A.K. Enamul Haque - Climate Change and Community Resilience: Insights from South Asia

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Economics, like I imagine other scientific disciplines, normally moves in incremental steps and always without a central guide. Much like practitioners of other disciplines, we economists work with models of those features of the world we want to study in detail. That involves keeping all else in the far background. Models are thus parables, and some say they are caricatures, which is of course their point.

Economics is also a quantitative subject. Finance ministers need estimates of tax revenues if they are to meet intended government expenditure; environment ministers today cannot but ask how much farmers should be paid to set aside land for greening the landscape, and whether fossil fuel subsidies should be eliminated; health ministers look to convince cabinet colleagues that investment in health is good for economic growth; and so on. Which is why economic models are almost invariably cast in mathematical terms.

Which is also why the models that appear in economics journals can appear esoteric, unreal, and even self-indulgent. Many would argue as well that to model human behaviour formally, let alone mathematically, is to tarnish the human experience, with all its richness. And yet, economists in governments, international organisations, and private corporations find those models and their adaptations essential for collecting and analysing data, forecasting economic trajectories, evaluating options, and designing policy. Perhaps, then, it should be no surprise that those same models go on to shape the conception we build of our economic possibilities. In turn, our acceptance that the economic possibilities those models say are open to us encourages academic economists to refine and develop them further along their tested contours. And that in turn further contributes to our beliefs about what is achievable in our economic future. The mutual influence is synergistic.

That has had at least one unintended and costly consequence. Not so long ago, when the world was very different from what it is now, the economic questions that needed urgent response could be studied most productively by excluding Nature from economic models. At the end of the Second World War, absolute poverty was endemic in much of Africa, Asia, and Latin America, and Europe needed reconstruction. It was natural to focus on the accumulation of produced capital (roads, machines, buildings, factories, and ports) and what we today call human capital (health and education). To introduce Nature, or natural capital, into economic models would have been to add unnecessary luggage to the exercise.

Nature entered macroeconomic models of growth and development in the 1970s, but in an inessential form. That may be why economic and finance ministries and international organisations today graft particular features of Nature, such as the global climate, onto their models as and when the need arises, but otherwise continue to assume the biosphere to be external to the human economy. In turn, the practice continues to influence our conception of economic possibilities for the future. We may have increasingly queried the absence of Nature from official conceptions of economic possibilities, but among economists at large, the worry has been left for Sundays. On weekdays, our thinking has remained as usual.

Nature has features that differ subtly from produced capital goods. The financier may be moving assets around in his portfolio, but that is only a figure of speech. His portfolio represents factories and ports, plantations and agricultural land, and mines and oil fields. Reasonably, he takes them to be immobile. In contrast, Nature is in large measure mobile. Insects and birds fly, fish swim, the wind blows, rivers flow, and the oceans circulate. Economists have long realised that Natures mobility is one reason the citizen investor will not take the market prices of natural capital to represent their social worth even when markets for them exist. The wedge between the prices we pay for Natures goods and services and their social values (their social values are called accounting prices) is usually studied in terms of what economists call externalities. Over the years, a rich and extensive literature has identified the institutional measures that can be deployed for closing that wedge.