Ecology, Economics, and Ethics

A few years ago Cardinal Ratzinger (or was he already pope?) said that the church is not a discussion group. Well, the church would be much better off if it were a discussion group on the environmental crisis and the issues listed in Laudato si’. Sadly, in Ireland the agenda is set by tabloid snoops. Our Japan Mission Journal keeps an eye on ecological questions. The Summer 2016 issue reprinted the following: http://rowanwilliams.archbishopofcanterbury.org/articles.php/1550/ecology-and-economy-archbishop-calls-for-action-on-environment-to-head-off-social-crisis
We also published a similar piece that begins as follows:
[The following “Ecology, Economics, and Ethics” can be downloaded in PDF format HERE]
Stefano Zamagni, “Ecology, Economics, and Ethics”
Stefano Zamagni (born in Rimini, 1943) is Professor of Economics at the University of Bologna, a Fellow of the Human Development and Capability Association (HDCA), and a member of the Pontifical Academy of Social Sciences. His publications include The crisis of global capitalism: Pope Benedict XVI’s social encyclical and the future of political economy, co-authored with John Milbank (Cambridge: Clarke, 2012).
Environmental ethics, whether ecological, utilitarian, Rawlsian, or the ethics of rights, have revealed how and why humanity’s relationship with the environment constitutes a moral problem, a problem that implies a redefinition or extension of the concepts of duty and responsibility, and an alteration in the very image humanity has of itself and its relationship with nature. The ecological problem is first of all a problem of public ethos, hard to solve without questioning the ways we live together and the values held in civil society.
Economic theory is still inadequate to deal the environmental question because of its claim to be able to solve every conflict by recourse to laws and institutions that are ‘neutral,’ i.e. that do not presuppose any adherence to values or cultural assumptions, and are thus acceptable to all actors independently of the historical context in which they are operating. The formalism of economics is also seen in the idea that a society can find its cohesion and identity in efficient ‘rules of the game,’ concerning income distribution and collective choices.
We must overcome the false antinomies between independence and belonging, efficiency and justice, self-interest and solidarity—the suppositions that the sense of belonging reduces the subject’s independence, that progress in efficiency is a threat to justice, and that improvements in the individual’s interest enfeeble solidarity. While need, equality, efficiency, and entitlement might plausibly be described as competing criteria during the Industrial age, these have become necessary conditions for each other in the post-industrial era. In the new regime in which human capital has become the source of value and wealth creation, need satisfaction, distributive justice, efficiency, and entitlement turn out to be complementary elements of a comprehensive approach to sustainability.
It is precisely the subject of sustainable development that today is forcing economists to rediscover the centrality of values in their scientific work. In what follows, I shall examine the emerging new interconnections between economics, ecology, and ethics.
Economics ‘Discovers’ the Environment
Right from its beginnings as an independent scientific discipline, economics has focused on two central questions: how the social product is formed, and how it is distributed. The post-industrial phase of economic development has brought new problems, notably the ecological limitations that weigh on the process of production. The scarcity of resources was of course always a factor influencing the forms and rhythms of development, but up to recently scarcity was overcome by technological innovations, giving us the sense as we look back of a dizzying growth towards unlimited plenty, as if nature were no longer hostile and niggardly, as the ancients thought.
The contemporary picture is completely different. Industrial growth involves ‘external’ effects on the environment, which were held to be negligible at the beginning of the process but are now seen to be devastating. Depletion of natural resources such as air and water may now threaten the equilibrium of the biosphere itself, perhaps definitively altered by irreversible processes. Starting from the second half of the 20th century, humanity’s capacity for destruction has become a ‘biocidal’ phenomenon. It is becoming clear that an ever-increasing production of goods and services is incompatible (given the known productive techniques, the present organization of the economy, and the rate of increase of the population) with safeguarding the natural and urban environment. When humanity modifies the environment too rapidly (for example transforming the seas of oil from the earth’s crust into gas in the atmosphere) it creates a situation in which the speed of these changes is superior to the speed of its own adaptation to them.
When public opinion began to become aware of the environmental question at the beginning of the sixties—the influence of Rachel Carson’s Silent Spring, published in 1962, will certainly be remembered—the economists felt they were able to face up to the problem by using their own specific ways of thinking. However, the more influential shapers of public opinion passed on the idea that economics was synonymous with pollution and the destruction of nature. Economics and ecology were thus seen as opposite poles.
A major reason for this misunderstanding is that when economists in the 1960s became involved in ecological problems they thought they could make use of the instruments of analysis specifically designed for the branch of the discipline known as public economics, in its turn born of the merging of the older welfare economics and the newer theory of social choice. They saw the environmental issue as turning on resources (land, air, water, species of animals, forests) that have some basic characteristics in common: (a) they can naturally be regenerated; (b) they are often common property; (c) their over-use can lead to irreversible damage, in the sense of their total exhaustion; (d) the existing stocks of these resources, and not only their flows, directly influence people’s well-being; (e) the impact of economic activities on these resources is often cumulative and can be seen only after a certain stretch of time; (f) the environmental consequences of economic activities are basically uncertain (‘hard’ uncertainty in the sense that, environmental uncertainty cannot be dealt with by using the tools of the familiar theory of probability).
