Applying Market Mechanisms to Ecosystem Conservation

Authors


Nature and the Marketplace: Capturing the Value of Ecosystem Services. Heal, G. 2000 . Island Press , Covelo, California, and Washington, D.C . 218 pp. $25.00 (paperback) . ISBN 1-55963-796-X .

I can remember attending a conference of ecosystem modelers at the University of Georgia in about 1972. In a main address, Eugene Odum, one of the principal developers of ecosystem science, said he was delighted that there were so many engineers at the conference, but that now it was time that economists and ecologists (and engineers) got together. Fortunately, this cannot be said now because there are currently entire societies devoted in various ways to the interface of ecology and economics. The problem facing ecologists and environmentalists is whether or not this interface is a good thing from the perspective of the environment. And the answer is not as easy to come by as Odum had hoped.

Geoffrey Heal “approaches these issues strictly from an economic and business perspective, as an economist with an interest in the environment, not as an environmentalist or an environmental scientist.” Although he does not say so explicitly, Heal appears to be the coauthor (with Partha Dasgupta) of another (well-received  ) book about environmental economics published in 1979, so I suspect he has been thinking about such issues for some time. It is clear to me that the author is extremely thoughtful and well-meaning and would genuinely like to bring his expertise and experience to bear on the problem. It is also clear that he loves and believes in economics (mostly of the neoclassical type) and markets and thinks they have brought enormous well-being to average American (and perhaps global ) citizens. Thus Heal goes about addressing how market-driven approaches can bring the benefits that have accrued to economic well-being in the narrower sense to environmental well-being. Heal is a thoughtful and exceptionally clear writer, and he argues his case persuasively.

Heal starts by stating that “[t]he natural environment provides the infrastructure on which human societies (and I would add economies) are built” and that we have not had to invest in maintaining this infrastructure because it has been self-repairing. The author says, however, that the situation is changing. Chapter 1 provides many examples, probably most familiar to the readers of this journal, of these “ecosystem services” and of their degradation. Chapter 2 switches focus to an explanation of (and some cheerleading for) the market system and how that has generated an “efficient” society (“it operates so as to leave unexploited no possibilities for [economic] gain,” which I might read as “… for exploiting natural resources”  ). He gives a proviso, however: market systems can operate efficiently only when all goods and services are private and when there is no difference between the private and social costs of producing the goods and services. Heal gives a number of examples of where the latter assumption is not met (through the generation of externalities) and also where he believes these externalities can be diminished by somehow transferring them (e.g., fish stocks or forests) to private ownership, thus ensuring that the resources have a spokesperson with a stake in preserving them (e.g., through limiting exploitation rates or encouraging ecotourism, for example). Heal's next chapters give a number of examples in which privatization in some form or another has led to protection of watersheds (e.g., ownership of large forested areas in the Catskill Mountains by the city of New York—not exactly a private concern). I found the most compelling examples to be the many game preserves in Africa, where ecosystems are protected because they provide revenue to the landholder through, for example, eco- tourism and hunting permits. Subsequent chapters delineate how privatization and market mechanism can be used to help reach carbon dioxide goals of the Kyoto Protocol (especially by paying countries not to cut their existing forests). His economic argument is that it is much cheaper for rich countries to pay these “insurance costs” rather than to have to pay later for economic costs that are likely to be extremely high (e.g., drought losses to agricultural crops). Likewise, Heal argues the importance of using markets to preserve biodiversity, such as when Merck pharmaceutical company gave a Costa Rican agency a million dollars for bioprospecting rights. He also quotes with satisfaction how cities in Brazil are preserving the forested watersheds above reservoirs, which greatly reduces water-treatment costs.

Of course none of this privatization can take place without some sort of arrangement for taking public or unowned (and hence in Heal's view unprotected  ) resources and getting them into the hands of some group that (supposedly) will look after them. Chapter 7 effectively examines the differences between price and value, which, incidentally, seems to me to undermine Heal's faith in price-driven markets. He has some rather pungent words for the attempts of some ecological economists to put a price tag on the services of the biosphere's processes: “a serious underestimate of infinity.” Chapter 8 examines “policies and institutions,” and in it Heal suggests ways to use, for example, property rights, taxation, and regulation. I was left a little confused as to how one would give markets the incentives to do the good things Heal thinks they can do without further increasing the role of government, which is not exactly what most free-marketers support.

In reading this book I was initially suspicious of market mechanisms. I was pleasantly surprised by Heal's arguments, however, and many of his examples, such as the African wildlife preserve, seemed very good. Nevertheless I believe in general that the approach advocated by Heal can win only a few small battles and has little use in the really large-scale environmental “war” we face. For example, although it may make sense to preserve tropical forests in the name of carbon dioxide retention (or any other concept that we can come up with), markets in no way are going to save the atmosphere from massive increases in the concentration of CO2. ( Even if the Kyoto Protocol was fully implemented, they would represent only 5% of what would be needed to maintain the present CO2 concentration of the atmosphere). I also have no particular sense that in Montana, for example, private forests are managed any better than the admittedly mismanaged federally owned forests there. Where we have made environmental progress, such as in cleaning up this nation's waterways or protecting rare species, it has been through good laws effectively enforced, not through privatization or markets.

Thus, I view this book as a well-intentioned and largely effective argument for market mechanisms as applied to certain environmental issues. But I would much prefer to consider markets as a tool in our tool bag rather than as a generally effective mechanism that will solve our environmental ills. (  For my own view of the intellectual bankruptcy of neoclassical [or market] economics see Hall et al. 2001 . Somehow I do not think Heal would disagree, for as I read the book I had a sense that his enthusiasm for pure markets diminished as he wrestled with how to use them to do what they are not intrinsically designed to do.

Ancillary