Natural assets such as surface and ground waters, agricultural and forest lands, and wildlife habitats are accorded greater protection in the developed world than in the developing world, which lacks the institutions and economic surpluses necessary for investing in these assets and limiting their use. Yet even if institutions were in place and surpluses existed, natural assets would not be preserved without an indigenous demand for the public services they provide; however, that demand appears to grow as wealth and income increase. The developed world would have greater success in convincing the developing world to bear the cost of protecting natural assets if a plan of action focused on enhancing those assets, such as agriculture and drinking water, that provide private and quasi-public services, which are already in demand in the developing world.
In the developed world, the environment is generally regarded as a resource of immense value to be protected and preserved. Yet protection and preservation come at a cost. Estimates developed at Resources for the Future (RFF) suggest that the two major pieces of U.S. environmental legislation adopted during the 1970s (the Clean Air Act and the Clean Water Act) were responsible for a significant alteration in U.S. economic growth in terms of conventional measures of gross national product (GNP). RFF modeling studies suggest that by 1990 air and water pollution controls enacted in the 1970s caused the U.S. GNP to be as much as 5 percent lower than it would have been without the controls. Recent amendments to the Clean Air Act and other U.S. environmental regulations, such as Superfund, can be expected to add in a nontrivial way to the reduction in GNP. Coming to grips with global warming could dwarf the existing costs of environmental regulation in the United States.
As expensive as environmental protection and preservation have proven to be, it is clear the developed world seems prepared to bear this cost by redirecting income normally used to purchase services and manufactured goods toward efforts to enhance the flow of the services provided naturally by the environment. Unfortunately, unilateral acts to protect the environment are insufficient to protect and preserve global resources; therefore, the developing world must be convinced to act in concert with the developed world.
What sorts of arguments and programs will the developed world put forth to convince the developing world to sacrifice some portion of immediate economic growth for the prospect of lower but perhaps environmentally sound economic growth? The answer to this question lies in the answers to three others. What effect will collaborative programs for environmental protection and preservation undertaken by the developing world have on their own economic and environmental well-being? Does the developing world have any selfish incentives to act in a collaborative fashion, or must it be "bribed" by the developed world to adopt such programs? And lastly, are there any environmental protection and preservation programs that will lead to a development path that is consistent with the institutions, cultural values, and economic expectations of the developing world? Obviously these three questions are pertinent to multilateral environmental actions, but they are also important for unilateral actions that might be taken by the developing world to protect and preserve its own environment.
No one can purport to answer these questions without first devising a framework for thinking about the relationships among the natural world, economic activity, and the institutions and aspirations of the developing world. With understanding of these relationships, both the developed and developing worlds might be in a better position to craft workable policies that meet the expectations of each with regard to environmental protection and development.
Distinguishing between natural assets and natural inventories
The terms environment and natural resources are often used interchangeably as well as independently of and in conjunction with one another. In thinking about economic development, it is useful to distinguish between at least two aspects of the physical world—natural inventories and natural assets (or natural capital). This distinction is rooted in the early development of environmental economics and in recent research by those concerned with the accounting of national environmental incomes.
Natural inventories such as fossil fuels cease to exist once they have been used, but natural assets such as water are renewable because they can provide goods and services into the indefinite future if well managed.
Natural inventories include coal, oil, natural gas, ores, gem stones, and other such valuable materials. These items are in fixed, although unknown, supply and are distributed unevenly across the globe. Once they have been put to use, they cease to exist; and once all of them have been exploited, nature produces no more of them in a timely fashion. Inventories in the true sense are items that confer wealth to their owners because the items have economic value. However, their exploitation produces additional national income only in the sense that the owner is selling off wealth. An economy does not grow in an economic sense by the simple exploitation of natural inventories, although traditional measures of GNP may suggest that it has. Exploitation can only lead to growth if the proceeds from the sale of inventories are invested in capital items that will produce a greater rate of return than the growth in the value of the inventories themselves.
Natural assets are very different from natural inventories. Generally identified as the marine environment, surface and ground waters, atmospheric resources, agricultural and forest lands, and wildlife habitats, natural assets provide a flow of valuable goods and services. If they are adequately maintained and operated within tolerable utilization rates, they can continue to provide flows of services into the indefinite future. For this reason, many natural assets have been termed renewable resources; however, to underscore their service-providing nature, these resources are referred to here as natural assets or natural capital.
The value of natural assets is wealth to the owner. Moreover, the value of the goods and services provided by these assets, less costs to maintain the assets and thereby limit physical depreciation, is income to the owner with no offsetting loss of wealth.