Problems involving these resources could be addressed, the economists thought, by starting from the two central notions of public economics: externality and public good. Damage to the environment caused by economic activities could then be imputed to a typical ‘market failure,’ i.e. to the fact that in the presence of environmental resources market mechanisms no longer guarantee, on their own, the allocative efficiency that since Adam Smith was considered their most important virtue. Solutions were sought in a suitable system of taxes and subsidies, as already suggested by C. Pigou, the inventor of welfare economics.
Until recent times, economic theory has developed two main lines of research to deal with the environmental question. The first aims at devising allocative mechanisms which are both not manipulable and efficient. In this line, environmental goods are treated as factors of production. The advantage of this approach is that an externality, e.g. pollution, is merely an unaccounted-for consumption of a scarce good. This means that those inflicting an externality on others are consuming society’s resources without redistributing the rent connected therewith. As long as the good is scarce, hence depletable, its consumption should be accounted for. The fact that it is not accounted for implies a sub-optional situation.
Is the Pigouvian proposal a satisfactory remedy to the problem of international externalities? Not at all, since Pigouvian taxes have never appealed to politicians or the general public. A careful examination of the emission charge and marketable permits schemes reveals that they are rarely, if ever, introduced in their textbook form. Virtually all environmental regulatory systems, using charges and marketable permits, rely on the existing permitting system. They are not implemented from scratch; rather they are grafted onto regulatory systems in which permits and standards play a dominant role.
The consequence of these hybrid approaches is that the level of cost savings resulting from implementing charges and marketable permits is generally far below their theoretical potential. Polluters have not been induced to search for a lower cost mix of meeting environmental objectives as a result of implementing charge schemes. The experience on marketable permits is similar. In other words, in order to function the economists’ proposals presuppose both that a competitive set-up actually exists and that it is possible to easily monitor and enforce a system of permits and taxes. Since this is not the case, firms will prefer emission standards to emission taxes because standards result in higher profits. Emission standards serve as a barrier to entry to new firms, thus raising firms’ profits. Charges, on the other hand, do not preclude entry by new firms, and also represent an additional cost to firms (see Hintermann).
The second line of research is concerned with the design of political institutions that are both feasible and efficient. An institution saves on the costs of economic transactions. Therefore, rational agents, in the sense of homo oeconomicus rationality, will devise mechanisms in order to overcome the pitfalls of the prisoners’ dilemma. Without some regulatory entity, the only alternative would be rent dissipation, leaving temporary gains to the quickest and most inefficient users. If one further assumes that the set-up cost of this entity does not use up all the captured rent—i.e. it is assumed that the ‘internal’ transaction costs of the agency are lower than those of all single agents bargaining among each other—and if there is some room for repayments in the form of non-distorting lump sums, then one can conclude that the existence of an authority raises welfare in the presence of environmental goods.
Well, it is not easy to escape the feeling that we are faced here with a sort of ‘tin-opener’ argument: suppose we have the best solution to the problem, then the problem will be solved! The truth of the matter is that it is not enough to have discovered the Pareto-improving character of the institution to be certain that it will come into existence automatically. Ascertaining the conditions for bringing such an institution into existence is the key question.
The conceptualization of the environmental problem in terms of a problem of externalities harbors a serious theoretical flaw. The notion of externality, as the effect of the action of an economic agent on the welfare of other individuals that is not captured by the price system, is not a primitive notion. It depends on the definition of economic actor and on the existence of markets. For example, if two companies operate in such a way that the one damages the other—the foundry that through its emissions of smoke damages the company nearby—an eventual merging of the two will mean that what beforehand were external effects now become a question raised within the same decision-making unit: the externality is internalized, but the pollution is still there!
It follows that we can speak of externalities only after an explanation has been provided for the number of economic actors and markets in existence. And since the number of firms and markets depends on very precise economic factors (non-convexity of production sets; transaction costs; access to information, etc.), it turns out that only an analysis of general equilibrium that, starting from market fundamentals, determined endogenously the number of firms and markets, could be a conceptually satisfying way of dealing with the question of externalities. Which it isn’t, given that the two conditions that allow us to identify the existence of externality are put forward axiomatically. To give an extreme example, if only one firm existed in the economy, there could be no externality. And yet, if this firm polluted and destroyed the non-renewable resources the integrity of the environment would turn out to be damaged just the same. Among other things, this simple consideration allows us to understand why in the countries of the ex-Soviet bloc, where there was certainly no market economy, the destruction of the environment was not at all inferior to that of western countries.
The conclusion has to be that economic science must, at the level of its very foundations, rethink the relationship between humanity and nature, leaving behind the idea of a ‘humanity without constraints’ that leads us to believe that any devastation is legitimate, in homage to certain anthropomorphic myths of omnipotence. What is needed is the recovery of the basic recognition that humanity is part of nature, is internal to it, and has a cognitive exchange with nature, which is its necessary term. Born into it, humanity, as part of nature, changes it, which is inevitable and also useful. But this must not spell destruction. Neither extreme anthropocentrism—which visualizes the human being as a predator—nor ecological pantheism—according to which the human species is an element of disturbance for the environment—are the solutions to the present crisis. The best foundation for environmental responsibility is the concept that the human being is the only moral subject who has responsibility for humankind, nature, and future generations.

