In Conversation With... Professor Sir Partha Dasgupta

During this webinar CLA Deputy President Mark Tufnell was in conversation with Professor Sir Partha Dasgupta, Frank Ramsey Emeritus Professor of Economics at the University of Cambridge, who discussed his recent review of the Economics of Biodiversity.

Professor Dasgupta has been a Professor of Economics at the University of Cambridge since 1985, serving as Chairman of the Faculty of Economics from 1997 to 2001. He has won numerous awards and in 2002, he was named Knight Bachelor by the Queen for services to economics.

Professor Dasgupta's review has been prompted by a growing body of evidence that in recent decades humanity has been degrading our most precious asset, Nature, at rates far greater than ever before. 

Read a write up of the highlights of the conversation below.

In conversation with... Professor Sir Partha Dasgupta highlights

Mark Tufnell: Why do you feel it was important to write a report about economics and biodiversity? Do you think the relationship between the economy and the natural world is broken? Perhaps, for those of us who aren't quite at the same level of economics as you, you might explain some of the basic terminology that you've used within your report.

Professor Sir Partha Dasgupta: Well, thank you very much. You've asked two questions and I'll start with the second of the two, which is that yes, there is a deep sense in which contemporary economics treats nature as external to the human economy. The motivation underlying the review pretty much a few months after I agreed to write it, I realised that what I really needed to do was to write the review of the economics or reconstruct economics in a way that embeds the human economy in nature, rather than keeping it external.

I'll try and make that clear as briefly as I can. That's a second. There is a big divide between the way economists, think of the human economy, contemporary economics, that is, think of the human economy and nature. Therefore, of course, the answer to the first question is immediately, yes, there is a need for this. It should be remembered that my review is really not about biodiversity. Biodiversity isn't characteristic of ecosystems. The review is a review of the economics of the biosphere, the whole of nature. We are embedded in it. We are part of nature.

Now, this might seem just words, but I wanted to appreciate, and I want listeners to appreciate that the models that, say, the treasury uses to forecast future demand and supplies and financial requirements and the models that academics produce in the economic sphere. These two are deeply embedded in each other for good reasons. In fact, good they are otherwise there'll be two different universes. These models do not have nature as an essential part of our human economy. Now, the way to think about nature at least from the perspective of their view is to think of ecosystems as the unit of account.

Of course, they're very enormously spatially as well as the speed of the processes that drives them, that's for sure. You could say the same thing about machines, different machines have different characteristics. We are looking at capital assets and these are ecosystems, land, but land is too generic a term. We want to think about the wetlands, mangrove forests, and so forth.

The idea is that you treat such assets on a par and keep them in fact, as fundamental to the production of other assets, such as machines, roads, buildings, produce capital that is, and human capital, education, health. Standard models of economics take produce capital and human capital extremely seriously, but regard nature roughly speaking. I'm exaggerating a little bit, but not too much, as an infinite supply out there from which we can draw and then create and invest and make lives flourish.

The problem is that over the past 70 years, what we have done is to have accumulated human capital and produce capital at an astonishing pace so that we live a very good life on average now. I'm talking about average terms globally. At the expense of natural capital, we have degraded. What we have done is just to mine nature and convert it into the stuff that we buy and sell. That's roughly speaking what the review is about is it asks us to in investment projects, considering human future possibilities, to regard ecosystems very much as assets that we should nurture, invest in, and so forth.

This tries to explain why we haven't done so. That of course has to do with institutional failure. Literally, it's a large market failure, some people call it. Much of nature is free, where it shouldn't be, so we don't cost it. We overuse it and so forth. The rest of it follows common sense, but the idea really is to sharpen that common sense into a rigorous form so that government models can be modified, in fact, drastically changed to bring nature into account and academic research as well.

Mark: Just going back to your comment about COP15 which is the Biodiversity Conference of Parties and COP26 which is the Convention on Climate Change, you quite rightly say that you feel, and you said in your report, there should be a new and ambitious direction for the future decade.

