HIstorical perspective and environmental cost-benefit analysis

149

HISTORICAL PERSPECTIVE AND ENVIRONMENTAL COST-BENEFIT ANALYSIS Jacobus

A. Doeleman

This article is concerned with the analytical as well as political strengths and weaknesses of the application of cost-benefit techniques in cases of environmentally sensitive projects, and highlights the historical perspective against which the rapid development of the modern age can be evaluated. When environmental conflict is considered in its historicallfuturological dimension, a more deterministic point of view becomes acceptable. This point of view entails the notion that microenvironmental decision makers are compromised by macrotechnological change and environmental parameters -both economic and demographic momentum-over which they have no control. Environmental policy, therefore, appears to call for macroenvironmental direction. In the absence of such direction, cost-benefit economists may find themselves forced to provide the right solutions for the wrong problems, with perhaps disconcerting prospects for the long-run future of the man-nature relationship. Keywords: environmental policy; global futures; cost-benefit analysis

(C/B) analysis is designed to assist in ad hoc evaluations of major programmes or projects, either of a private or public works nature. Characteristicaiiy, the ramifications of such programmes or projects are anticipated to extend beyond purely commercial calculations. Where investment analysis may determine the profitability of some proposed development on account of C/B analysis adds extra-commercial expected market costs and returns, considerations not otherwise accounted for and which are of concern to the public. This means, inter alia, that the C/B analyst owes allegiance to the public interest. Also, it means that he or she can be expected to serve either under COST-BENEFIT

Jacobus A. Doeleman is with the University of Niewcastle, NSW 2308, Australia. The author is thankful for helpful comments by an anonymous referee, Allen C. Oakley, Clem A. Tisdell and Brian J. Williams. Responsibility for the views expressed is his own.

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0016-3287/85/020149-15$03.000

1985 Butterworth

& Co(Publishers)

Ltd

direct instructions from a government body, or indirectly, of government’s legislative or regulative requirements.

The environmental

impetus

to cost-benefit

within the framework

studies

External costs and benefits In carrying out the task of public accounting, the C/B analyst wishes to capture in particular those values first described by A. C. Pigou’ as social costs and social benefits, but of late having become part of economic jargon under the heading of externalities, which are also referred to as external effects or external costs and benefits.’ External or social benefits may relate for instance to unemployment relief resulting from the undertaking of some major construction development. If workers were not contracted away from other enterprises, their private cost in wages and salaries may be viewed as a social or community gain. Such a gain would not of course be featured in a strictly commercial viability calculation. Similarly, external or social costs may arise in the same hypothetical construction development. For instance, land acquisition costs might not have reflected the alienation of some unique area of wilderness; or, the subsequent operational phase of the development could bring with it unavoidable or unabated pollution spillovers of one kind or another. By explicit incorporation of social considerations not allowed for on the basis of private profitability criteria, C/B analysis acknowledges the presence and significance of values external and in addition to market costs and benefits. Combining this together with the fact that systematic and widespread usage of C/B analysis dates back no more than one or two decades, one might conclude that the market mechanism is apparently perceived to be in greater need of correction in the present than it was in the past. Today, in other words, the allocative and distributional guidance by the market’s famous ‘invisible hand’ is more readily being supplemented (supplanted) by a scientific/bureaucratic manipulative hand. According to the advocates of free enterprise and small government, this is a questionable trend, while others have argued the opposite, in that the upsurge in the application of C/B analysis testifies to increasing awareness and resourcefulness with respect to problems in our social and natural environment. Indeed, the rapid growth in the application of C/B analysis has been held indicative of how greater enlightenment has come with the comparative abundance of our times. Historical context Contrary to following the perhaps wishful supposition of a more enlightened environmental sensitivity of present generations, it would seem truer to the record to lend support to a less appeasing view. This holds that the popularity of the application of C/B analysis must be related to the incidence and prevalence of external costs and benefits having taken on much larger proportions than in the past. In the 20th century, both the social and the natural environment have been placed under mounting pressures of change and growth. This has become especially conspicuous in recent decades and is extensively documented in contemporary and future-oriented social science writing.3 For better or worse, FUTURES April 1995