Natural assets provide three types of goods and services, which economists traditionally refer to as private, quasi-public, and pure-public. Private goods and services are normally exchanged in markets, where access can be controlled and where one individual's enjoyment of them precludes all others' enjoyment. Examples of private goods provided by natural assets are agricultural commodities, forestry products, and fish and wildlife for consumption. Quasi-public goods and services may or may not be traded on markets, access to them can be partially controlled, and one individual's enjoyment of them may or may not affect others' enjoyment. Examples are irrigation and drinking water supplied by rivers, lakes, and aquifers. Pure-public goods and services are not exchanged in markets, thus access to them cannot be controlled and all can enjoy them without affecting any others' enjoyment. Examples are air, climate, and the aesthetic appeal of topography, flora, and fauna.
The distinctions made in this taxonomy provide insight into questions of development raised above. If natural capital is to continue to provide goods and services over time, it must be maintained and operated at tolerable levels of capacity. This suggests that investments must be made to maintain the quality of natural assets and that certain limitations on their use must be provided to ensure that their maximum capacity is not exceeded. Unfortunately, natural assets are frequently held in common, and an institutional structure that could govern their development and use is lacking. Moreover, even if these assets are assigned property rights, owners cannot reap the full value of their services because many of these services are quasi-public and pure-public. Thus owners do not have the proper incentives to make the optimal investments in natural assets.
Private owners cannot reap the full value of the services of their natural assets when these services are quasi-public or pure-public in nature; thus owners lack incentives to make optimal investments in natural assets.
By contrast, consider capital generated by people. Such capital is not an endowed commodity, but must be accumulated by slowly saving surplus from the economy and then turning the surplus into capital. In this context, surplus refers to an excess of national income above some socially determined level of subsistence.
That surplus is being accumulated suggests the institutions are in place to ensure that additional surplus can be generated to maintain the capital. In the case of natural assets, this is not true. Natural assets come as an endowment and generate services, but these services alone may not be sufficient to supply the surplus necessary to maintain the assets. Thus over-cropping, over-fishing, over-hunting, deforestation, and the like may occur without a complementary reinvestment to maintain the productivity of the assets being utilized.
To suggest that natural capital must be maintained and utilization controlled without the economic horsepower necessary to provide the needed surplus or the institutional mechanisms to control utilization is to misunderstand the relationship among economics, institutions, and the natural world. If economic value in excess of simple subsistence requirements cannot be generated, the means to maintain natural assets cannot be provided and utilization of those assets probably cannot be limited. Under such circumstances, if standards of living are not permitted to fall in the short run, all endowments will be consumed in the long run.
The above characterization of natural assets suggests that environmental preservation and protection programs cannot be effective in sustaining natural assets until institutions are in place to manage the common property nature of these assets, and economic development has proceeded to such an extent that required surpluses exist. If institutions and surpluses are prerequisites for environmental protection and preservation, then it seems only natural to deal with these issues before turning to the environmental programs themselves.
Demand for the services of natural assets
It has been remarked that the United States is fortunate to have constructed its interstate highway network; power generation, transmission, and distribution systems; flood control and irrigation dams; and most other aspects of its infrastructure before the current wave of environmental thinking engulfed much of the developed world. The United States would have a difficult time installing this infrastructure now—not due to a lack of surplus or institutions but to a strong preference for the goods and services provided by natural assets and to a growing environmental ethic.
Fifty years ago the United States was not as concerned about its natural environment as it is today. One hundred years ago it was even less concerned. It has been hypothesized that the accumulation of knowledge and the evolution of economic growth over those years may be largely responsible for current feelings toward the environment in the United States and other parts of the developed world. This hypothesis would suggest that, in economic terms, individuals view the environment as a "superior" good—that is, as income increases, the demand for the services of natural assets and for environmental protection and preservation grows proportionately larger than the demands for other goods.
A second hypothesis can be ventured. Some evidence suggests that the desire for particular kinds of environmental goods and services changes as income and wealth increase such that private goods and services are desired first, followed by quasi-public goods and services, and finally by pure-public goods and services. On the basis of this evidence, it can be hypothesized that individuals alter their preferences for the services of natural assets to give greater weight to the more "public" aspect of these services as wealth and income rise.
What implications do these hypotheses have for economic development and the establishment of environmental accords between the developed and developing worlds? They may suggest that it is ill-advised to ask the developing world to concern itself with the protection and preservation of the natural assets giving rise to pure-public goods (for example, climate resources) until it has generated the demand, institutional structure, and needed surplus to wisely manage those natural assets providing private and quasi-public goods and services (for example, safe drinking water and clean air). Even if the developed world could provide the needed surplus and the institutions to support maintenance of natural assets in the developing world and establish a workable mechanism for transferring this surplus and these institutions, natural assets would still not be preserved and protected without an indigenous demand for pure-public services. In other words, establishing indigenous demand is the necessary prerequisite for any further activity. Although there is probably little doubt that in developing countries a demand exists for the private and quasi-public services of natural assets, it is uncertain whether a demand currently exists there for the more intangible pure-public services of those assets. There is even greater uncertainty regarding the issue of when in the process of economic development that demand would manifest itself.