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  1. Donal Dorr says:

    I think that Zamagni, the author of this article is one of the very best economists dealing with the economic and ecological issues. I have no doubt that what he is saying in this article is valuable. But I have to admit that I find it almost impossible to fully understand what he is saying here. The article is far too technical for me, even though I have a fair understanding of economics and of ecological issues. I would be very grateful if somebody could “translate” it into the kind of language that most of us could understand. Perhaps you, Joe O’Leary, might take on this task.

  2. I share Donal’s misgivings, even if I can just barely catch hold of the article’s conclusion: that we humans cannot evade moral responsibility for the consequences of the totality of our impact upon our environment. (?)
    Many of those consequences follow from the tendency of economists to make no distinction between what we humans actually need for sustainability and what we tend to want, very often for the sake of mere social or national prestige. Hence, all ‘demand’ tends to be treated as equal, and any collapse of demand as a disaster.
    This indiscriminate welcoming of all demand then impacts also on politics – which should instead be all about the shouldering of the responsibility argued for above. Hence the UK’s parliament votes again for the grotesquely stupid Trident replacement programme – for reasons of supposed ‘national security’ as well as the thousands of jobs the programme can sustain.
    The responsibility of those primarily concerned with ethics – e.g. clergies – is another matter. When will the latter rediscover ‘covetousness’ as ceaseless and unsustainable wanting of what we don’t need, driven simply by uncertainty as to our own value if we don’t have it? That too is as much part of ‘wanting Trident’ as it is of ‘wanting botox’ – or wanting an assault rifle to hang on the wall.
    While leaders of all stripes dither, catastrophe gathers itself to step in as ‘teacher of last resort’.

  3. Joe O'Leary says:

    Zamagni is not suited for online reading, and what I posted is only the start of his essay. For a more accessible treatment of the same points see Rowan Williams’ piece. Few have the gift of writing both accurately and engagingly on the urgent but complex issues. Sean McDonagh is one. Even Laudato si’ has rhetorical flaws. A more collective mode of discussion and sharing is needed.