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society is being subjected to vigorous and historically unprecedented shifts in the relationships between man and nature as well as between man and man. The driving force making for these strong environmental and societal dynamics is widely recognized in the impressive advance of contemporary human technology. Regardless of whether one takes an optimistic or pessimistic outlook with respect to the type of future which technology has in store, it would seem presumptuous to claim that most or many of the far-reaching natural and social environmental consequences of technological change have been intended to be what they are. That is to say, that these consequences, having changed so much the way of life and the living environment of modern generations, would have been substantially accounted for in ex ante, deliberate or planned anticipation by either individuals, free enterprise or government when making the piecemeal decisions to adopt new techniques. Instead, pragmatically, only immediate and internally relevant implications are being taken into account when adopting new technology, whereas wider social and environmental implications are being ignored-if understood. Precisely such wider consequences manifest themselves by way of a diversity of external welfare effects. As a result, these externalities are perceived expost and thus can generally be dealt with only after a learning feasible, economically process, and then provided a remedy is technically desirable and politically achievable. Interest in the environment in general and C/B analysis in particular may therefore have been growing because people are trying to cope with and accommodate to a modern abundance of environmental externalities. This then is not a demonstration of new found environmental enlightenment in the 1960s and 197Os, but rather an enforced response to a historically uncommon and pressing deterioration of the environment, for which technological change and its ensuing growth are held responsible. Technology, though the product of human invention and innovation, is alleged to have produced a profusion of unintended social and natural environmental welfare effects, which, in turn have proved to be a major determinant in changing the lives and livelihoods of people as well as their natural environment, be it without individuals or organizations having control in the matter. The absence of control over the changing way of life is an indicator of the importance of the extent of externalities; an importance that is perhaps further compounded by a tendency of technology to make society more interdependent. Learning that many undertakings in modern and changing times are seen to affect public welfare in a greater number and variety of ways, a greater need arises for public accounting to evaluate, where possible, external welfare effects and consider suitable ‘checks and balances’ in the general interest. In this task, C/B analysis is assuming its present importance. C/B analysis, one might hope, would ascertain at least part of the external consequences of major changes. If it is successful in achieving that, then presumably a first step may have been made in the direction of control over the ‘shape of things to come’. However, in what follows it will be argued that the capacity of C/B analysis to provide useful decision criteria and direction for the future is seriously hampered. What is more, C/B analysis is hampered in a way that cannot be overcome by the practising economist. The economist normally applies his or her skills at the

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microenvironmental level. But at that level, a variety of exogenous data or parameters

findings are necessarily affected by over which there is no control.

Exogenous input to environmental C/B analysis will be labelled as macroenvironmental. Macroenvironmental input to C/B analysis-such as input concerning the state of the economy or the level of population-cannot itself be under scrutiny at a microenvironmental level. Yet if macroenvironmental parameters

affect

paramount patterns respect,

C/B

findings,

that macroenvironmental

then

parameters

that are not averse. Unless positive assumptions C/B outcomes could lead us to follow an exogenous

unwanted already

microenvironmental

importance

future. have taken

Indeed

the

promise

an inadvertent

of environmental

turn

to misguided

it

may

move

be

of

with time in

can be made in this mandate towards an C/B

analysis

might

pretence.

The overriding importance of macroenvironmental

guidance

Valuations in C/B analysis are a function of time and place. The same project analysed in the same way but situated in a different country, can be expected to come up with different castings, if not different conclusions. Equally so, the same C/B analysis applied in the same place is likely to yield new results, year after year. From a practical point of view, this is a good thing because it makes for

flexibility

and

adaptation.

Circumstances

change.

Generations change. From a philosophical point that there may not be anything true or permanent they concern

the natural

Of course, generations perceive and (re)interpret time, tions

environment

Preferences

.4

of mankind since time immemorial have been free to the value of the natural environment. From time to

past perceptions of the natural environment have inspired to suit the needs of our species. Nevertheless, when

evaluation

of nature

there

change.

of view, however, it suggests in our economic values where

is an increasingly

important

useful modificait comes to the

difference

between

this

century and all preceding centuries back to man’s early prehistory. The difference is that people today hold the technological power capable of jeopardizing on a grand scale the future man/nature relationship and that we are ill equipped politically that power for short-term

to avoid the environmental advantage.

C/B analysis, being responsive in practice stances, is a pragmatic and accommodative

risks of the utilization

of

to more or less immediate circumtool. As a microenvironmental

decision-making technique, it assists in ensuring a degree of collective efficiency for a given society in a particular phase of its development. Put differently, this technique assists in finding an optimal static allocation of resources incorporating external environmental considerations. However, it would be an illusion to think that C/B analysis, by virtue of its solutions in terms of static efficiency, would necessarily thereby provide for dynamic efficiency, meaning proper direction of development in resource allocation over time. This illusion may become particularly problematic when the forces that do make for direction in this turbulent age-these are dynamic forces relating to technological, economic and demographic momentum and have been called macroenvironmentalwould be facilitated by pragmatic these forces need to be resisted.

microenvironmental

assessment

when instead

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Historical perspective and enuironmentalcost-benejt analym

To remark on how the results of C/B analysis are a function of time is to lend a historical perspective to it. Only against the background of an extended time horizon

can the significance

appreciated.

of the need

Macroenvironmental

for macroenvironmental

guidance

mental optimalities-derived for a relatively tained or improved over a prolonged period.

is to ensure

guidance

that

short span of time-can be mainThe shortness of the time horizon

within which micro decision making is to take place, discussion of the third and last section of this article.

forms the main subject of In this second section, we

inspect more closely the notion of microenvironmental optimality readings lend themselves to be widely accepted and mistaken. The

microenvironmental

notion

of optimality

relates

and how its

to at least

four broad

environmental categories: (d) transformation. The

(a) pollution; (b) congestion; (c) exhaustion; first two categories predominantly relate to

problems,

two mainly

while

the latter

relate

stocks. What may constitute mistaken relevant to C/B analysis. But within example

of mistaken

optimality

be

microenviron-

to the depletion

and flow

of environmental

optimality in each of these four areas is the confines of this article merely one

will be developed

at length.

