Is Economic Valuation a “Neoliberal Road to Ruin”? A Response to George Monbiot

George Monbiot is actually an environmental journalist I esteem highly. But I do not agree with his aggressive criticism of what he calls a “neoliberal road to ruin”, which I would prefer calling economic valuation of environmental goods and services [the linked article is a transcript of Monbiot’s talk, which you can see below]. While he does make important points, I see his criticism as mistaken in many respects. In what follows, I would like to respond to some of the points he made.

Monbiot begins his attack against the “Natural Capital Agenda” with a strange equation of it with neoliberalism, which term he seems to understand as all that is bad in modern capitalism–particularly inequality (“If wealth under this system were the inevitable result of hard work and enterprise, every woman in Africa would be a millionaire.”) and financialisation/marketisation. To him, what I and other economists in the field of economic valuation of ecosystems are doing is to promote neoliberalism:

So just at this moment, this perfect moment of the total moral and ideological collapse of the neoliberal capitalist system, some environmentalists stumble across it and say, “This is the answer to saving the natural world.”

As you might have expected, I do not agree with that (though I largely agree with his general criticism of the ills of modern capitalism). I will give more reasons for my disagreement below, where I will examine the main points of Monbiot’s talk. Still, some preliminary hints as to what is wrong in his argumentation might be in order. First, no sane person would view economic valuation of anything as the panacea to the world’s (environmental) problems, as he suggests we do:

And they devise a series of ideas and theories and mechanisms which are supposed to do what we’ve been unable to do by other means: to protect the world from the despoilation and degradation which have done it so much harm.

Second, he conflates some more narrow approaches to the issue of economic valuation with the general idea, e.g., when suggesting that a) valuation must lead to commodification (“the pricing, valuation, monetisation, financialisation of nature in the name of saving it”), b) non-economic values are considered non-existent (“Ecological processes are called ecosystem services because, of course, they exist only to serve us.”) and c) ecosystems are viewed through a technocratic economistic lens (“Biodiversity and habitats? Not at all à la mode my dear. We now call them asset classes in an ecosystems market.”). These are more general issues. I would now like to turn to the four arguments Monbiot makes in his talk and examine them more carefully.

Problem One

Perhaps the most trivial argument against the Natural Capital Agenda is that, in the majority of cases, efforts to price the natural world are complete and utter gobbledygook. And the reason why they are complete and utter gobbledygook is that they are dealing with values which are non-commensurable.

Potential incommensurability is indeed an important limitation of the economic valuation approach. There are ways to alleviate its severity (e.g., through deliberation), but it is real, and in some cases valuation is not possible because of incommensurability of values–e.g., when so-called spiritual values are involved. However, such cases are arguably seldom. Mostly, economic valuation is limited to the ecosystem service categories known as provisioning and regulating services–which are, interestingly, cases whose valuation Monbiot accepts as sensible. What he does not accept, although without using this term, is the monetisation of non-use values, such as aesthetics, existence and altruistic values. Indeed, the sensibility of their valuation is a matter of controversy in the economic literature. When valuation of such non-use aspects of ecosystems is conducted, however, it is done via stated preference methods, i.e., by use of questionnaires. We are asking people how much they would be willing to pay to prevent a change in an ecosystem–and, hey, they do answer such questions! There are some who don’t, and the question what to do with such “protest votes” is another controversy within the economic profession, but in most cases most respondents do state their willingness-to-pay for changes in ecosystems. I would interpret this as a sign that incommensurability is not such an issue as often thought. This might well be a developed world phenomenon, as we have got used to “thinking in money” terms. In developing countries, especially in rural areas, economic valuation might be much less sensible. But developed country inhabitants seem not to have such problems with alleged incommensurability. Additionally, behavioural studies tell us that people are well capable of–and used to–“intensity matching”, which allows them to compare things that are “measured” on very different scales. This explains why theoretical incommensurability needn’t result in empirical one. One can dislike that, but to deny it does not solve the problem. And it does not constitute a valid argument against economic valuation, at least not in my eyes.

