Crew Commentary

Accounting for Natural Capital

Bob Leonard - Climate Risk Manager



I make an effort to buy green. Not only because I want to use nature-friendly products, but because I felt I was voting with my dollars… that my purchases were influencing the manufacturers. I’ve learned that it isn’t as simple as that. The problem is that most of those products still support our linear, waste-based economic model. In a circular economy, products are designed to be reused, repaired and remanufactured. If there is waste, it has regenerative benefits. What I found out in researching Moving to a Finite Earth Economy is that fifty years after the first Earth Day, the circular economy comprises only 9% of the total world economy. Hard to believe, but it’s true. https://www.circularity-gap.world/


Why are there still so few products that support a circular economy? It’s because consumers don’t dictate what happens in the economy. Here’s what we’re up against: First, power in the capitalist economy rests on ownership and control of the means of production, not with the consumer. Second, what is consumed depends largely on what is produced. The entire advertising industry exists to sell people products they didn’t know they needed. Third, the enormous surveillance system in the private sector, enabled by social media and technology, is leveraged as a means of manipulating consumers.


All of this suggests that we have to change our economic system to have any chance of averting environmental devastation. It is up to us (me and you) to stop exposing ourselves to hundreds of advertisements every day. To refuse to be manipulated by our consumer society B.S. that tells us our value as a person depends on how much stuff we buy.


Framing economic growth as a fundamental problem, and proclaiming the need for a finite earth economy as a solution, raises the specter in people’s minds of the end of progress. Economic growth was glorified in the 1950s following the introduction of national income accounting during the Second World War. Gross Domestic Product (GDP) accounting accurately reflects the logic of capital accumulation. It measures only money. It does not account for the relative well-being of people or nature.


If an oil tanker hits an iceberg causing an oil spill, GDP increases, due to all the cleanup costs, insurance payments, and lawyer fees. However, there is no deduction in GDP for the effects of the oil spill on the environment. Social and environmental costs, in this sense, are treated as “externalities”. They are excluded from national income accounting. A healthy forest, which draws down carbon dioxide from the atmosphere and emits oxygen, adds nothing to economic growth. Cutting down that same forest to turn standing timber into millions of board feet of two by fours, counts as growth.


The problem here is not GDP accounting itself. This measurement of growth accurately reflects how the capitalist system works. It conceives progress only in terms of financial transactions, as opposed to what benefits people or the planet.


Some environmentalists believe that all of nature should be viewed as “natural capital.” German statistician and economist, E.F. Schumacher, in Small Is Beautiful: A Study Of Economics As If People Mattered, first used the term “natural capital” referring to Earth’s natural resources and all living things.


While new roads can bring economic growth, some landscapes are more valuable for what they provide in clean water, carbon sequestration, erosion control, etc. Those qualities are seldom included in the calculation of where to place a road or site a building, because those qualities carry no value in current accounting systems. If the unaccounted value of nature (clean air, fresh water, wetlands, forests and many others) is assigned economic value, it can be accounted for. For example, wetlands would have an economic value for water cycling and flood control mechanisms.


We need a massive shift to solar and wind and other alternatives, but the fossil fuel economy and the goal of capital accumulation stand in the way. Can we continue to improve our standard of living without causing harm to the environment? Absolutely… if we measure quality of life rather than capital accumulation, and account for natural capital. What is essential is a global movement to a post-capitalist economy and a post-consumer society… a Finite Earth Economy as described in this trilogy of books: Moving to A Finite Earth Economy. The Finite Earth Economy encapsulates the circular economy and enables it to thrive and grow by taking natural capital into account.