This

is a paradigm

about the economics of land transformation, involving a hypothetical C/B analysis of rainforest clearing. Questions relating to optimality in the other three mentioned

categories

in terms

of brief

Mistaken

optimality-land

Land

of environmental

concern

will subsequently

be addressed

generalities.

transformation,

transformation though

never

in the limelight

of environmental

concern

like pollution in the 1960s or resource exhaustion in the 197Os, may nevertheless be the most significant contributing factor in the alienation of man from nature. By land transformation

is meant

the transition

of land areas from their wild state

to a man-managed state, or, the transition from one level of man-management to a higher level. Levels of man-management of land range from harvesting of wildlife, to agricultural manipulation of animals and crops, to urban and industrial Decisions

usage

of land.

to move from one form of land usage to another

are normally

taken

on economic grounds. C/B analysis appears particularly suitable as a basis for such decisions because of the preponderance of forementioned externalities. For example, some township might on the strength of C/B reasoning decide that it is economic

to forgo

the environmental

value

of certain

parts

of its surrounding

swamplands in order to create valuable real estate for a growing number of inhabitants. On the other hand, land transformation does not necessarily take place on the strength of C/B design. It also happens by default and generally without attracting publicity commensurate with the at times very significant external diseconomies entailed. The United Nations Environmental Programme (UNEP) in Nairobi for instance reports that desertification presently proceeds at the global rate of 88.7 million ha/year and threatens 35 % of the earth’s land surface and 20% of its population or 850 million people. A case of land transformation that did capture the public’s imagination, however, relates to the clearing of rainforest in the Brazilian Amazon delta mainly in the interest of small peasants who wish to run grazing holdings. Admittedly, analysis of LANDSAT satellite photographs by the Instituto

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154

Brazileiro de Desenvolvimento Florestal has produced estimates of deforestation not yet exceeding 4% of Amazon Legal, but phenomenal deforestation growth rates of 50 %/year and more have been observed in the late 1970s.5 Following warnings by Goodland and Irwin,6 the adverse environmental impacts of this development can only be considered in serious terms. Consideration, of course, needs to be given to the requirement of livelihoods for a growing population and the commercial grazing potential of the land earmarked for clearing. On the other hand, account must be taken of the loss of wilderness and wildlife as well as, in this case, of the alleged significant consequences for world climate patterns should the process of land transformation proceed too far. The crucial question arising in a context such as the above is whether C/B analysis would be a suitable tool to determine how far deforestation can and should be allowed to proceed. The answer advocated in this section is “no”.’ One is struck by the incongruity of sudden and wholesale surrender of rich and complex ecosystems that have developed over many millennia when this is to be justified in the interests of human needs that are measured by the yardstick of mere fleeting years. Why this is so is explored in more detail by means of a paradigm. The paradigm is based on a hypothetical pocket of rainforest, say, located somewhere along Australia’s East Coast. Australia’s forest cover has been reduced by white settlers from 15 % of its land area to less than 5 %, and this imagined pocket of rainforest is in turn found to be under threat from logging. Rainforest logging, in this case, is assumed to concern the depletion of a nonrenewable resource, although forests may also constitute a renewable resource when farmed.s Imagine now that conservationist feelings run high over the of the people interested in comlogging threat, as does the determination mercially developing the land. Television, under the circumstances, may be expected to broadcast pictures and sounds that are not unusual in such casespersons padlocked to trees marked for chainsawing; people obstructing bulldozers; police making arrests; and accusations of both hindering and facilitating ‘progress’ flying thick and fast . . . Imagine further that the government, in an attempt to defuse the conflict, decides to call for a temporary halt to logging. In the interim, it promises a settlement on the strength of a C/B analysis to be commissioned forthwith. For the sake of the argument, the possibility is ruled out of the government itself being entangled in the conflict with direct or indirect interests. Of course, this would often be quite unrealisticg-which is a problem that can perhaps be alleviated by adversary funding of controversial C/B studies. In this example, however, the government will be assumed to exert no prejudicial influence whatever and to uphold the findings of the proposed study in good faith. Moreover, it will be assumed that a competent team of economists will produce objective C/B advice of the highest technical quality. Nothing should be allowed to go wrong-not even an understandable reluctance on the part of the opposing parties when it comes to abiding by the C/B findings. Nothing does go wrong. Not at first! On the one hand, economists look seriously at the value of wilderness and wildlife in its own right as well as at the value of forest recreation. They also take account of the option value of the rainforest, ie they value the retention of choice about the future of the rainforest-

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Historical perspective and environmental cost-benejit analysis

