Economic failure: Natural capital collapses – but who cares?

2008 saw the collapse of many stocks and the market melt down around the world. Not the first time either. It has happened several times before. Most stocks declined, some went bust and the financial community and governments were sent into a panic. Bail outs occurred for corporations who were seemingly invincible and countries teetered on default.  Governments went to great lengths and extreme expense in an attempt to return the economic system to good health. The world was and still is concerned about the economic health of the world.

2010 was the UN International Year for Biodiversity (UN Biodiversity). Over the decades, the UN biodiversity conferences have documented the decline of the ecological health of the planet. Just like the economic collapse that everyone is up in arms about, the decline in ecological health, (also referred to as natural capital) is also occurring. Think of it this way: liken species to individual stocks on the stock market.Many species are threatened (reduced to penny stocks), many are of concern (declining stock value), and many species are now extinct (bankrupt), yet there is little attention paid to this “recession” affecting our natural capital.

The value of our natural capital has been trending down for about 150 years and the fall is accelerating, but it goes unnoticed. What would our economist say if they tracked the species decline over time but instead showed them as a stock graph on our stock market? It would show a stock market system in collapse and the world would be an uproar. Our natural capital reflects the same mismanagement and greed that push our stocks to dangerously low levels. Yet there is little attention paid to this travesty because our natural capital has no value in our economic system.

Our economic system is based upon a false economy. Humans have invented a currency  that the planet has no use for. Our natural capital however, is our world currency and supports our very existence, but for selfish reasons we ignore this fact and do nothing in regards to its decline, in fact we exploit it to bankruptcy, then move on the next natural resource. There will be no resilience to recover when the natural capital has been withdrawn and spent. No recovery is possible once it reaches a threshold of no return.

The comparison between our natural and economic systems is an illustration to show that the same underlying factors determine their health. Unlike our economic system, however; governments do not go to great lengths and extreme expense in an attempt to return our ecological system to good health.

This is a topic bigger than this short blog can muster so perhaps the “species as a stock” graph can help visualize the decline of our natural capital in the same way we do for our economic system.

So here is an idea. I don’t know the details of how this would work, but the concept is to link indicators of the health of our natural environment to the stock market. Based upon scientific data, trends in the natural world (good and bad) can be reported and would help drive the value of the stock market. Just as the latest quarterly profit reports, job reports, etc. affect the stock market, similarly a report, for example on net hectares of forest lost or gained, fluctuations of the pH of the ocean, population fluctuations of key indicator species and tonnes of carbon emitted (e.g levels above the Kyoto protocol would be negative) could all be assigned a percentage value in relation to the stock market and therefore would have an effect on the stock market value. This would add natural capital to the equation and link a healthy ecological system to a healthy economic system.

Our economic system is just an invention and we can alter it.  It doesn’t have to remain the way it is.

I bet effective action would be taken to improve ecological health when declining natural capital starts to drag down our stock values. But remember – there is no bail out in nature – extinction is forever.

I would appreciate any comments from economists that could give this some thought.

What do you think?

What if these were graphs of our natural capital

What if these were graphs of our natural capital

 

 

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