I. The Economist's Response to
ELEMENTS OF ENVIRONMENTAL MACROECONOMICS
Daly Page 1 - 2 - 3 - 4 - 5
|Abstract||A glittering anomaly|
|Introduction||Steps already taken in environmental macroeconomics|
|The environmental-macro economics of optimal scale||Carrying capacity as a tool of environmental macroeconomics|
|How big is the economy?||Policy Implications|
Many resist the application of the concept of carrying capacity to human beings. Certainly the concept is easier to apply to animals than to humans. For animals, carrying capacity can be considered almost entirely in terms of population. This is because per capita resource consumption for animals is both constant over time (animals do not experience economic development), and constant across individual members of the species (animals do not have rich and poor social classes). The latter is not to say that animals are egalitarian. Clearly there exist dominance hierarchies and territoriality. But these inequalities are mainly related to reproduction, not to large difference in per capital consumption. Also for animals, technology is for all practical purposes a genetic constant, while for humans it is a cultural variable. For human beings, we cannot speak of carrying capacity in terms of population alone, but must specify some average level of per capita consumption ("standard of living"), some degree of inequality in the distribution of individual consumption levels around that average, and some given level or range of technology. A great deal of human and nonhuman suffering could be avoided by employing the carrying capacity concept in environmental macroeconomics. The case of Paraguay provides an example.
Paraguay's greatest environmental advantage has been its small population (some 3 million in 1982, and close to 4 million today). At the current 2.5% annual rate of population growth (doubling time of 28 years or roughly one generation), this advantage is rapidly disappearing. Furthermore, this environmental advantage has historically been considered an economic disadvantage. Demographic pressures are exacerbated by the fact that all public lands available for colonization have been distributed. In the future, land cannot be made available to some citizens without taking it away from others. Also fractioning of landholdings into uneconomic small land holdings is driven by population growth and the practice of equal inheritance.
There is very little concern about population growth. Traditionally, the goal has been to increase the population by bringing in colonists to settle the land. After the disastrous war of the Triple Alliance, Paraguay was left in 1875 with only something like 220,000 people. It is quite understandable that pronatalist views should be overwhelmingly dominant. Some prominent leaders have conjectured that Paraguay could support 20 million people with no difficulty. Yet a 1979 FAO study (PNUD/FAO/SFN 1979) concluded that "the agricultural frontier has already exceeded the limits of desirable development in most of the Eastern Region," and that continued expansion would be profoundly destructive of the ecosystem.
At the time (1979) that the FAO study said limits had been reached, Paraguay's population was 3 million. Thus, their implicit estimate of carrying capacity was around 3 million, neglecting the Chaco. The prominent leaders' estimate of 20 million is larger by almost a factor of seven. It is quite important to narrow this range of difference as a pre-condition for any sensible economic planning and policy. A few back-of-the-envelope calculations can be very useful.
How many people could be supported by the ecosystem of the Chaco, if it were as densely populated as the Oriente? Multiplying the population density of the Oriente times the area of the Chaco (18.6 persons/Kmē times 247,000 KM) gives 4,594,200 people. Viewed in this way, 5 million is an absurdly high overestimate, because it assumes that the carrying capacity of the Chaco equals that of the Oriente. There are good reasons why 98% of all Paraguayans live in the Oriente and only 2% in the Chaco.
A better estimate of carrying capacity for the Chaco can be derived by taking the most successful colony in the region, the Mennonites, calculating their population density, and then generalizing that to the whole region. There are (in 1987) 6,650 Mennonites living on 420,000 hectares, giving a density of 6650/420,000 = 0.0158 persons/ha. To get persons per kmē we multiply by 100, the number of hectares in one kmē, giving 1.58 persons/kmē. That density times the total area of 247,000 kmē gives 390,260 or roughly 400,000 persons, not even half a million. The two estimates differ by an order of magnitude and it is extremely important to plan on the basis of the more realistic number.
It is obvious that the second is more realistic. But it is very crude, and more information is needed. The Mennonites themselves have unused land and think that they could double their number on their existing land (which at their 2% population growth rate they will do in 35 years). Perhaps our estimate should be 800,000. On the other hand, our calculation assumes that the Mennonites have average Chaco land when in act it is better than average by virtue of the fact that they got there first. The calculation also assumes that other settlers could do as well as the Mennonites which is doubtful for several reasons. First, the Mennonites brought with them the peasant traditions of Europe, which are absent among Paraguayan colonos (colonizers). They also had a strong community of mutual aid and support, as well as help from European and American Mennonites. That community cohesion cannot be assumed for new colonists. And we must remember that it took the Mennonites 60 years of hard work and sacrifice to reach their present level. All things considered it would be difficult to match their productivity, and consequently even 400,000 may well be an overestimate for Chaco carrying capacity, especially if ranching rather than agriculture is the best use of much of the non-Mennonite area, as seems likely. Water, rather than soil quality, is the limiting factor, so naturally one thinks of large irrigation projects. The Mennonites are extremely sceptical of irrigation in the Chaco and are convinced that it would ruin the soil by salinization (raising the level of existing salt closer to the surface). Drip irrigation and minimum tillage methods seem promising to them.