155

choice, which will be preempted by the irreversible impacts of the logging. On the other hand, they carefully study the value of the timber and other follow-up crops as well as job creation benefits. Their figures are based on the best available assessment of present and anticipated technology, of economic and demographic trends and of any further relevant regional or sectoral factors. The outcome of all these deliberations is the determination of what is optimal from a collective point of view. On that basis, C/B economics presents a set of recommendations, predictably amounting to a form of compromise. In line with this compromise, the prescription is as follows: a large percentage of the rainforest, say x%, must be saved, while the remainder (100 -x%) may be developed. To compromise the environment is objectionable. The Friends of the Earth are persuasive in advertising: “. . . that after you have cut the trees, polluted the rivers and killed the fish, you’ll find that you cannot eat your money”. By the same token, people cannot avoid collecting wood and minerals, producing effluent and spillovers, or taking fish and other harvest-not if they are to survive, or to survive as a successful species. The dilemma is to find meaningful balance. C/B analysis is responding precisely to this dilemma by seeking to compromise on the strength of an objective evaluation of all relevant circumstances. This could mean, for instance, that the need for balance demands that a heavier weight be placed on the opportunity costs of conservation when jobs are few and when incomes are perceived as low. Accordingly, the percentage, x, of forest to be saved, would have to vary in the light of circumstances. For the time being, the people at odds over the logging are supposed to accept our well argued C/B study and to settle their differences. A desirable conclusion appears within reach; a conclusion, one might add, in which objective scientific endeavour successfully arbitrates and bridges the emotive division over the issue. If only the matter were put to rest once and for all. Fifteen or 20 years later-hardly a long time against said historical perspective-the cutting of (100 - x)% of the forest is about to be completed and the sawmills are looking further afield. During the same period, a new generation of people is taking an interest in conservation. What has happened before is about to happen again. Another fight is shaping up over the keeping of the remaining rainforests. The paradigm unfolds. A new government, wishing to defuse an imminent clash between conservation and development protagonists, undertakes to hire the old and accomplished team of C/B analysts, hoping that their efforts may, once more, bring the parties together. Again, the C/B analysis is carried out, using the same methodological approach and following through with the same objectivity and technical competence. The only difference, then, is that the parameters governing costs and benefits have changed with the years. For instance, the population in the region will have grown and living standards may have risen. Also, the price of timber will no longer be the same and the technology of extraction is likely to have improved. Furthermore, it is important that there will now be smaller areas of rainforest left but that these remaining areas will generally be more affected by exotic impacts on its ecology. By taking all these changes of circumstance into account, C/B analysis is to produce a new optimum of land transformation. However, as before, the recommendations of the C/B analysis will entail the old format of compromise. This time, findings are envisaged to suggest that a large area of the forest ,y %, must be saved, while

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a small remainder (100 -J)%, can be developed with due care. And so, vindicated by the abominable record of forest conservation, it does go on to z ofr ofx%. Perhaps some further comment is in order on the point that the growing scarcity of wilderness will increase its value and thus provide a market safety check on unwarranted exploitation. This argument, however, is characteristically microeconomic in orientation and holds only in so far as the ceteris paribus condition applies. Historically, as this article tries to defend, macroenvironmental changes have tended strongly to undermine this microeconomic check. Population growth in particular has put undeniable pressure on natural resources. The effects of income growth are less certain as conservation may become income-elastic in high income countries. Unfortunately, most members of the present world population are poor and show preparedness to take on the environmental spillovers of the rich. In the end, the ‘proof of the security of the microeconomic scarcity check on wilderness conservation will be ‘in the pudding’. If one is to go on the net environmental record of this century, however, one might be forgiven for suspecting that the scarcity factor will merely ensure the preservation of ‘zoo-like remnants’ of a limited number of natural environments, presumably located in affluent countries. The rainforest paradigm shows that rational environmental decision making by C/B analysis-implemented with the best intentions in mind and considerable competence-could be consistent, over time, with eroding environmental standards. This is particularly worrying in view of many authoritative claims in recent years that the quality of the environment is subject to strong adverse movement. E. F. Schumacher (in a film on the current depletion of the jarrah forests in Western Australia, made shortly before his death) warns that the damaging impacts of man on his natural environment in the past 50 or so years, have outweighed the combined impacts of all preceding human history. Moreover, man’s impact on his environment is still growing in magnitude. Similarly, M. Tolba, Executive Director of the UNEP, summed up the 1970s by observing that, “. . . on almost every front, there has been a marked deterioration in the quality of our shared environment”.” If these observations are correct, then the paradigm demonstrates that environmental deterioration cannot necessarily be dismissed in terms of, say, ignorance, carelessness or stupidity. Instead, it can be seen that this decline can be the cumulative outcome of informed and environment-conscious economic calculations! Unwittingly, such calculations could sanction what I have labelled elsewhere the microenvironmental process of ‘creeping compromise’. l1 However, it is important to recognize and emphasize the limitation of this finding of creeping compromise. What is being argued is based on the possibility of environmental standards eroding and not on the necessity of this happening. In other words, the paradigm rests on inductive observation of what is happening rather than on deductive analysis of what must happen. Methodologically speaking, inductive science would be regarded by many in the humanities as second best. Notwithstanding this view, it could be said, especially on social and environmental science issues of great momentum, that a minimum of methodological purity could be gainfully sacrificed for the sake of relevance in an urgent reality. So far, the deductive approach clearly has not

