMY IN LATIN AMERICA
As a result of some of the misleading signals of GDP on the true performance of the economy, the economic and social impact of the decline of ecosystems’ conditions around the world and their capacity to support human well-being and sustainable economic growth goes unnoticed by governments and societies.
This omission is of great concern because natural capital is an essential asset, especially for developing countries where it constitutes a significant part (36%) of their total wealth (Figure 1).
This is particularly important in Latin America because, with only 16% of the global land surface, it includes six of the most biodiverse countries in the world; Brazil, Colombia, Ecuador, Mexico, Venezuela and Peru and hosts the most important carbon sink, the Amazon.
However, the immense natural resources of the region are being depleted as a result of growth that has not incorporated measures of the real contribution of natural capital to economic growth or the impact of the economy on the environment in its decision making process.
With the largest urban population (over 80%) and the fast growing rate of motorization in the world (4.5% per year), Latin America faces the challenge of pollution, overexploitation of its waters and natural resources as well as the negative impacts of environmental degradation on the health of people, especially the poor.
NATURAL CAPITAL ACCOUNTS AS A PUBLIC POLICY INSTRUMENT
Wealth accounting (including natural capital accounting) can provide detailed statistics for better management of a country’s economy.
The concept of natural capital accounting has been present for over 30 years. However, recently the United Nations Statistical Commission gave a decisive step with the adoption of the System of Environmental-Economic Accounting (SEEA). In addition, work continues on the development of a unified methodology for assessing the contributions of ecosystems.
It is expected that by incorporating measures of natural capital, policy dialogue will be richer in exploring development alternatives.
There are several initiatives in the world looking to account for natural capital; one of them, the Wealth Accounting and the Valuation of Ecosystem Services Global Partnership (WAVES), promotes the institutionalization of natural capital accounts in countries around the world. This is done by showcasing the use of accounts and working with partners that include international organizations, research institutes and others.
WAVES INITIATIVE IN LATIN AMERICA
In Latin America, WAVES works at the regional level with partners such as the IDB and other international organizations in order to promote the use of natural capital accounts to inform public policy decisions. It also has intensive programs in three countries: Colombia, Costa Rica and Guatemala.
In Colombia, accounts for the Tota Lake are being used as a management tool for water allocation in a context of competing demands for the resource.
In Costa Rica, water accounts will help in supporting the integrated water resource management strategy.
In Guatemala, the forest accounts have documented the scale of non-controlled logging, which in turn has informed a national strategy for the extraction and use of timber.
There is still a lot to do, but there is no doubt that regional efforts, specifically those aimed at developing natural capital accounting, will be a determining factor in moving towards a spaceship economy paradigm.
Future posts will include some specific case studies of the use of natural capital accounts in Latin American.
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