Five Hidden Challenges to Ecosystem Markets

by Morgan Robertson on .

The move to market-led environmental policy is obviously not occurring without opposition. Old-guard environmentalists long for the security of command-and-control state policies, while old-guard anti-environmentalists long for the abolishment of the environmental bureaucracy and, to be blunt, the freedom to pillage.

But there are other important sources of dissent. As a member of the team developing the federal wetlands compensation rule that governs the US market for wetlands credits, I came to have a great deal of appreciation for the way that such a market-led policy can advance state resource management goals. As a botanist working for an environmental consulting firm developing wetland banks, I came to have a deep appreciation for the higher ecological quality that can result from such arrangements.

But I have become extremely wary of attempts to gloss over the vast difference in logic that drives economic reasoning and scientific reasoning. And these attempts also ignore or silence a coherent set of related criticisms of market environmentalism emerging from the anti-globalization movement, the domestic environmental justice movement, and other important forces in environmental politics and policy.

In short, ecosystem service market enthusiasts make five assumptions that are likely to cause unwanted conflict with potential allies in science and civil society. Below I outline these oppositional arguments, collected across a range of viewpoints. But before I do so, let me be clear that all parties seem united on a basic goal: improved environmental quality and social distributional equity. This is the common ethical soul of philosophies as disparate as eco-Marxism, the environmental justice movement, and the “triple bottom line” of environmental economics.

Neoliberalism and “TINA”

The turn toward market-led solutions in all sectors of life, from health care to education to international relations to environmental policy, has been termed “neoliberalism” in most academic circles (from the “new” political application, beginning with the Reagan Administration in the 1980s, of the ideas of the classical “liberal” economists such as Jean-Baptiste Say and Adam Smith). In the realm of international development and conservation, neoliberal arguments tend to promote privatization and characterize state management as inefficient and ineffective.

In 1984, Margaret Thatcher famously announced that “there is no alternative” to moving from state-directed towards free-market policies. This phrase has been shortened to the acronym “TINA” and is used to refer to any rhetorical strategy which closes off criticism of market-led policy proposals.

The debate over ecosystem service markets has had its share of “TINA” moments, most notably in the 1997 declaration by Robert Costanza that “although ecosystem valuation is certainly difficult and fraught with uncertainties, one choice we do not have is whether or not to do it.” And so, for better or for worse, ecosystem service market advocates have ended up on the opposite side of the fence from the wide and diverse anti-globalization movement, from international labor solidarity, from Southern nations suffering from World Bank-imposed structural adjustment, and a host of allied interests.

However, close observation of the reality of ecosystem service market policy initiatives reveal a clear distrust for wholesale privatization and a widespread understanding of the need for state regulation in the construction of markets. It remains a field of policy in which the ideology of free markets is generally at the service of state-defined goals, a situation which would surely trouble both Thatcher and the academic proponents of neoliberalism such as Milton Friedman.

Talking Past Each Other

It can be said that “we don’t determine the speed of light in the Supreme Court.” Likewise, one doesn’t find the market-clearing price in the laboratory. In environmental policy, we have the intersection of three distinct logics: economics, law, and science. Each of them has a different standard of truth: science seeks to minimize error within the hypothetico-deductive method; economics seeks to maximize individual or aggregate a utility; and in law, as Justice Robert Jackson famously said in 1953, “(The Supreme Court is) not final because we are infallible, we are infallible because we are final.”

Creating commodities out of ecosystem services, however, tends to subordinate law and science to the axioms of economic logic, and requires that ecosystem dynamics described by scientists be rendered in terms amenable to economics: price and utility. Economists are famously inflexible on this point, and frequently assert that all the world’s manifold phenomena can be rendered in a form legible to economic logic. To non-economists, this is an intolerable form of reductionism (but, again, “there is no alternative”).

One enjoyable (but failed) attempt to resist this reductionism can be found in a running debate between Eugene Odum and Leonard Shabman in the late 1970s. Odum proposed that the value of ecosystems could be more accurately measured in the amount of solar energy captured in them, and that price was a less accurate measure of value than joules. Shabman responded with economic axiom, insisting that value is measured in utility and expressed in price. Rather comically, neither could engage the other beyond insisting upon the other’s fundamental wrongheadedness. Of course, both were correct.

As a consulting botanist, I do not object to economic logic; I object to its imperialist tendencies toward other logics. Ecologists should be wary of helping to develop cross-walks between ecological features and economic values unless they have a sufficiently deep understanding of the limits of economic logic.

There Is No Tragedy

The existence of Garrett Hardin’s “Tragedy of the Commons” has been axiomatic in market environmentalism. Its wide acceptance in this policy realm poses a serious problem for academic anthropologists and geographers, for whom the “Tragedy” has been, if not disproven, at least severely qualified, for some time now (see the lifetime of respected work by Elinor Ostrom and Ester Boserup).

Hardin’s thesis works only where there is an “open access” regime, meaning that there is no restriction on access to the resources in question. However, researchers studying the transition from subsistence to capitalist economies throughout history and in the modern developing world have found that “open access” regimes are only found where traditional economic patterns are in the process of being severely disrupted.

Hardin, therefore, is generally thought to have erected a strawman argument. In stable non-industrial societies, dense and complicated networks of rights to various aspects of commonly-held resources serve to limit their use to sustainable rates. Observers from societies where individual property rights are the norm are liable to mistake such “common property regimes” for “open access regimes”. More cynical observers of neoliberalism note that the policies of global economic development serve to disrupt common property regimes, artificially creating the very situation predicted by Hardin, and providing an excuse – the casus mercati, so to speak – to intervene with market-led policies.