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Historical pmpectiue and environmental cost-benefit analysis

yielded dynamic

positive models

or normative agreement on the problem. concerned with the man/nature relationship

generating both progress and decline. with empirical content, the literature

157

Analytical and are capable of

And where such work has been attempted presents both pessimistic and optimistic

conclusions. Returning determining

to the role of C/B analysis, it can be seen how this method assists in how best (optimally) to control the circumstances we find ourselves

in. It does so with a seemingly

inevitable

preoccupation

with the present

merely at the expense of the future but also with considerable past). Nevertheless, the longer-term circumstances of our dramatically, not in the least as the result making of a micro or C/B type. Therefore,

(not

disregard for the age are changing

of a myriad of short-term it appears that the deeper

decision dynamic

forces that make for long-term, historical change operate at a level beyond the control of C/B analysis. These forces, again, are macroenvironmental and exogenous in nature and determine what is best or optimal in the final microchoosing to accommodate these environmental analysis. Society, however, macroenvironmental forces without the capacity or willingness for containment or redirection by macroenvironmental policies, runs the risk of its microenvironmental decision making leading it astray at large. Central

to the notion

of macroenvironmental

forces,

is the awesome

momentum During the economic

released by the technological advance characteristic 20th century, this momentum has expressed itself In turn, ever-evolving and demographic expansion.

social

of our age. in startling patterns of

expectations and opportunities have been created. All these dynamics are combining at the microenvironmental front-the immediate interface between man and nature-in a continuous reformulation of the relative values that make up the exogenous conclusions.

inputs

Mistaken optima&y-pollution,

of C/B analysis.

Hence

the alleged

historical

drift of its

congestion, exhaustion

The rainforest example has illustrated the idea of an adverse, creeping factor in the economically optimal level of wilderness conservation. But the same idea can be extended

to other

economics, for instance, optimal level of pollution.

aspects

of the natural

environment.

Environmental

sees no unusual difficulty in theorizing about ” It uses conventional price theory to determine

the the

optimum by the equation of marginal private profit of some polluting activity with the marginal social cost of the pollution (in so far as pollution is not economically abatable). Again, however, optimality is defined at the microenvironmental level and in the way of a rationally derived compromise. So, once more the question may be asked: how does the optimal with time? Economic growth and growth of population worsen the optimum. On the other hand, advances

level of pollution alter would be expected to

in pollution control technology could be held to counteract this trend. A perhaps revealing insight in the direction of movement in the optimal level of pollution over the years can be gained from a recent twist to the energy debate, which has been raging since the mid-1970s. Whether the large hikes in the price of oil during the 1970s reflected the strength of the OPEC cartel or whether these rises were indicative of impending scarcity of a finite exhaustible

FUTURES April 1985

resource, they have acted as a catalyst for both vigorous research efforts in respect of alternative sources of energy as well as the undertaking of major new energy investment commitments. (And this has been the case despite some breathing space provided by the reiatively recessed state of Western economies in recent years.) Coal and uranium feature particularly large in new investment commitments. However, coal, when burnt on the scale envisaged necessary for its role in future energy supply, is almost certain to bring air pollution problems of serious proportions. So much so that advocates of the nuclear option can be heard to admit freely to certain risks associated with atomic energy generation, because they are now in a position to argue that such risks are conceivably outweighed by the disadvantages (eg regarding health, climate) of taking the road back to coal. US astronauts have already reported unmistakable visual signs that pollution of the earth’s atmosphere has been worsening since the beginning of their space missions. One might be lead to conclude, therefore, that macroenvironmental pressures resulting from the needs of great and growing numbers of people, who have realized high but energy-demanding living standards, are placing energy decision makers of today in the unenviable position of having to choose between the proverbial devil and the deep (blue) sea. The contention is that the solution of such a predicament must not be searched solely in the economics of trading off one bad for another. Rather, it must draw attention to the failure to guarantee some optimal level of pollution for some historical length of time. Similar claims that adverse macroenvironmental forces are responsible for unwanted microenvironmental decisions can be put in two further respects. For well over 100 years, the changing times have brought urbanization patterns indicating a sustained, universal rise in the optimal level of congestion. Little has been done to influence this trend. Yet, ironically, given relative land values of the day in any particular place, land allocation in each particular year is given to quite precise microfinancial calculations. Finally, questions come to the fore on what establishes an optimal resource use when reserves are finite and non-renewable. Up to the present, a fixation on imminent exhaustion of resources appears to have been unwarranted. Finiteness is continually being stretched by newer technology both in discovery and extraction. Indeed, despite a truly gigantic boost to the production and consumption of exhaustible, non-renewable resources during recent decades, in real terms prices of these resources have generally fallen this century. However, if the fear is justified that the growth in demand will eventually outstrip the technologically supported growth in supply, then, conceivably, the optimal level of reserves of non-renewable resources may, in a final rush, fall away as rapidly as the resources themselves. Normative

reflections

C/B analysis as a microenvironmental tool looks at the desirability of partial propositions, within narrow time, space and functional horizons. The general macroenvironmental framework in which this is done must be accepted for what it is. This is practical enough, because life at the grassroots level goes on despite the fact that no leverage exists to influence macroenvironmental parameters.