  4. Joe O'Leary says:

    Here is something more accessible from Zamagni, for his essay in the spring issue of the JMJ:
    [Editor: Download the following ‘For and Integral Ecology’ in PDF format HERE]
    For an Integral Ecology
    It is not a shrill alarm that Pope Francis sounds in his encyclical Laudato si’, but a warm invitation to reconsider the basics of the model of market economy in force today. He calls us out of the night of thought into which the current time of transition often forces us.
    All markets are not equal, for they are the precipitate of cultural and political projects. One kind of market reduces inequality while another sends it soaring. The first is called civil, for it opens wide the spaces of the civitas, aiming to include virtually everyone; the second is the uncivil market, because it tends to exclude what it casts as ‘existential peripheries.’ In the current phase of the model of financial capitalism the second type of market has become predominant, and the results stare us in the face: social inequalities are increasing to a degree unknown in previous centuries, democracy is subjugated to the demands of the market, and environmental degradation is advancing at rhythms than can no longer be sustained. It is to this situation, not to hypothetical matters, that the Pope is drawing the attention of everyone, believers and non believers.
    Contrary to the impression a hasty reader might be left with, the Pope has nothing against techno-science or against entrepreneurship. Nor is it his intention to demonize the market economy. How could he do so, given that the market economy, as a socio-economic institution, was formed in the 14th-15th centuries in the mainstream of Catholic thought? The papal discourse has a much surer theoretical foundation than what a certain mass media vulgate would have us believe. It is a discourse stamped with historical realism. The Pope has no interest in ‘thin’ ethical theories, such as John Rawls’ theory of justice, for example. For Rawls the task of politics is merely to guarantee purely negative conditions, that is, to assure the freedom of choice of each individual. But freedom of choice is not the same thing as the freedom of being able to choose: if people do not know their capacities they cannot even desire to bring them to fulfillment. That is why Pope Francis combats for a ‘thick’ ethical theory**, which gives primacy to the good over the just rather than vice versa, as it seeks to realize all the capacities of the human being.**
    This important contribution to the Social Doctrine of the Church, written in a style accessible to everyone, no longer addresses environmental issues as problems standing on their own, albeit of great urgency, but sets them in the context of integral ecology, a new ecological paradigm. A second novelty is the robust scientific foundation of the argumentation, especially in the explicit appreciation of the work of natural and social scientists in chapter 1. The papal document bases itself on secure findings of the sciences of the earth and of life. The ‘lines of approach and action’ contained in chapters 5 and 6 shows the courage and prudence of this pope as he spells out the urgency of the faciendum—what is to be done. Human beings are called ‘to cultivate and preserve the earth’ (Gen 2:15). To cultivate demands that they take the initiative; they cannot adopt a passive attitude toward natural rhythms. To preseve implies that the planet must be cared for, not despoiled. It entails a welcoming attitude toward the earth.
    The great theme of the encyclical is well rendered in its subtitle: ‘On Care for our Common Home.’ Precisely because the world is an ecosystem, one cannot act on one part without the others receiving the impact. That is the meaning of the statement that ‘we are faced not with two separate crises, one environmental and the other social, but rather with one complex crisis which is both social and environmental’ (# 139). Ecology and economy have the same root—oikos—which designates the common home inhabited by humans and nature. But since the beginning of the Anthropocene—a term coined by the Nobel prizewinner for geology Paul Crutzen— that is, from the first industrial revolution in the mid 18th century—it has come about that human society has kicked nature out of its home, with ever increasing force. Nature’s resources have been savagely pauperized, with no regard for their reproducibility. In this the responsibility of ‘official’ economic science has been grave, for it has never—unless very recently—taken account of the ecological bond in its models of growth. Worse, mainstream economists have had hosts of ignorant scholars and ignorant managers believe that the goal of maximizing short-term profits was the condition that needed to be satisfied to ensure continual progress. This spuriously legitimized the vice of short-termism, one of the factors that unleashed the financial crisis of 2007-8.
    Well, it is in an effort to straighten out this ‘twisted wood’ of modernity that Pope Francis pours out strong words of denunciation against the regnant model of growth. Three principal theses are argued and defended in Laudato si.’ The first is that the fight against poverty and sustainable development constitute two sides of the same coin. ‘The human environment and the natural environment deteriorate together’ (# 48). If so, all interventions that presuppose a separation between poverty and environmental conservation are destined to fail. If the poor countries fear eco-imperialism, through collusive agreements between the environmentalists and neoprotectionists of the advanced countries who want to limit their access to the market, to the contrary the environmentalists of the North fear that the measures of environmental protection may be weakened by the WTO (World Trade Organization) in favor of setting low environmental standards. This situation betrays the lack of an integral vision, a failure to see that social and environmental degradation are two sides of the same coin. Some years ago S. Pastel wrote: ‘The world economic system seems incapable of confronting at the same time the problem of poverty and that of environmental protection. To treat the ecological ills of the earth separately from the problems linked to situations of indebtedness, trade imbalances, inequalities in levels of income and patterns of consumption, is like seeking to heal a cardiac illness without combating the patient’s obesity and his rich diet of cholesterol.’
    The second thesis is that the ecosystem is a global common good (## 23, 174)—thus not a private good, and not a public good. Since no global governance of the economy yet exists, we find ourselves having to deal with a single climatic system, a single ozone layer, and so on. These are indeed global common goods: the use of them on the part of one country does not diminish the amount at the disposal of other countries; and no country can be excluded from drawing on them. (Clearly, the emissions of polluting substances represent global common ‘evils.’) The problems of handling these common goods cannot be met by the traditional market instruments—from privatization to ‘the strategy of buying and selling “carbon credits”’ (# 171) associated with the name of Ronald Coase—nor by directives at the service of national governments.
    As economic theory has known for some time, common goods give rise to a vexatious consequence—to what is called ‘the tragedy of the commons.’ Commons are subject to the devastating consequences typical of situations like the well known ‘prisoner’s dilemma’: each waits to see the other’s move so as to take advantage of it, with the result that no one makes the first move. And if the common good is global the unhappy consequences will be global as well. In 1990, the Intergovernmental Panel on Climate Change had shown that greenhouse gas emissions had led to a rise of medium temperature, with all the consequences that are well known. Yet very few countries too unilateral action to reduce their emissions. Similarly, the European Union proposed the introduction of a carbon tax in Europe, but after observing that the example was not being imitated by other countries (particularly the USA) the EU decided to change its programs. These are precisely the features of common goods that render unilateralism fallacious as a strategy of environmental politics.
    Moreover, even if sometimes some form of agreement or international treaty is reached, by way of negotiation, the problem that will still always have to be resolved is that of executability. Consider the case of the Montreal Protocol on Substances that Deplete the Ozone Layer (1987) and the case of the Kyoto Protocol on climate change (1992). Why did the first work, so that it continues to produce the desired effects, while the second substantially failed? The answer is clear: the Montreal Protocol contains a mechanism of incentives designed to favor participation and adhesion on the part of all the signing countries, a mechanism, that is, whereby it is in the interest of each country to follow the agreed on regulations. Not so with the Kyoto Protocol, whose drafters were unable to find any mechanism that could ensure its self-enforcement.
    The third thesis, finally, concerns the Pope’s warm defense of economic biodiversity. A market that wishes to be and remain civil cannot prescind from the plurality of the forms of enterprise, and in particular it must leave space for those subjects who produces value—and thus wealth—anchoring their own behavior to principles like that of mutuality and intergenerational solidarity. To deny or impede this would be to turn one’s back, irresponsibly, on integral human development which, let it never be forgotten, comprises three dimensions: material (growth); socio-relational; spiritual. The relation between these dimensions is multiplicative, and not additive, as the economic mainstream would have us think.
    As Amartya Sen suggests, there is a grave confusion of thought between ‘market omissions’ (what the market doesn’t do, but could do) and ‘market malfunctions’ (what the market does, but does badly). It is from this confusion that there arises a political praxis that rather than favor ‘market including’ interventions (those that aim to include tendentially everyone in the productive process), carries out ‘market excluding’ interventions, those that do not permit the inclusion of ‘surplus people’—people expelled as irrelevant and who are to be handled as objects of social assistence. Scrutinizing attentively the current scenario, Pope Francis suggests that we adopt an ecological outlook that takes all the dimensions of human value into account and thereby remains alert to the risk of ending up squashed in the lethal circuit in which increase of technological efficiency (power) combines with unlimited espansion of subjectivity (the will to power). Technological reason is no longer a sure guide for a model of integral human development. We need to recover a sense of limits, aware that the union of power and the will to power generates the hubris that leads to downfall.