If Hardin’s argument is so fragile, this removes one of the principal justifications for turning to markets in ecosystem commodities: that private ownership is the most secure path to good stewardship. Indeed, defining the environment as a set of alienable and individually-ownable goods and services has been shown to disrupt sustainable communal management strategies. Privatization strategies are therefore not encouraged in the 2005 Millennium Ecosystem Assessment report. But the operation of actually-existing policies does not always result in the private ownership of ecosystem services, and are often compatible with strategies of communal management and usufruct rights that predate industrial capitalism by centuries.

“Natural Capital”

Few rhetorical moves confound communication as much as the metaphorical use of “capital” in phrases such as “natural capital” and “social capital”.

“Capital”, when applied this way, threatens to mean nothing in attempting to signify everything: the great economist Robert Solow urged in 1992 that “It is absolutely vital that ‘capital’ be interpreted in the broadest sense to include everything, tangible and intangible, in which the economy can invest or disinvest, including knowledge.”

But it is capital’s specificity as “money or resources deployed in producing commodities for a market” that provides its analytic power. Suggesting that cultural beliefs or ecosystems can be analyzed in the same way amounts to a rhetorical dismissal of everything about culture and nature that cannot be reduced to an input to the production of a commodity fulfilling the utility function of the mythical homo economicus. And such rhetorical dismissals can be immensely powerful on the world stage, encouraging us all to assume that any value worth expressing can be expressed in price. This – it cannot be said enough – is a culturally-specific and axiomatic conceit of orthodox western economics.

Do not be surprised when enforcing this conceit engenders resentment: when nature or culture is defined as capital, this justifies attempts to exchange and circulate it through a global economy, away from the communities which may depend on its non-monetizable qualities.

What the users of these phrases are really trying to say is that culture and the environment are sources of value. Fair enough, but value should never be confused with either price or capital. To conflate these is sloppy thinking, whichever economic tradition one comes from. Costanza’s seminal paper employing the idea of natural capital states outright that the concept is a fiction whose total sum is incalculable. To be constructive, I would suggest that we use more meaningful and specific language: certain elements of nature, when properly quantified and described, may enter the economy as commercial goods/services, fixed capital or sources of rent – but this is only ever a subset of the entirety of nature. Trust an academic to sacrifice sexiness for precision.

How Much? How Many?

It is precisely this quantification and description that causes so many problems in the field. Every commodity must be subjected to standardized measures before sale: we buy gallons of gasoline, we buy pounds of bread, and we are assured by government standards that the gasoline has a certain octane rating and the bread is made of reasonably pure ingredients. Ecosystem service commodities, however, are described, at best, by proxy structural indicators of very complex ecological functions. While most people agree on the definition of “a pound,” it is rare to find agreement on how best to measure “turtle habitat” or “water quality”.

To become commodities, ecological functions must have standard and noncontroversial measures. They simply do not. It is both flattering and frustrating to ecologists when economists assume that ecologists can serve up whatever measurements are required. Ecological knowledge is vast but mutable and lacks consensus. As ecologist Paul Goldstein has said: “Only the imaginations of ecologists and the shortcomings of language place a ceiling on the alleged number of ecosystem properties.”

To enthusiasts, measurement is a problem to be overcome through applied science. To skeptics, the inability of science to provide rapid and noncontroversial commodity measures is a fundamental feature of the relationship between economics and science. Economic logic is powerful and widely-accepted, but just as it requires external legal rules to define and defend property, it requires external scientific validation to define and measure commodities. This science will inevitably move slower than the changing economics of demand. Measuring “turtle habitat” poses challenges of an entirely different order than measuring the weight of a loaf of bread.

To the aggravation of skeptics, statements that the measurement problems can be overcome are nearly always bald and unsupported assertions. They will be overcome, market advocates often say, simply because they must be – it is often framed as a trivial problem of sound science. Others are more circumspect, notably the diversity of views expressed in Kerry ten Kate et al.’s 2004 survey of biodiversity offsets. However, all assume ecological science will “catch up”.

Perhaps, but even where the science is possible it is unwieldy: in 2005 Doug Bruggeman and his colleagues provided a particularly convoluted example of an attempt to define, with scientific rigor, the natural capital value of genetic diversity. With unimpeachably sound genetic science, the measure they develop is still expressed in a very lengthy multivariate equation, with a verification procedure involving gel electrophoresis.

Moving Beyond Economics

Although academics are generally good at criticizing and bad at recommending positive solutions, the abundance of positive solutions, even through the above debates, is exactly what encourages me about market-led policy. Economic thinking, for all its apparent power, cannot put boundaries on the inventiveness and collaborations which are now occurring under the rubric of “ecosystem service markets”. As a witness to developments in water quality trading, it is apparent to me that nothing approaching “a market” in the strict economic sense will develop in the foreseeable future. However, a number of encouraging, extremely inventive, and satisfyingly effective strategies are emerging.

In some cases (but not all), the move towards ecosystem service markets has opened up an entirely new field of action for people who had previously been kept outside the normal decision-making process in environmental management. That modest level of democratization – often in spite of, rather than because of, the power of orthodox economic principles – is to be enthusiastically welcomed. Skeptics can share the above concerns, and yet find hope in the unpredictability of actual policy; some publish work that finds both progressive political possibilities and positive environmental outcomes in the playing-out of market-based policies. It is clear that markets are not going away, but neither is their future to be predicted by mere economics. Their potential for surprise is enormous.


Source: Ecosystem Marketplace, January 2009