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Historical perspective and environmental cost-benefit analysis

159

Nevertheless, in view of a general absence in most countries of anything even approaching an inclusive macroenvironmental policy, there is a notable danger. The danger lies in the use of C/B analysis, either unintentionally or deliberately, to mask or window-dress this absence. C/B analysis, misused in this way, would give rise to a false sense of security and righteousness. To be secure and righteous-as we have seen-an additional requirement has to be met. This is the requirement that the direction of macroenvironmental drift is an acceptable one. Shortsightedness The partialness and narrowness, ie the micro-ness of C/B analysis, does not allow history (or geography) to enter the argument to any significant extent. When looking at the consequences of some major project, beneficial and otherwise, not only first-order effects in time-or space or function-deserve to be considered, but also second, third, . . to nth-order effects. Strictly, we need to consider the consequences, and the consequences of the consequences, and so on. Regrettably perhaps, this type of Alice-in-Wonderland logic presents C/B analysis with an unworkable, ever-widening tree of possibilities coupled to a myriad of uncertain probabilities. By necessity, therefore, a measure of shortsightedness is called for. This shortsightedness can subsequently be rationalized by the expectation that the consequences of the consequences of the consequences iterate to nothing. It cannot be helped by C/B analysis, when this latter assumption is not borne out-when, on occasion, small beginnings have led to unexpected major sequels which, in turn, may have opened up further and unforeseen developments. Commonly, the practice of restricting the timespan in C/B analysis is the target of scathing criticism from conservationists. But this criticism does not generally address the outlined inability to take a wide and long perspective of an unpredictable future. Rather, it addresses the unwillingness to take a wide and long perspective. It is an indictment of C/B analysis to value nearness over distance and the present over the future. Ideally, in conservationist eyes, society ought to project for continuity of generations and continuity of the natural environment. That means, the future should be discounted at the lowest possible rates, if discounted at all. On the other hand, even if the desirability of a minimal social rate of discount were acknowledged, realists are bound to point out the lack of feasibility effectively to implement an artificially contrived discount rate. This touches on the heart of the problem. Day-to-day decision making is dictated by ‘realistic’ discount rates, whether our conservationist feelings like it or not. It seems inescapable that in evaluating time, C/B analysis must reflect the ‘willingness to pay’ yardstick as measured by the market rate of interest. The explanation for this necessity is found in that both commercial and political leaders who in their decision making lower their time preference below market rates, would do so at their peril. Any idealistic desire on their part to meet goals in the too distant future, is likely to meet with merciless competition from rivals offering better things, sooner! For this reason, there is little choice but to discount future benefits and costs at ‘realistic’ rates. In practice, neither the businessman nor the bureaucrat can afford, if they wanted to, to march out

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of step and be too much concerned with the world of tomorrow, even when planning as little as one or two decades ahead. Real-world decision making is normally pressed by profit or electoral consideration of far more immediacy. In condoning market time preference, we depart from Krutilla and Eckstein’s treatment of the social rate of discount, that, “if the market interest rate is too high, government monetary and fiscal policy should stimulate the appropriate level of investment by a general reduction in the rate of interest. “I3 Thoughtful as this solution is from the point of view of future generations, it does not change the underlying time preference of people. As a result, this may produce momentous distortion because the bulk of economic transactions has intratemporal significance only. l4 The trouble with accepting shortsightedness as a fact of life, may be the mistaken belief by all people that only other people suffer from it. Entrepreneurs are shortsighted in their quick-profit undertakings; or the government is shortsighted in its enactment of vote-catching palliatives; or, for that matter, the general public is shortsighted (and often fooled because of it, by business and government alike). Notwithstanding such a generous allocation of myopia to our fellow men, we are inclined to the thought that we do not suffer ourselves from the same myopia-seeing, recognizing and judging it. Philosophy must come to the rescue of this apparent and schizoid attitude regarding shortsightedness. Reconciliation may be found in that every person has the ability to abstract. At times, we do take distance of immediate needspondering on the long-run future, generations to come, the evolution of mankind, and so on. While thus engaging in philosophy, a person may arrive at conclusions as to what ought to be. But this need not be the same as his/her decisions as to what must be. What must be is determined by the demands of living and surviving, which force most people, even most rich people, to think of today more than tomorrow and to think hardly at all of the bridges we might be crossing as early as, say, next year. Perhaps survival over several million years has selected us to be that way. In other words, short-sightedness is not then an affliction of the uninformed, unintelligent or greedy, making up the other half of people; rather, it is part of the genetic, biological design of all. Macroenvironmental