  5. Lloyd Allan MacPherson says:

    One of the best songs I’ve heard recently touches on this topic. It is written by a band called “twentyonepilots” and they’re commonplace within the 12-20 age range. I want to hear from the economics community about as much as I want to hear from law makers on this subject. If they could only agree the population is being poisoned based on our current consumption numbers. Oh, it’s the smoke in the air don’t forget – bees, humans, other species dying off at record pace (Christians).
    So what is the basic message to the 12-20 year olds from a spiteful international top40 band. The answer to life’s questions are at stake. “Heavydirtysoul” is the track name – 2 piece band (electronic/pop/top40 worldwide).
    If any of you can’t understand what it is they are saying right now in record numbers is that it is time. They are all for it!
    There’s an infestation in my mind’s imagination,
    I hope they choke on smoke ‘cause I’m smoking them out the basement,
    This is not rap, this is not hip hop,
    Just another attempt to make the voices stop,
    Rapping to prove nothing, just writing to say something,
    ‘Cause I wasn’t the only one who wasn’t rushing to say nothing,
    This doesn’t mean I lost my dream,
    It’s just right now I got a really crazy mind to clean.
    And goes on to admit that it makes them cry – the thought that this generation is being treated this way. We are abusing children that haven’t even been born yet. Why? Because of economics and law makers and an absence of them. Can you save our heavy dirty souls for us? Please. You won’t know half of the abuse at your lifespan. You’ll get to watch it play out over an eternity it will seem. That’s not going to happen though.
    You are all on the right path – it’s time to focus on the status quo of the 12-20 year old. Laudato si is right there and protects Catholics world wide. I’m just enacting my inalienable rights to its subject.
    Wish me luck 🙂

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