I think it's trying, as you say, to get that urgency within governments across the globe to actually do something. I'm interested in knowing your views on how a number of work streams are coming together and whether you're thinking they're working positively together and then what reaction you had from government.

Firstly, how you felt the reaction that government put out to your specific paper. Secondly, your thoughts about the very recent National Food Strategy that Henry Dimbleby has written, on which our association has commented, and many other people have picked up upon.

Then also work that Sir Dieter Helm has been doing on natural capital and his thoughts and propositions that a polluter should pay and maybe there should be a carbon tax and how that will be implemented. I guess, finally, to bring in the private market.

We're doing work with the Broadway Initiative and work on green finance. Also, Mark Carney has been tasked to look at voluntary carbon markets particularly the private sector with PLCs being involved with the ESG requirements in their reporting.

It's rather a large global question. I wonder whether you feel that actually things are beginning to slowly move in the right direction.

Professor Dasgupta: Well, I think they are. At least, in the UK they are. I wouldn't be able to say in other countries. As regards to your first question, the Treasury put out a response brief a couple of months ago to the review. Very extensive. It was extremely positive.

I had nothing but pleasure reading it. That was not a problem. It's taken pretty much all recommendations on board. Question is I have no idea whether it'll be translated into policy. That's first question. I think that things are moving.

Certainly, the Natural Capital Committee was designed to try and put value to various forms of ecosystems. A prop issue that I covered in the previous question of yours and it's trying to systematise it for this country, procedures for doing that.

It's almost like asking the statistical office of a country to redo its statistical basis, the information that it collects and coheres, into small numbers to be able to get a sense of what the state of the economy is. I think that's good.

There are many different ways of doing it. That's just in valuing nature and then aggregating them because you're trying to put together sums. Many countries are doing it now. China is a leader in that. New Zealand is one. Costa Rica is one and we are another. That's moving in. There are going to be a lot of disagreement for a while but that's okay. That's fine. People disagreed about how to compute national income by the way only 40, 50 years ago and it's still an ongoing project.

That's not an issue. You've got to get it as well as we can. The creation of giving incentives for investing in nature, I think in a sense I've covered it because the incentives are very low at the moment, small because of all these missing markets, so there's no payoff. The returns on investment in nature is low. If the fruits of that investment are priced at zero, so why would we invest? The economics of that is pretty clear. The design of the incentive systems are not that easy, of course.

Payment for ecosystem services is a very good institution, in principle, because it gives a clear signal to the owners of the asset as to what kind of investment will bring profits. Regarding the carbon markets, I have a slight problem. More than a slight problem, actually. In that, the economics of climate change is really-- I know it sounds a difficult one, but it's actually a very simple one. The way it's been framed, it sees climate regulation as the single service that nature provides.

I'm not exaggerating. Climate models are about the climate, about how carbon concentration translates into the climate system. Then you try and estimate a sea level rise or frequency of storms and floods, and so forth and so on. Then you try and cost those and you regard those as damages. You want to prevent them and so you take investment activity, essentially adaptation activities now. All right, the problem is that climate regulation is one of the many other regulations, the services that Mother Nature provides.

I mentioned that before. It was those regulating and provisioning services. Now, here's something that I think your audience would like to know. They know it, of course. You all know it. It's just that I'm trying to remind you of it. It's that these services are complementary to one another. They're not substitutes. You can't say I'm going to have more pollination at the expense of climate regulation. They hang together. It's almost like a house of cards.

Each card in the house of cards is a complement to the others. You remove one and thing topples. Now, nature isn't a house of cards, for sure, because it's robust. It's resilient and so forth. You know this better than I do even because you live with that. Remember, we are countering nature by humans, and we are damn clever now. If we put our mind to it, we can destroy nature. Yes, it can be made into a house of cards. That's what we're trying to prevent.

The problem with carbon markets is that, in the general scheme of things, a unit of biomass in the rainforest of Brazil is different from a unit of biomass in the Tundra. If you start having markets for biomass, it could play havoc. The system could be really bad news for nature if you see what I mean. Of course, even a unit of biomass in the Amazon means nothing because the Amazon is a huge-- It's a biome.