standards

To condone the high market time preference used in C/B analysis on the grounds that it is realistically in line with people’s genetic preoccupation with the present, appears less than helpful when, on the philosophical plane, at least, all are held capable of seeing the long-run environmental risks entailed in the shortsightedness of human decision making. One may enquire where environmental salvation is to come from. This article has already attempted to show that micro decision making, however accomplished, is likely to fail, unless our environmental problems are addressed at the macro level first. The conclusion drawn is that the importance of the formulation of macroenvironmental policy does not just deserve recognition but that priority is required. Should this be accepted, then a forum can be created where ethical norms, idealistic visions and grand environmental philosophies can rightly enter without encountering any of the stifling realism that must dominate C/B analysis and microenvironmental decision making in general.

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161

Macroenvironmental policy reflects on the desirable natural and social environment, the desirable number of people, their standard of living, the role of technology, and a host of related ‘big-think’ issues. One could wish to incorporate in it, for instance, the idea that growth be organic, ie where change is contained within overall stability after maturity has been reached.15 The temptation may be there even to attempt a comprehensive design or ‘greenprint’ of a desirable macroenvironmental future society. On this last point, however, it is exceedingly doubtful whether we could devise in detail the convivial structures of an environmentally blissful utopia, founded on a stable set of man/man and man/nature relationships, other than by science fictionor, if we could, whether we could agree about it. Besides, an ambitious, fully fledged planning attack to effect macroenvironmental policy overlooks the Draconian dimension of the transition problems that may lie waiting along the treacherous road to our utopia. One should note the almost complete political ineffectiveness of all the alarmist environmental writing of the past 15 or so years. This writing has concentrated on making a case-1 would think a strong case-against the desirability and feasibility of continued economic and demographic growth. Certain related, but perhaps more intractable questions seem to have been unduly neglected, however. These questions pertain to what could be described as the issue of the avoidability of growth. Also, the utopian planning approach to macroenvironmental policy would involve elaborate, direct manipulation of individual choice in order to build the societal structure perceived as necessary for the realization of its stated environmental goals. By contrast, the preferred method of implementing macroenvironmental policy could be to adopt a set of quantitative environmental standards or targets. Such a standards approach has the advantage that it can work without directing how society might choose to respond to the macroenvironmental constraints thus imposed. It is therefore consistent with the liberal idea of free atomistic decision making. l6 Environmental standards would provide a safeguard against any shortsighted pragmatism of microeconomic decisions, be it in the market or in C/B analysis. But prices, including the rate of interest, though influenced by the quantity constraints, could be left to find their own level, while at the same time enforcing necessary adjustments. What adjustments are to be made, in what measure, by whom and when and where, may remain unplanned and be up to ‘free’ grass root responses. Examples of macroenvironmental standards can be envisaged to include zoning as in nature parks, pollution ceilings, resource quotas and population targets . . . But matters of practical definition, disaggregation and administration of such standards are beyond the scope of this article. What may be emphasized in this context is that in the framework of C/B analysis, such macroenvironmental standards would be like unalterable givens, no longer subject to the economic calculation of what environmental standards society can afford from time to time and in view of the stage reached by the process of creeping compromise! Macroenvironmental standards, therefore, need to be formulated with the long run in mind. But unlike the necessity for realism in micro policy, they ought to be formulated with a maximum of idealism. One specific approach to

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this idealistic formulation could be to adopt the case made by Page,” who pleads that the application of the intratemporal notion of justice as developed by Rawls,” be extended to the intertemporal problem of justice between generations. Rawls’ theory of justice would have those formulating macroenvironmental policy take a position as if ignorant of the generation in which they will be born. He speaks of a ‘veil of ignorance’, requiring one to abstract from one’s place and time of birth as well as one’s genetic, economic and social resources. Persons in the real world find, as it were, that their cards are already dealt. Rawls implores us not to look at these cards until due consideration has been given to the problem of which card game would be a fair one to play. This is not unlike the justice of King Solomon. Solomon was confronted by two brothers quarrelling before him over the division of their father’s land. Solomon ordered the first brother to make whatever division pleased him, while granting the second brother the right of first choice. In deciding on an intertemporal division of the environmental heritage of Earth, macroenvironmental policy makers could likewise pretend not to belong to the present generation but to any of the future generations and thus be without choice as to what will be left. Future generations are thus as second brothers. In his intergenerational analysis of the environmental costs of economic growth, So10w’~ anticipated Page’s plea by setting out to be “@us Rawlsian que le Rawls”. His finding was that limited irreversible depletion of environmental resources in the interest of present generations could be justified in so far as present generations contributed to raising ‘the standards of civilization’ of future generations. Of course, idealism comes at a price and idealistic environmental standards could prove prohibitively disruptive in the short term. Sudden introduction of severe standards may result in widespread damage and counterproductive resentment. It readily follows that serious consideration of macroenvironmental targeting needs to embrace gradualism in the form of agreed scaling and timing patterns towards full implementation. Apart from the properties of unplannedness, idealism and gradualness of a fourth and vital requirement should be macroenvironmental policy, mentioned. Macroenvironmental policy cannot be other than proclaimed in legislation protected from change by qualified majority. Specifically, macroenvironmental standards require embedding in the Constitution. This is so because of the apparent inevitability of shortsightedness of micro decision making in general and day-to-day political decision making in particular. As argued, micro decision making cannot by its rationality alone prevent the unintended erosion of environmental standards resulting from unchecked in the absence of special constitutional protection, dynamics. Therefore, politicians would be prone to a continuous process of revising environmental standards legislation in the light of the most current myopic assessment of what is regarded as environmentally optimal. Summing up, the object of enforcing macroenvironmental standards would be to call a halt to any unwanted depiction of the environment which may potentially result from unconstrained microenvironmental decision making. Especially in the interim, macroenvironmental standards would have the effect of compromising demographic and/or economic growth instead of our natural

