Natural Capital: The True Wealth of Nations

Economists have still not caught up with the most important capital of all: Natural Capital.

Last year the UN Climate Change Convention met in Copenhagen, attracting an incredible media frenzy. In a month's time its sister Convention on Biological Diversity will meet in Nagoya, to discuss why whole species are moving into extinction at a rate that is (barring the loss of the dinosaurs) unprecedented in the entirety of the fossil record of life on this planet. So far this convention has met with total radio silence from the world's press. Why?

Top of the agenda will be the idea of Natural Capital. One of the great advances in economics over the past 100 years was the realization that there is such a thing as human and social capital. A well-functioning judicial or education system is just as much part of the wealth of a nation as its roads, ports and factories. But the irony is that economists have still not caught up with the most important capital of all: Natural Capital.

Natural capital can be defined as the benefits that accrue to human society from the different species of life that inhabit our world. Classical economics values things by seeing how much someone will pay for them. But this is where classical economics is wrong. What it fails to account for are all the "externalities"-- the services people regard as free goods: pollination services, flood protection, climate regulation, soil stabilization, carbon sequestration. Although immensely valuable, these wider benefits do not accrue to the individual property owner. They are benefits to the community at large. Because they are not captured by the land owner they do not feature in his decision about how to dispose of the land. His economic benefit increases. Everyone else's is reduced.

Last month saw the fifth anniversary of the sacking of New Orleans by Hurricane Katrina. In that tragedy 1,800 people died, damage has been estimated at up to $125 billion. Today a new 350 mile strong system of levees is being built at a cost of $16billion. Many saw this as an engineering failure: politicians and administrators had failed to maintain the levees around that city with devastating consequences. That is only partly true. It was actually the inevitable consequence of the failure to properly value Natural Capital.

In 1956 the U.S. Congress gave approval for the construction of The Mississippi River Gulf Outlet (MRGO). The economic case seemed overwhelming. This man-made navigational channel would reduce the passage by 40 miles and straighten the route making it a safer and more efficient passage for shipping than the winding channels of the Mississippi River below New Orleans. MRGO was cut through are shallow estuarine waters and sub-delta marshes. Much wetland was lost by the original excavation, but more important has been the soil erosion and rise in salinity that has seen the destruction of the cypress swamp.

Over 120,000 square miles of wetland habitat have been lost on the Lower Mississippi Basin. Recently the US Army Engineering Corps made an astonishing admission: every levee that had wetland protection in front of it remained intact. Every levee that had no wetland protection was breached.

In 50 years time we will look back and say that our governments were economically illiterate. They simply did not understand the true value of the most important service providers on our planet. We will marvel that they failed to capture and make explicit the value of Natural Capital and ecosystem services in their national accounts.

Barry Gardiner is Labour MP for Brent North and shadow minister for Energy and Climate Change. 

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In your 30s? You missed out on £26,000 and you're not even protesting

The 1980s kids seem resigned to their fate - for now. 

Imagine you’re in your thirties, and you’re renting in a shared house, on roughly the same pay you earned five years ago. Now imagine you have a friend, also in their thirties. This friend owns their own home, gets pay rises every year and has a more generous pension to beat. In fact, they are twice as rich as you. 

When you try to talk about how worried you are about your financial situation, the friend shrugs and says: “I was in that situation too.”

Un-friend, right? But this is, in fact, reality. A study from the Institute for Fiscal Studies found that Brits in their early thirties have a median wealth of £27,000. But ten years ago, a thirty something had £53,000. In other words, that unbearable friend is just someone exactly the same as you, who is now in their forties. 

Not only do Brits born in the early 1980s have half the wealth they would have had if they were born in the 1970s, but they are the first generation to be in this position since World War II.  According to the IFS study, each cohort has got progressively richer. But then, just as the 1980s kids were reaching adulthood, a couple of things happened at once.

House prices raced ahead of wages. Employers made pensions less generous. And, at the crucial point that the 1980s kids were finding their feet in the jobs market, the recession struck. The 1980s kids didn’t manage to buy homes in time to take advantage of low mortgage rates. Instead, they are stuck paying increasing amounts of rent. 

If the wealth distribution between someone in their 30s and someone in their 40s is stark, this is only the starting point in intergenerational inequality. The IFS expects pensioners’ incomes to race ahead of workers in the coming decade. 

So why, given this unprecedented reversal in fortunes, are Brits in their early thirties not marching in the streets? Why are they not burning tyres outside the Treasury while shouting: “Give us out £26k back?” 

The obvious fact that no one is going to be protesting their granny’s good fortune aside, it seems one reason for the 1980s kids’ resignation is they are still in denial. One thirty something wrote to The Staggers that the idea of being able to buy a house had become too abstract to worry about. Instead:

“You just try and get through this month and then worry about next month, which is probably self-defeating, but I think it's quite tough to get in the mindset that you're going to put something by so maybe in 10 years you can buy a shoebox a two-hour train ride from where you actually want to be.”

Another reflected that “people keep saying ‘something will turn up’”.

The Staggers turned to our resident thirty something, Yo Zushi, for his thoughts. He agreed with the IFS analysis that the recession mattered:

"We were spoiled by an artificially inflated balloon of cheap credit and growing up was something you did… later. Then the crash came in 2007-2008, and it became something we couldn’t afford to do. 

I would have got round to becoming comfortably off, I tell myself, had I been given another ten years of amoral capitalist boom to do so. Many of those who were born in the early 1970s drifted along, took a nap and woke up in possession of a house, all mod cons and a decent-paying job. But we slightly younger Gen X-ers followed in their slipstream and somehow fell off the edge. Oh well. "

Will the inertia of the1980s kids last? Perhaps – but Zushi sees in the support for Jeremy Corbyn, a swell of feeling at last. “Our lack of access to the life we were promised in our teens has woken many of us up to why things suck. That’s a good thing. 

“And now we have Corbyn to help sort it all out. That’s not meant sarcastically – I really think he’ll do it.”