Wednesday, May 4, 2016

An Economy for 2100

Helm, D. (2015). Natural Capital: Valuing the Planet, Yale University Press. 296 pp. (ISBN: 9780300213942).

[What appears here is the original submitted version of a book review appearing in the journal BioScience at]

With excitement and also trepidation, I cracked open Helm’s new book, “Natural Capital: Valuing the Planet”. Would the book chart a path towards reformed economics that would actually nurture the planet for future generations? Or was it simply another advertisement for economic valuation of nature? I soon discovered that Helm delivered key components of the roadmap to an economy for 2100, leaving me wanting more.

Helm’s mission is bold and important. He seeks to provide a set of strategies for truly sustainable economic growth, while admitting that current trajectories are systematically flawed (both global and national, in virtually all nations). He seeks to persuade any reader of the necessity of this task—the neoclassical economist who sees no problem in environmental degradation (merely progress), and equally the naïve environmentalist who imagines that we can and must erase virtually all human impact on Earth. The book itself delivers a message neatly between these two extremes, but ambitiously so: a vision of sustainability between ‘weak’ and ‘strong’ (maintaining aggregate natural capital), which includes a reversal of the environmental degradation we have seen to date.
Dieter Helm is undeniably ideal for this task. A professor at the University of Oxford, Helm is a deeply engaged economist in British policy. Indeed, Helm chaired that nation’s Natural Capital Committee from its inception in 2012, a committee that includes Georgina Mace and Ian Bateman, among other accomplished experts. The committee’s task is to implement a framework for economic growth that simultaneously both stops the decline in natural capital and improves this crucial foundation for the economy.

In four parts comprising twelve chapters and an introduction, Helm lays out his argument. He first describes the current state of the environment and its relation to the economy, that environmental degradation has real economic consequences, although these may be diffuse, delayed, and difficult to observe directly. He then addresses the question of what we collectively should be seeking, in order to treat future generations fairly. Here Helm proposes his aggregate natural capital rule, which is the conceptual foundation for the whole book. As alluded to above, Helm argues that ‘weak’ sustainability is too weak in allowing the whole-hog substitution of natural capital for built capital, but that ‘strong’ sustainability is too strong in allowing no such substitution. Helm’s compromise is to propose the maintenance and improvement of aggregate natural capital, which could be achieved by investing the revenues from non-renewable resource extraction into the restoration of renewable resources.

The third step is to outline the current set of policies and measures governing and accounting for natural capital and its contribution to the economy (e.g., gross domestic product, GDP), and why and how they are flawed. The fourth step proposes a suite of economic tools and policies that would enable the realization of the aggregate natural capital rule.

The book is well executed. I enjoyed the specific examples of heathlands and moors, including the one that opened the introduction. I appreciated the rigour of the scholarship, and the fluidity of the prose. I also appreciated the manner in which Helm anticipated many critiques, addressing many.
Natural Capital’s greatest contributions are threefold, in my view. First, many readers will be pleased to have a well-articulated economist’s argument for natural capital protection and restoration, and a sustainability rule that is stronger than ‘weak’ sustainability. Few of us can speak the language of neoclassical economics that dominates policymaking in most nations and many multilateral institutions, so having Helm’s convincing argument for this stronger position is reason alone that many concerned with the environment should buy this book. Particularly useful here may be Helm’s proposal for resource extraction endowments, following the logic of Norway’s sovereign wealth fund, which Helm would see put toward the restoration of renewable resource assets.

The second crucial contribution is Helm’s debunking of conventional national accounting and economic policy, and their basis in the flawed measure of GDP. Other volumes are devoted just to this issue, but I appreciated the way Helm lays it bare. Whereas many national governments debate the merits of fiscal austerity vs. Keynesian growth, by which a government bets on future economic growth to rescue national legers from current deficits, Helm seems to argue that both sides have it wrong. If national accounts such as GDP fail to reflect the depreciation of natural capital, which is pervasive in Britain and elsewhere, growth (be it Keynesian or with austerity measures) cannot be sustained—because natural capital is the ultimate asset, the source of all wealth.

The third great contribution is the discussion of the suite of economic tools and policies for achieving truly sustainable growth, including damage compensation schemes and the utilities/trust model for governing common-pool resources and public goods. The utilities model, by which a private or public organization takes responsibility for maintaining key infrastructure (e.g., electricity transmission and distribution lines) and derives revenue from the provision of a needed service (e.g., electricity supply), has worked quite well for water and also—as Helm argues—public parks. Helm extends the model to river catchments, for example, whose revenues could include insurance rebates associated with improved flood mitigation (an ecosystem service enhanced by watershed restoration). It is an intriguing idea that deserves close scrutiny from policymakers everywhere.