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heritage. How this compromising of growth is to gradually take form in numerous decisions at the microenvironmental level, is deliberately left C/B analysis is well equipped to contribute in this unspecified. However, respect. Granted macroenvironmental guidance, embodied in a set of responsible long-run macroenvironmental constraints, C/B analysis may supply the right answers without being presented with the wrong circumstances. Notes and references 1. A. C. Pigou, The Economics ofWe&are (4th ed, London, Macmillan, 1932). “The postwar literature on externalities: an interpretive essay”, 2. See, eg, E. J. Mishan, Journat of Economic Literuture, 9, 197 1, pages l-28. 3. See, eg, C. Freeman and M. Jahoda feds), WorldFutures(London, Martin Robertson, 1978); B. Jones, Sleepers, Wake! (Melbourne, Oxford University Press, 1982); D. Meadows, et al, and E. Pestel, The Limits to Growth (New York, Universe Books, 1972); M. Mesarovic INTERFUTURES-&ing the Mankind at the Turning Point (New York, Dutton, 1974); OECD, Oxford, Future (Paris, OECD, 1979); J. L. S’imon, The Ultimate Resource (Martin Robertson, 1981); and US State Department and Council on Environmental Quality, The Global 2000 Report to the President; Entering the Twenty-Jrst Century, Vol 1 (Washington, DC, GPO, 1980). Theorie des Kommunikativen Handelns (Frankfurt, 4. This is well expressed by J. Habermas, Suhrkamp Verlag, 1981), where he criticizes the ‘Zweck-Mittel Rationalitat’ of economics. in het Amazone Oetwoud-Tot Nu Toe Valt de 5. See F. G. M. N. Poelhekke, “Ontbossing Schade Mee”, ~nt~ed~a~r, 29(g), 1983, pages 25-31. 6. R. J. A. Goodland and H. S. Irwin, Amazon Jungle: Green Hell to Red Desert? (Amsterdam, 1975). 7. This answer is qualified in the third and final section, in which the use of C/B analysis is supported provided suitable dynamic conditions are met. 8. C/B analysis of the optimal rate of exploitation would differ, for instance, on account of reversibility. Nevertheless, similar to the paradigm to be discussed in the text, a problem of myopia will arise, in particular when the real rate of money interest exceeds the rate of growth of the timber. See C. W. Clark, Mathematical Bioeconomics (Chichester, Wiley, 1976); and P. Dasgupta, The Control oj Resources (Oxford, B. Blackwell, 1982). 9. See, eg, B. Martin, The Bias ojScience (Canberra, Society for Social Responsibility in Science, 1979). 10. C~~~~~c@ Proceedings, UNEP Report, Nairobi, Kenya, May 1982. 11. .J. A. Doeleman, “On the social role of discount-the case for macro-environmental decision making”, Environmental Ethics, 2, pages 45-48; J. A. Doeleman, “Concerning the conflicting nature of the contribution of economics to the teaching of environmental studies”, Journai of Environmental Education, 15, 1983. 12. See, eg, W. J. Baumol and W. E. Oates, Economics, Environmental Policy and the Quality ofLife (Englewood Cliffs, NJ, Prentice Hall, 1979). 13. J. V. Krutilla and A. C. Fisher, The Economics of Natural Environments (Johns Hopkins University Press, 1975), page 62. 14. Krutilla and Fisher, ibid, pages 66ff, acknowledge the unresolved nature of the social discount rate debate on grounds of inconsistency and inefficiency. 15. Cf H. E. Daly (ed), Economics, Eco~o~, Ethics (San Francisco, Freeman and Co, 1980); and Mesarovic and Pestel, op cd, reference 3. 16. This idea has never been anarchistic and is already constrained by personal rights and property rights, to which additional environmental rights are being proposed. 17. T. Page, Conseruation and Economic Efficiency (Johns Hopkins University Press, 1977). 18. J. Rawls, A Theory ofJustice (Cambridge, MA, Harvard University Press, 1971). equity and exhaustible resources”, Review of Economic 19. R. M. Solow, “Intergenerational Studies, 42, 1975, pages 29-45.

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