It depends on where it is located. Location matters because it fits in with other units of biomass to create the ecosystem that we're studying. That's why in my review I don't talk about markets for biomass. The unit of account is not biomass. The unit of count is ecosystem services and ecosystems as the asset which generates them and then we work backwards from that.

Mark: I've got a question from our past president, Tim Breitmeyer, who's looking at the, if you like, the revenue outcome from the natural capital that we've discussed, and the goods that come from the natural capital. The two particular items that he raises are food and water. He comments that they're currently in this country are very cheap. He notes that if we're going to manage the environment in the way that we've discussed this morning, those costs, the cost of those two particular products that he highlights should actually go up when you look at the economics of it.

Of course, when you look at some of the arrangements that the government, particularly Department for International Trade, are looking at the moment in going overseas with their free trade agreements, and the issue of importing of products, such as food, that's going to have an impact and could it end up having a deleterious impact on our natural environment in this country but also end up exporting some of those biodiversity and climate change issues overseas?

Professor Dasgupta: Thank you very much. That's extremely interesting. It also reminds me of the fact that I overlooked to respond to one part of your multi-faceted question at the end, which is about The Dimbleby Report. I think in some ways, this question is related to Henry Dimbleby's report that came out a couple of months ago, which I thought was in large measure, terrific. I saw the picture. It embedded the food problem within the review's picture of natural capital around the human economy and essentially analysed the food problem along the lines of the question, the way the question has been posed here.

There are missing ingredients during the production of food in the pricing system, so food is too cheap. I think if you include the subsidies, energy subsidies, the fertiliser subsidies, and so forth, throughout the world that I mentioned, of course, it means food is that much cheaper and it's indicated by the fact. It might sound odd to say that when people go hungry around here, even in this country, but it's not odd because that's a distributional issue and we can talk about that too.

The fact is, we are wasting about a third of our food that's produced. If it's that much waste, it must mean that we can afford to waste it, which is another way of saying food is very cheap. The answer to question is exactly right. These missing ingredients, these missing services that we are using to produce food means the food is too cheap. Okay. What about the exporting country?

The question is a very nice one for the reason that you allow me to pontificate about something that really is bothering me these days, which is, it is not an accident that the richest, if you like, the most productive ecosystems in the world, in terms of the maintenance and regulating services I keep on mentioning, are in the tropics, rich in biodiversity, another way of putting it, and it's not an accident, also, that the tropics are also where the poorest countries happen to be.

They're supplying primary products to us, to the rest of the world. Let's talk about poor countries and rich countries, and they're exporting primary products, which through a long supply chain ends up in the supermarket, food or whatever. Now out there for a variety of reasons, there are, again, bad institutions, and some of them are aggressively bad because they have bad governments out there, lots of them. Okay, let's not forget that. The price at which the primary products are exported are lower, possibly far lower than the cost that's borne by the people in those countries for the same reason that we've been discussing all through.

Let's say you deforest in the uplands, the upstream deforestation for exporting timber, for which there is high demand in rich countries, but of course, that is endangering the productivity of downstream farmers, fishermen, and so forth. Now that reduction in productivity downstream is not captured in the price at which the product is being exported because they're not being compensated. The input price is too low relative to the cost to those countries, which is another way of saying those countries are losing wealth and transferring wealth, without our noticing it, to rich countries.

Now, if you put it that way, it sounds absurd. It sounds extremely unfair, not right and it's not a conspiratorial theory. I'm simply saying this is what happens when you have missing markets. This is exactly what happens. Yes, one reason importing companies in this part of the world are increasingly worried, at least from the conversations I've had, is precisely that the ecosystems there are threatened, and they're the source of the primary products.

It comes back to the point we were discussing earlier that it's in the interest of the companies here to lobby to have themselves regulated to try and see that the ecosystems from which they're importing goods are not trashed. Where, at the individual level you may say, "Well, this is going to be trashed in five years' time and by then I will have retired. Why do I care?” These are interrelated problems and I'm very glad that this question was asked. It's a deep question of international development.