Furthermore, which is often overlooked by both critics of the economic valuation approach and by some practitioners alike–we do not value ecosystems in their entirety. We value changes in them. I discussed this issue at length in the context of the value of a statistical human life recently, so I won’t repeat the whole argument here. But I think that this, too, alleviates the severity of the incommensurability problem. We might be reluctant to “give away” an ecosystem for a specific amount of money–but we still might find it acceptable to express our appreciation of a (small) change in its state in monetary terms.

Still, incommensurability is an issue and there are cases in which it prohibits the application of economic valuation. But it is, I would argue, far less frequently the case than is implied by Monbiot.

Problem Two

you are effectively pushing the natural world even further into the system that is eating it alive […] commodification, economic growth, financialisation, abstraction […] Ecosystems function as coherent holistic systems, in which the different elements depend upon each other.

Here, Monbiot is quoting one environmental economist (Dieter Helm) and a government agency (Ecosystems Markets Task Force) who argue that “the environment is part of the economy and needs to be properly integrated into it so that growth opportunities will not be missed” and that “City financial expertise [be harnessed] to assess the ways that these blended revenue streams and securitisations enhance the return on investment of an environmental bond”, to argue that economic valuation = commodification. This is an old adage I mentioned recently, so I will limit myself to restating this: the identification of ecosystem services needn’t lead to their quantification; quantification needn’t result in valuation; valuation needn’t be monetary; monetary valuation needn’t be the first step to commodification. Some economists think along these lines–from valuation to “market for nature”–but many others don’t. And there is a very good reason for that: most ecosystem services are public goods. And while some stubborn neoliberal economists and politicians still maintain that the provision of public goods is served by privatisation and markets, the majority opinion–as expressed, e.g., in the landmark report of the TEEB (The Economics of Ecosystems and Biodiversity, a UNEP-led project) on Ecological and Economic Foundations–is that public goods should not be privatised and traded in markets.

And even where ecosystem services are “commodified”–e.g., in PES (Payments for Ecosystem Services) schemes, economic valuation studies mostly are not involved. The amounts paid to, say, farmers for conservation of particular ecosystem components on their land are the result of negotiation and political choices, not of economic valuation exercises. So the link from valuation to commodification is very tenuous, actually.

Monbiot makes one good point in his discussion of Problem Two: that ecosystems are complex, coherent systems. Economists sometimes make the mistake of valuing single ecosystem services, often by use of different methods, and then aggregating them by simple summation. This is not sensible. Instead, ecosystems should rather be valued as a whole. There is a need for more holistic views. The problem is that such “holistic” valuation can only be achieved by means of stated preference methods, which are quite controversial. But this is a different story altogether from what Monbiot is trying to say.

Problem Three

Governments and the Commission are failing to assert political will.

I do not really understand the third argument Monbiot makes. He accuses the economic valuation approach of ignoring power issues. As examples/analogies he invokes two particular examples–the EU Emissions Trading System, which, while being a good idea theoretically, never has really worked due to political problems (too high a cap); and a famous mangroves valuation example from the TEEB reports (where it was shown by Edward Barbier that keeping a mangrove forest intact is much more “profitable” than converting them into shrimp ponds): “People have known for centuries the tremendous benefits that mangrove forests deliver [so valuation was not needed to show this].” But did those people really know it? And who are the people who knew? This is a stark oversimplification that downplays the possibility that Barbier’s monetary analysis actually made this issue interesting to people who did NOT know that mangroves are valuable. It is an issue worth empirical testing. What Monbiot does here is simply an unsubstantiated assertion.

With regard to the EU ETS example–and the general issue raised by Problem Three–I do not see why this is a problem of economic approaches/instruments alone. That there are lobbying groups who prevent effective policy, not only in the environmental area, is a trivial insight. No matter what kind of policy instruments and approaches be chosen to protect the environment, it won’t be easy to keep vested interests at bay. Furthermore, Monbiot implies that economic valuation is viewed as a panacea–which it isn’t, as I already tried to affirm. It is a means that might help to achieve the overarching goal of maximising human well-being in the long-term, given the “budget constraints” that we as a society face.