Credit: U.S. Department of Agriculture
Credit: U.S. Fish and Wildlife Service
Natural assets provide private goods such as agricultural commodities, quasi-public goods such as water for irrigation, and pure-public goods such as aesthetic appeal. Private goods are exchanged in markets, where access to them can be controlled and where one individual's enjoyment of them precludes all others' enjoyment. Quasi-public goods may or may not be traded in markets. Pure-public goods are not exchanged in markets
Implementing a preservation and protection strategy
The above hypotheses suggest the following strategy for preserving and protecting natural assets in the developing world. First, institutions needed to manage the unique character of natural assets must be established. Second, economies need to be stimulated to generate a surplus. This, of course, is nothing new; however, it is worth pointing out that the surplus would permit not only the needed investments in natural assets but would accelerate economic growth. If it is true that individuals attach greater importance to the more public aspects of services provided by natural assets as wealth and income rise, then the greater the economic growth, the greater the demand for environmental protection and preservation.
Even without regard for the environment, it makes sense to enhance natural capital that provides private services, because degradation of and failure to replenish this capital depresses economic development.
The above strategy can be implemented by focusing on those natural assets that provide private services—in particular, agricultural and forest lands and fish habitats. Degradation of these assets, which occurs often in the developing world, indicates not only environmental decay but economic development problems. The private goods and services provided by natural assets sustain life and help generate a surplus. If the natural capital used to produce these services is degraded and is not replenished, the economy can only get worse. Thus, on the grounds of economic development and without any regard for the environment, it makes sense to enhance this capital. Moreover, since the services provided by natural assets directly feed economic development, an indigenous demand for such enhancement probably already exists, and a negotiated program for enhancement may be easy to obtain.
Emphasis should also be placed on those assets providing quasi-public services—surface and ground water and air. Degradation of these assets can pose severe public health problems, which weaken not only the economy, but people as well; resolution of these problems should be given the highest priority.
Focusing on natural assets that provide private and quasi-public services may lead in the short run to the degradation of other assets that provide pure-public services—most notably, climate. For example, a strategy to reduce deadly levels of air pollution in Beijing may involve centralized heating systems rather than more energy-efficient decentralized systems. Yet some natural assets must be given priority over others. If a plan of action for preserving and protecting natural assets is to be negotiated under a regime in which the developed world and the developing world treat each other as equals, logic suggests that the plan focus on resources that are already in demand by the developing world and that would aid economic development and enhance public health.
Caring, nurturing, and ranking natural assets
The preceding analysis suggests two messages of importance for the United Nations Conference on Environment and Development. First, natural assets are special forms of capital, and like all capital—generated by people or naturally occurring—they require care and nurture if they are to continue to provide services. In the context of natural assets, care and nurture have particular implications. Care implies an institutional structure that is able to encourage the capacity of these assets to continue providing services. Nurture implies the ability to direct economic surplus to the maintenance and regeneration of the assets that have been injured or are currently being injured through use. Care and nurture require institutional as well as economic development, and such development should be the first priority of the developed world.
Second, setting aside issues regarding the ability and commitment of the developed world to transfer wealth and technology to the developing world, competing claims for small economic surpluses means that some sacrifices will be required of the developing world. These sacrifices will be necessary in the short run for all environmental preservation and protection projects, whether or not they are aimed at natural assets that produce private, quasi-public, or pure-public services. The difficulty of convincing a country to bear the costs of preserving and protecting these assets will be lessened if the country has a demand for the services that proposed protection and preservation programs are intended to enhance.
It will be easier to convince a country to pay for protecting natural assets if the country has a demand for the services that protection programs are intended to enhance.
It is important to realize that every country will rank its desire for particular services and that this ranking may not be to the liking of the developed world. However, any progress toward protecting and preserving natural assets that can be agreed upon will help build an indigenous environmental ethic and demand for additional progress. If everyone has patience in pursuing their environmental agendas, perhaps in time all will be served. If haste prevails, degradation of natural assets may increase.
Raymond J. Kopp is director of and a senior fellow in the Quality of the Environment Division at RFF.
A version of this article appeared in print in the January 1992 issue of Resources magazine.
A version of this article appeared in print in the January 1992 issue of Resources magazine.