Even these very crude calculations are enough to allow us to dismiss the 20 million estimate as whimsy and the 5 million estimate as highly unrealistic within the time frame of one generation. On the basis of technologies and investment capacities likely to be available to Paraguay over the next 28 years, an estimate of Chaco carrying capacity over half a million faces a heavy burden of proof. Since population is projected to increase by about 4 million over this period, it is clear that there is a strong likelihood of overshooting the carrying capacity of the Chaco. Optimistic speculations abut undreamed of technologies a century from now may prove true, but would not change the impasse posed by the next doubling in the next 28 years.
A country such a Paraguay that is unwilling to countenance population policy must plan for roughly one more doubling of the population (to 8 million) over the next generation. The very low population density of the Chaco makes it the "obvious" place to put the 4 million new people. Land conflicts in the Oriente are already becoming violent. The stage is set for a large, expensive settlement program of the type witnessed in the Brazilian Amazon. The likelihood of failure due to ecological reasons is very high. The ecosystems of the Chaco and the Amazon are very different, but the common feature is the political unwillingness to respect the ecological reasons for the historically low population density. Politically, the colonization of the Chaco will be seen as the way to: minimize already serious land conflict in the Oriente, postpone dealing with population control, maintain temporarily the mirage of progress and optimism, and offer a great national project to galvanize public support. Against such political advantages, realistic estimates of carrying capacity over the next generation may not be very persuasive. But such a study is a precondition for any realistic plan. It is an elementary but very important contribution of environmental macroeconomics. Nothing is more uneconomic than to waste resources in the pursuit of an impossible goal.
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Optimal scale is not well defined at present, but one characteristic at least is known -- the optimal scale must be sustainable. Our attention then naturally becomes focused on how to limit scale to a sustainable level, thereby giving the sustainable development discussion a bit more of a theoretical foundation that it has had to date. From there, we can begin to investigate operational principles of sustainability and of environmental macroeconomics, such as those summarized below.
1. The main principle is to limit the human scale (throughput) to a level which, if not optimal, is at least within carrying capacity and therefore sustainable. Once carrying capacity has been reached, the simultaneous choice of a population level and an average "standard of living" (level of per capita resource consumption) becomes necessary. Sustainable development must deal with sufficiency as well as efficiency, and cannot avoid limiting scale. An optimal scale (in the anthropocentric sense) would be one at which the long-run marginal costs of expansion are equal to the long-term marginal benefits of expansion. Until we develop operational measures of cost and benefit of scale expansion, the idea of an optimum scale remains a theoretical formalism, but a very important one. The following principles aim at translating this general macro level constraint to micro level rules.
2. Technological progress for sustainable development should be efficiency-increasing rather than throughput-increasing. Limiting the scale of resource throughput (raising resource prices) would induce this technological shift. A high tax on energy would go a long way in this direction. Both technological optimists and pessimists should agree on a policy of high resource prices: the pessimists in order to limit the growth of throughput and the related environmental stress; the optimists in order to provide incentives for the very resource-efficient technologies in which they have so much faith.
3. Renewable resources, in both their source and sink functions, should be exploited on a profit-maximizing sustained yield basis and in general not driven to extinction (regardless of the dictates of present value maximization), since they will become ever more important as nonrenewables run out. Specifically this means that: a) harvesting rates should not exceed regeneration rates; and b) waste emissions should not exceed the renewable assimilative capacity of the environment.
4. Nonrenewable resources should be exploited, but at a rate equal to the creation of renewable substitutes. Receipts from the exploitation of a nonrenewable resource should be divided into an income component and a capital component. The division is made such that by the end of the life expectancy of the nonrenewable a new renewable asset will have been built up by the annual investment of the capital component. The annual sustainable yield from that renewable asset must be equal to the income component of the nonrenewable that was being consumed annually from the beginning. El Serafy (1989) has shown how this separation of capital from income can be calculated in the context of national income accounting. But the principles are quite general and are applicable to the project level as well. The capital component will be larger, the shorter the life expectancy of the nonrenewable and the lower the rate of growth of the renewable asset. Nonrenewable investments should be paired with renewable investment and their sustainable joint rate of return should be calculated on the basis of their income component only, since that is what is perpetually available for consumption in each future year. If a renewable resource is to be partially divested, then the same pairing rule should apply to it as to a nonrenewable resource. Thus, the mix of renewable resources would not be static, but there would be a compensating renewable investment for every divestment.
Perhaps there are other principles of sustainable development as well, and certainly those listed above need to be refined, clarified, and made more consistent between the micro and macro levels. But these four are both an operational starting point and a sufficient political challenge to the present order. Will the nations seeking sustainable development be able to operationalize a concept from which such "radical" principles follow so logically? Or will they, rather than face up to the scale limits (population control and/or per capital consumption limits) required in order to live on income, revert to the cornucopian myth of unlimited growth, rechristened as "sustainable growth"? It is easier to invent bad oxymorons than to develop the environmental macroeconomics of sustainability.
Will environmental macroeconomics be able to shift the primary attention of standard macroeconomics away from "full-employment without inflation via an ever-growing GNP and ever-tighter planetary management," towards defining the optimal scale of the macroeconomy; from the spaceman economy towards the playpen economy? Can we draw a "Plimsoll line" at which quantitative growth must cease and give way to qualitative development as the dynamic path of human betterment? Can macroeconomics serve sustainable development rather than unsustainable growth?