Economic output declined by 1.5 times the entire US economy in the last two decades — $23 trillion of goods and services per year erased. And not even a single WSJ headline. Why?
Did it happen in a parallel world, well sort of… The output loss was the decline in ecosystem services and natural capital. If GDP had declined by a fraction of that amount, there would be no other news story. During the Great Recession (2008) our economy declined about 3.4 %, the Great Depression of the 1930’s, 25% (total peak to trough). Why no headlines this time?
We are like portfolio kids who can ride on our inheritance and skate through recessions and depressions. Instead of a portfolio of stocks, bonds and cash, a cushion of extracted wealth insulates us from our generous inheritance of natural capital.
In both cases one can live in parallel words... until the money runs out. And that day, in ecological terms with its huge financial price tag is looming, closer and larger each day.
Until recently, we only measured the industrial economy and ignored ecosystem services. But that is thankfully changing. Dr. Robert Constanza and his colleagues recently completed a study to value worldwide ecosystem services. These are the services that make our world livable and include protection against storms, maintaining a benign climate, producing clean water and a balanced atmosphere, to name a few.
The grand total of nature’s off the books contribution to the industrial economy’s GDP: $147 trillion a year. To put that number in perspective, the US economy in 2013 was $16.8 trillion and the world GDP, $84.97 trillion. Every year nature puts out about double the productivity of the entire world’s economy in services we otherwise would have to pay for, if in fact we could reproduce the services at any cost. A very big if.
Since 1997, ecosystems have continued to be degraded and that damage has cut $23 trillion per year of ecosystem services (1.5 X the US economy). This represents massive and accelerating ecosystem destruction and in economic terms, we are living the Great Ecological Depression. This collapse is not “news” because we have not had the tools to discuss ecology in economic terms. We are exposed to the occasional article or news report about environmental damage but for most it is distant form day-to-day living. The world of finance and the world of ecosystems have been divided to the detriment of both. That is why it is heartening to see ecologists, environmentalists and business people beginning to speak of nature in economic terms.
The asset destruction has been equally appalling. The $147 trillion worth of ecosystem services were produced by assets that developed and grew over millions of years. We can think of ecosystem services as revenue and the underlying species and systems as the capital base. For example, in Santa Clara County in Northern California, ecosystem services were estimated to be $1.6 to $3.9 Billion a year. The study translates the service production into a capital value of $160 – $390 billion, a ratio of 1:100. Meaning the cost to replace the systems that produce the services would cost us $160 billion to $390 billion to replace and require $1.6 billion to $3.9 billion a year to operate in one county in California!
Using the same metric and applying it worldwide, the reduction of ecosystem services since 1997 means we have reduced the capital base of our natural world by $2,300,000,000,000,000 (23 trillion X 100 or $2.3 quintillion). We are truly the ultimate portfolio children ripping through a rich inheritance at an accelerating rate.
No sound economic system is based on eating your seed corn and claiming you are rich. Yet, that is exactly what we are doing, celebrating each tick up in GDP while NGDP (natural capital and ecosystem services plus GDP) is in free fall.
The Great Ecological Depression seems isolated from the industrial economy but in fact it isn’t. The costs have just been forestalled, hidden as we borrowed from the future (devouring our capital) to pay for an unsustainable lifestyle. The artificial divide is crumbling. The ecosystem depression is taking an ever-larger bite out of our financial economy as costs leak over from one system to the other. Even the wealthiest person is not fully insulated from the real world.
An example of the real economic costs can be seen in the aftermath of Hurricane Katrina. The cost of that one storm was $14 billion. We call it a natural disaster, but the costs were largely man-made due in large part to a lack of natural defenses once provided by a healthy Mississippi Delta. As we replace ecosystem services with replacement technology fixes (in this case levees and pumps), the costs mount ever higher. Everyone is made poorer as a result — some more and some less depending on where you ride on the economic scale. Ecosystem destruction hits the poorest the hardest in Louisiana and around the world.
We often try to couch ecologic damage in terms of a threat to survival and it could come to that. But more likely, it will just become incredibly expensive and the gap between the few that can build the equivalent of earth space ships (ecosystem isolation) and those that try to make it in a degraded landscape will grow. Already we are “comfortable” with 1 billion people living in slums, with another billion to join that condition in 30 years. As the costs to replace ecosystem services increase, we will be adding a lot more to the have-not class.
The Great Ecological Depression can also be represented by the devastating loss of the species that make up theses valuable ecosystems and thus the services they supply. Species are disappearing at a rate that matches the five other mass extinctions in earth’s history and has been dubbed the 6th Great Extinction. The current extinction rate is equivalent to the one that ended the age of the dinosaurs.
How bad is it?
Species threatened with extinction:
- 25% of all mammals — 1,469 species at risk
- 22% of all reptiles — 1,163 species at risk
- 41% of all Amphibians — 2,341 species at risk
- 13% of all birds — 2,200 species at risk
Not only species, whole ecosystems are threatened with extinction. A recent study pointed out that we could loose all coral reefs in the Caribbean in 20 years. These reefs represent about 9% of the total coral reefs in the world. In dollar terms each acre of coral reef supplies $995,000 of services a year. The loss, if it allowed to happen, would be $1 trillion a year in lost services and capital destruction 100 times that! Each species has a capital and service value — The Monarch Butterfly was estimated to be worth $4.78 billion to $6.64 billion, North American bats (all species), $60 billion.
And we could go on and on, species by species ecosystem by ecosystem but the point is the destruction in ethical terms should have been enough for us to alter current practices, but it has not been to date. We value nature as “priceless” and the result is a steady decline as the priced forces the priceless off the planet.
Thinking in terms of ecosystem service and natural capital didn’t exist 50 years ago. The movement is based on solid, if counter intuitive thinking. Rather than trying to slow down the industrial economies destruction with laws, regulation and charitable work, show it a larger pot of wealth and a more profitable way to do business. The radical solution to the environment versus the economy is break down the walls of a very destructive paradigm; the paradigm of two separate economies one of man and one of nature. If our economic system does not include social and environmental costs, then we can only pay lip service to the destruction and slow the decline. But if we can see that wealth is being destroyed, there is a way to harness the power of our economic systems to create positive change.
The good news is that we still have a tremendous natural capital base and a largely under-valued human capital base to work with. Our ingenuity can be employed to work with nature as easily as against it. And if nature is given a chance it can rebound and rebuild the capital base providing wealth for all of us.
The trick is one of inclusion. When we can put natural and human capital on the same footing as financial capital, the economy can grow by leaps and bounds creating goods and services based on ecological principles that grow financial capital and natural capital as they become synonymous.
An inclusive natural capital economy is a far more attractive destination than one of increasing ecological collapse and economic inequality. Let’s start the Great Ecological Recovery.