Ecological Economics: An Introduction.

Ecological Economics: An Introduction

Common, Michael and Sigrid Stagal 2005. Cambridge: Cambridge University Press, 592 pages, ISBN-13: 978-0-521-81645-8 (hardcover), CDN $100.00 (hardcover), CDN $50.00 (paper)

Until ecological economics came into its own in the 1990s, economists' understanding of the natural world rested on the twin pillars of natural resource economics and environmental economics. The remarkably rich development of these fields over the past several decades has, surprisingly, missed a crucial link--that between humans and their role in the larger ecosystem. Missing in conventional economic analysis is the ecological basis of all economic activity. It would be a mistake to think, as once did this reviewer, that the evolution of ecological economics heralded merely the establishment of the third 'pillar'--a new field of economics, which would incorporate the missing ecological constraints on economic behavior. It is hardly overstating the case to say that ecological economics takes on a much greater challenge, namely that of shifting the very ground on which sits 250 years worth of economic analysis, no less. Thanks to Robert Constanza, one of the founding fathers of ecological economics, we already have a standard by which to gauge progress towards this goal.

For chapter and verse on what ecological economics is about and how it sits with the (neoclassical) tradition in economics, look no further than to the recently published tour d'horizon by Michael Common and Sigrid Stagl. The authors are, respectively, Professor Emeritus at the Graduate School of Environmental Studies at the University of Strathclyde, and Senior Research Fellow at SPRU, University of Sussex. The scholarly gravitas of the authors ensures that this superbly well-written volume is also consciousness-raising to the importance of the fact that humans and the economy are parts of the larger ecosystem. Undermine the stability of that system and everything else will gradually cease to be relevant. Treating sustainability, however defined, as simply a constraint in the determination of 'optimal' time paths of natural resource exploitation in a growing economy, as economists have been wont to do, is misguided at best, and indicative of our 'faulty telescopic faculty' to quote Pigou (1920). In short, our economic modus operandi is fundamentally incompatible with the long term health of the ecosystem upon which we depend. This, at least, is the basic premise in Common and Stagl. The main consciousness raising message of the book is the need to teach this more effectively and by (prescriptively) 'educating tastes' in the right direction. That is, educating tastes to the need for a shift, at a global scale, away from the reliance on economic growth as we know it, toward redistribution of the economic product and consequent stability of the greater ecosystem. This can be achieved only if the management of nature's household (ecology) and humankind's household (economics) is treated jointly.

But it all suggests a tension between ecological economics and neoclassical economics. This is, after all, the whole point. These are deep waters, but the authors navigate them skillfully, tactfully, and for the most part fairly as they develop the two paradigms in parallel in an attempt to lay bare the points of divergence, as well as the points of convergence. There is much to admire about this book. It is impressively comprehensive in that it successfully spans a great swath of intellectual territory in several disciplines without becoming encyclopedic or overburdened. Although it presumes no previous preparation, the discussion has a systematic and rigorous core that is itself a pedagogical feat. The writing style is lucid and engaging even as it takes the reader through the mechanics of the simulation exercises that support the arguments made. It seems safe to predict that this will become a landmark text, complementing other seminal works such as Constanza (1991) and Constanza et al. (1997).

The book has 14 chapters organized into four thematic parts, which illustrate how different sciences inform ecological economics. At 592 pages the book is too long for a detailed discussion of this material. In the interest of space, I will thus confine myself to an overview of the contents with a view to identifying some issues with which even a reformed neoclassical economist might argue. The introductory chapter sketches in broad outline the themes developed. It explains what ecological economics is about, against the background of how the environment has fared historically at the hands of (neoclassical) economists. This sets the stage, naturally as it were, for a discussion of the role of science and ethics in properly defining sustainability and sustainable economic development.

The collection of chapters in Part I sets out the fundamentals of interdependent systems involving humans, the economy, and the environment. Part II describes the essentials of the nature of economic activity and its by-products, the role of economic growth in a decentralized market system, the limits to markets as an allocation mechanism for society's scarce inputs and outputs, and especially, the limitations of competitive markets in handling waste flows and in mitigating environmental degradation. Part III discusses the issue of appropriate governance (the means of societal oversight and control). It also provides an account of the problems in designing instruments of environmental policy to deal with ecosystem degradation. Part IV projects the international dimension; a world of nation states facing diminished depletable natural resources, climate change, and biodiversity loss. The authors range over these topics to great effect. If the book has a weakness, it is one that many readers, unlike this reviewer, may regard as strength: a tendency to spot, tongue-in-cheek, apparent weaknesses in the neoclassical armor only to quickly move on with the unsuspecting reader in tow.

For example, the authors gleefully note that there is no invisible hand--it is just a fairytale. A no lesser luminary than Joseph Stiglitz furnishes the evidence. This is on par with telling a first-year theology student that there is no God. Fiction or not is irrelevant. The parable of the invisible hand or the Walrasian auctioneer is a useful one, so it survives in the meme pool of economics. On a more serious note, the authors' suggestion that the cherished principle of consumer sovereignty implies that neoclassical economists would not countenance the idea of educating tastes (say, through the public school system) is overstated to say the least. So is the suggestion that neoclassical economists are (methodologically) incapable of moving beyond the doctrine of the self-centered, greedy consumer. There are several good Darwinian (arguably genotypical) reasons for unselfish and altruistic behavior that go some way in explaining the formation of the preferences economists take 'as given.' More credit to recent work in experimental economics and evolutionary economics may be due. The authors are on shakier ground when asserting (and that is all the reader gets) that economists' focus on growth can simply be put down to an aversion to redistribution and an inability to deal meaningfully with social welfare. As Common and Stagl would admit, most economists outside the ecology community are philosophically uncomfortable about this. Finally, the way neoclassical economists treat the relationship between ethics and discounting (the morality of reducing the weight we attach to the utility and consumption of future generations) is a frequent target of fierce criticism. It is curious that this topic escapes comment in the present volume. Yet, despite the rarefied perspective exemplified here, the main argument of the text is trenchant and the big picture convincing.

As with most wide-ranging books like this, one can dip in and out of parts of Common and Stagl's book, read chapters on humans in the environment, but skip chapters on economic accounting, and vice versa. But something essential would be missing then. It should be part of the skill of the book that each chapter throws light on the others. Chiefly they do. But as this text perhaps inadvertently demonstrates, it remains that one can discuss ecology without reference to economics. The opposite is also true, even at an elemental level. Setting the economy on its ecological footings (Part I) is obligatory, but how one models and explains the rest must be driven largely by the specific objective and the research question. On the dust jacket, Robert Constanza muses that "[w]hen it has come to replace Samuelson as the standard textbook for introductory economics courses, we will know the world is on a path toward sustainability." Might this be a case where progression toward the goal is more important than the particulars of its achievement?

References:

Constanza, R. 1991. Ecological Economics: the Science and Management of Sustainability. New York: Columbia University Press.

Constanza, R., Perrings, C., and Cleveland, C.J. (eds.) 1997. The Development of Ecological Economics. Cheltenham: Edward Elgar.

Pigou, A.C. 1920. The Economics of Welfare. London: Macmillan.

Reviewed by C. Michael Wernerheim, Department of Economics, Memorial University of Newfoundland