Another problem raised by Monbiot under Problem Three is the common (and partly justified) criticism of cost-benefit analysis (CBA), that it is often assumed to make democratic decision-making processes dispensable. It doesn’t. As Monbiot puts it, when a valuation reveals that development of a natural area is worth more than the value of the area in its natural state, “The barrister will then be able to say, “Well there you are, it is x+1 for the road and x for the wood. End of argument.”” Some would indeed like to see it like that. However, most sane economists recognise the limitations of economic valuation methods and are aware that they can provide a glimpse at the relevant order of magnitude, at best. Not exact values. There are concepts that show how to incorporate such imprecisely calculated monetary values into broader decision-making frameworks, as for example Multi-Criteria Analysis.

Towards the end of his CBA critique, Monbiot slips into conspiracy theory territory when stating that “cost benefit analyses for such issues are always rigged”. This is sad–the rest of his criticism is more or less factual and objective, even though I do not agree with most of it. But pulling such silly conspiracy-theory-“arguments” is not what I would have expected from him.

Problem Four

In other words, we are trying to make a case to people who just don’t care about the natural world. How do we convince them, when they don’t share those values, to change their minds? To me the answer is simple. We don’t. […] We are saying “because our opponents don’t share our values and they are the people wrecking the environment, we have to go over to them and insist that we’re really in their camp. All we care about is money. We don’t really care about nature for its own sake. We don’t really believe in any of this intrinsic stuff. We don’t believe in wonder and delight and enchantment. We just want to show that it’s going to make money.”

This argument is based on the presumption that pro-conservation arguments using economic valuation language are a matter of desperation and that those who make them are not convinced themselves. I think that this is at least a matter worth empirical testing and I would not take it for granted. Furthermore, it is not that we want to convince the managers of Nestlé & Co.–that most likely won’t work indeed. But economic valuation can be informative for the general public and for policy-makers, and it can provide them with arguments for the use in public debates. As I mentioned above, modern “rich” societies are, as a matter of fact, used to “thinking in money terms”. Denying it won’t solve the problem.

Another problematic corollary of Monbiot’s argument–as I understand it–is that the refusal (or resignation) to “convince the others” means to give up on democracy, in a way. Democracy is, above all, “government by discussion” with the goal to convince others. I don’t say that we actually can realistically expect to achieve it–in many cases, we can’t. But, to put it bluntly, if you do not at least hope for that (or just stubbornly try if you can’t hope–as I do), you’ll either become marginalised or land in an (eco-)dictatorship sooner or later.

Monbiot’s proposed solution is the familiar call to mobilise those who think as he does, who value Nature intrinsically etc. This is not a new strategy. And it hasn’t worked so far! Moreover, I would hesitate to view it as an either-or alternative to economic valuation. They might well be complements.

To sum up, I think that the main problem of George Monbiot’s argumentation against economic valuation of environmental goods and services is that he conflates the science behind economic valuation and some cherry-picked misinterpretations/misuses of it. Also, he seems to be generally “allergic” to economic concepts–I don’t see any other possibility to justify his eagerness to equate environmental economics with neoliberalism. While having some points, which I tried to appreciate in my response, I think that he generally misses the target. For sure, economic valuation is not THE road to salvation. But nor is it a “neoliberal road to ruin”.

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4 thoughts on “Is Economic Valuation a “Neoliberal Road to Ruin”? A Response to George Monbiot

  1. Bartosz

    Equating the Natural Capital agenda with neoliberalism is not at all a strange or inaccurate observation with regard to political-economy throughout the G20. That’s not to indict all economists as active proponents of neoliberalism, however economization and financialization are central to neoliberal discourse, policy, and governance which essentializes the logic and resilience of the markets and assumes that ‘everything’ is commodifiable. Economic framing and valuation of the environment is by no means neutral in this context; pricing nature all too readily lends itself to the potential for selling it in a market.

    I don’t doubt your obvious passion, interest, and faith in the role that environmental economics might play in galvanizing conservation and contributing to a sustainable future. I guess my own interest lies in the efficacy of ES valuation as in how it translates into effective environmental conservation and remediation. Beyond our deliberations and refining our models, methodologies, and understanding, the degradation continues. Here, I could cite intensified CONG development, palm oil production, and the list goes on as does business and (over) consumption as usual.

