Natural Resources v GDP

The Economics of Biodiversity by Sir Partha Dasgupta was published in February this year and was a wake up call for all of us. Sir Partha says nature must be recognised as an asset and that our traditional measure of economic prosperity – Gross Domestic Product – is no longer fit for purpose. Basically all 7.8 billion of us is on a collision course with the planet.

“The problem with GDP is that it doesn’t include the depreciation of capital and one of the natural capital, or nature, which is somewhat different from buildings and roads in that you can really depreciate it very fast.”

Between 1992 and 2014 there was a 40% fall in the stock of natural capital per person – water, food, air etc. See graph below.

Global Wealth Per Capita, 1992 to 2014

Source: The Economics of Biodiversity by Sir Partha Dasgupta

Since 1950 the global economy has grown 14 fold and with the increase in prosperity has come the cost to our natural environment. With our current consumption we need an earth that is 1.6 times larger. Although there has been moves to slow the rate of climate change the progress needs to be accelerated. Larry Elliott in The Guardian looked at three ways:

  • Firstly you could simply stop the burning of fossil fuels or international travel now or in the near future.
  • Secondly you leave the issue of climate change to the markets: governments could stop subsidising the use of fossil fuels but otherwise leave it to inventiveness of the private sector to come up with solutions.
  • A third approach is to have a partnership between the government and the private sector. A previous example of this was the announcement by President Kennedy in 1961 that the US would put a man on the moon by the end of the decade. Larry Elliott quotes Mariana Mazzucato’s new book ‘Mission Economy’ in which she states that by focusing on the immense power of governments to shape markets, capitalism itself can be remade. Mazzucato aims to infuse capitalism with public interest rather than private gain.

Below is a recent video from CNBC about climate change which is already taking a financial toll on the planet, with extreme weather events costing the global economy $146 billion in 2019, according to insurer Swiss Re. Also an interview with IMF Managing Director Kristalina Georgieva about how governments and business can fight back.

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