Every contribution, no matter how great, also has shortcomings, of course. No one volume can do all, and all of it well. The three most important gaps, in my opinion, are the justification for the aggregate
natural capital rule, the treatment of valuation, and the treatment of the implementation of these important policies.

Helm’s aggregate natural capital rule has two important components, and both encounter difficulty. The first component is the substitutability of improved renewable resources for the non-renewable ones used up, which Helm argues must be measured in monetary terms: “For non-renewables, there is no possible physical substitution, so depletion can be measured only in economic terms.” This claim overlooks the fact that non-renewable resources are not wholly lost, rather converted to less useful forms. Fossil fuels are rendered into carbon dioxide and other by-products; and metals are locked up with other chemicals. In both cases, substitutability could quite easily and naturally be measured in terms of energy potential or exergy, and given the uncertainties associated with monetary metrics in the long run, this might be preferable.

The second component is the substitutability of some renewable resources for others, which Helm allows (e.g., rare habitat for great-crested newts to be substituted for more available nightingale habitat), with insufficient justification. Helm argues for this on the basis of ethics and practicality, but he never expresses the ethical argument, only the practical one, “There will be further economic development. It cannot be stopped.” Even if we accept this premise, it does not follow that we must allow all manner of economic development to proceed, e.g., even if it threatens the last remaining habitat for great-crested newts. Counterarguments would include responsibilities to non-human species (which I have argued for, for all organisms--Chan 2011), and the inappropriateness of assuming that because we have no particular need for such newts, neither will future generations. I see justification for substituting newt habitat for newt habitat, but not nightingales for newts.

The second gap is Helm’s treatment of valuation, which is supposed to be grist for deciding that, e.g., nightingale habitat is a worthy substitution for newt habitat. Helm’s justification here is far too quick, “Benefits require valuation, and the units are explicitly or implicitly money. Hence a price has to be put on nature.” A full response is well beyond the scope of this review, but suffice to say that benefits do not always need to be valuated to enable good societal choices (Vatn & Bromley 1994; Gregory et al. 2012; Ruckelshaus et al. 2015); just because you can derive an implicit price after the fact does not mean that a priori valuation is generally applicable or helpful (McDaniels & Trousdale 2005); and important classes of benefits cannot be valuated appropriately in monetary terms (Chan et al. 2011; Chan et al. 2012). An associated disappointment here is that whereas Helm rightly touts the importance of his approach being an asset-based one (rather than a services- or benefits-based one), he offers no guidance for the special challenge of valuating assets beyond the too-simple assumption that the value of the asset is simply the value of the current uses extended into the future. Accordingly, Natural Capital is overly focused on valuation and pricing when neither needs to be central, and it doesn’t entirely deliver its promise of a truly assets-based approach.

The third gap is that Part Four, “How Can It Be Done?” leaves this key question entirely unanswered. Instead, this section reminds us what good can be anticipated to come from restoration, and reviews important ideas about finance that were already covered extensively in Part Three, “What Needs to Be Done?” Helm himself details the challenge of politics and lobbyists for thwarting good economic policies, but it will fall to other volumes to propose how such policies might transform from fiction to fact.

All told, Helm’s bold volume achieves a great deal in its autopsy of current growth-obsessed economic policies and its blueprints for an economy for the 22nd Century. Now for the hardest part: building the economy Helm imagines.


Chan, K. M. A. (2011). "Ethical extensionism under uncertainty of sentience: Duties to non-human organisms without drawing a line." Environmental Values 20: 323-346.

Chan, K. M. A., J. Goldstein, T. Satterfield, N. Hannahs, K. Kikiloi, R. Naidoo, N. Vadeboncoeur and U. Woodside (2011). Cultural services and non-use values. Natural Capital: Theory & Practice of Mapping Ecosystem Services. P. Kareiva, H. Tallis, T. H. Ricketts, G. C. Daily and S. Polasky. Oxford, UK, Oxford University Press: 206-228.

Chan, K. M. A., T. Satterfield and J. Goldstein (2012). "Rethinking ecosystem services to better address and navigate cultural values." Ecological Economics 74(February): 8-18.

Gregory, R., L. Failing, M. Harstone, G. Long and T. McDaniels (2012). Structured Decision Making: A Practical Guide to Environmental Management Choices. Hoboken, NJ, John Wiley & Sons, Incorporated.

McDaniels, T. L. and W. Trousdale (2005). "Resource compensation and negotiation support in an aboriginal context: Using community-based multi-attribute analysis to evaluate non-market losses." Ecological Economics 55(2): 173-186.

Ruckelshaus, M., E. McKenzie, H. Tallis, et al. (2015). "Notes from the field: Lessons learned from using ecosystem service approaches to inform real-world decisions." Ecological Economics 115: 11-21.

Vatn, A. and D. W. Bromley (1994). "Choices without prices without apologies." Journal of Environmental Economics and Management 26(2): 129-148.