    While I don’t completely subscribe to Monbiot’s critique, I can well understand his alarm and frustration. Again, my own concerns regarding ES valuation as an adequate measure for effective development and conservation strategy is the age old problem of misappropriation. In real world terms, those who think and care about the challenges ahead want to see mitigation at work, and sooner than later. Bottom line, nature priced or not, outwith the earth, outwith the biosphere, there is no life.

  2. Thanks for the comment. I don’t think that there is much disagreement between us. My response to Mobiot is to some extent me playing the Devil’s advocate. On the one hand, I do not think that the idea of economic valuation is that bad–many economists working in this area are aware of the approach’s limitations, as well exemplified by the TEEB report on Ecological and Economic Foundations. But, as you rightly point out, the approach is being misappropriated all too often. Not only to the bad–the most-quoted valuation study is the famous Costanza et al. paper published in Nature in 1997. But this study is economic nonsense. Of course, misappropriation by “neoliberally inclined” businessmen, politicians etc. is much more dangerous.

    Then, of course, there is the important question of whether the ecosystem services approach (with or without valuation) does any good, whether it changes anything to the better in the net. I don’t know. I’m not sure that it does. But the fact is that I am not aware of any approach that fares better. As you write–while we, environmentalists, environmental scientists etc., keep communicating the problems in many different “languages”, including the economic language of values/prices, no-one seems to really listen. That’s somewhat disillusioning, no matter which approach you follow, whether you appeal to morals or economic interests.

  3. There’s an Albert O. Hirschman quote I always find helpful and this pertains to any paradigm/episteme you care to consider:

    “But after so many failed prophecies, is it not in the interest of social science to embrace complexity, be it at some sacrifice of its claim to predictive power?”

    Read, question, observe and wonder widely. Foster pluralism and maintain a healthy skepticism within and beyond your own orientation and beliefs. My own clarion call is and always shall be, “Onward through the fog!’ What’s important is always easier said than done, but never give up and keep writing.

    When it comes to the pervasive and amorphous fog of politics, Brad Evans & Julian Reid list a fine set of principles in “Resilient Life”:

    (1) Be deeply suspicious of anything that masks itself in universal regalia. Bring into question that which is not being questioned in the normal state of affairs.

    (2) Move beyond any self-righteous and self-absolving assessments of the operations of power. Look to deal with power at the level of its effects and the ways in which it positively manipulates subjects to wilfully abandon their own political freedoms.

    (3) Foreground the affirmative qualities of subjectivities. Not only is this integral in the fight against fascism in all its forms. It opens a challenge to the narcissism of those who would have us surrender to the mercies of the world.

    (4) Speak with confidence about the ability to transform the world, not for the better, but for the sake of it. Without an open commitment to the people to come, the struggle is already lost.

    (5) Use provocation as a political tool. Not to evidence extremist views. But to illustrate how normalizing power truly fears anything that appears remotely exceptional. The poetic most certainly included.

    (6) Trust in the irreducible qualities of human existence. The feelings we have, the atmospheres we breathe, the aesthetics we enfold, the fables we scribe, the playful personas we construct, they are all integral to the formation of a new image of thought.

    (7) Have faith in people. Just as they will resist what they find oppressive and intolerable, so they will also find their own dignified solutions to problems in spite of our best efforts.

    (8) Do not shy away from conflict. Without conflict there is no resistance to power. And without resistance to power there is no creation of alternative existences.

    (9) Reveal fully your political orientations. Do not abstract them from the work. Such a deception is of the order for those embarrassed by the mediocrity of their power.

    (10) Speak with the courage to truth that narrates a tale to affect a number of meaningful registers. No book should be read if it doesn’t intellectually challenge and emotionally move us.

    All the best. . .

  4. What I would add is that it is imperative, as a social scientist, to always be transparent as to the assumption one’s analysis is based on. Economics often suffers from the apparent conviction of economists that it is only OK to follow the allegedly “objective” guidelines of neoclassical/Neo-Keynesian theory. However, neither are these truly objective, nor is there a need to stick to one paradigm–as long as one makes it transparent, it is OK to adopt frameworks and assumption differing from the “state of the art”. At the same time, of course, one has to be able to accept and respond to criticism of such deviations.

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