Sir Partha Dasgupta on the cost of leaving nature out of economics

Renowned economist Sir Partha Dasgupta discusses his seminal research on the economics of natural capital and biodiversity. 

By
Belle Long
Sir Partha Dasgupta discussed his forthcoming book on natural capital during a Feb. 5 conversation with Chris Field, director of the Stanford Woods Institute for the Environment. Image credit: Madison Pobis

We tend to think about nature’s value in terms of the mystic, rather than the monetary. But Sir Partha Dasgupta, Frank Ramsey Professor Emeritus of Economics at the University of Cambridge, has long argued that ignoring nature’s economic value limits our ability to accurately measure human welfare – and the true cost of industrial development. 

“The growth models that have dominated our teaching and public perception of economic possibilities—nature doesn’t really have a role,” Dasgupta said during a conversation with Chris Field, Perry L. McCarty Director of the Stanford Woods Institute for the Environment.

One promising alternative? A shift to measuring ‘inclusive wealth’, which considers the value of all capital assets – including natural capital. During the conversation, Dasgupta and Field delved into the burgeoning field of natural capital and Dasgupta’s pioneering report on the economics of biodiversity.

“

We think of the biosphere as a regenerative resource, and what we draw out from it, if that exceeds the natural regenerative rate of the biosphere, means that the biosphere shrinks – not in size, but in quality. ”

Sir Partha Dasgupta Frank Ramsey Professor Emeritus of Economics at the University of Cambridge

Accounting for nature in economies

Gross Domestic Product, the standard metric for measuring national economies, doesn’t account for the valuable services provided by nature. A new approach could help fill the gap.

Natural Capital Project

For decades, scholars have prioritized economic output, using measures like GDP (gross domestic product), as the ultimate marker of societal progress. The accumulation of human capital (health, education) and produced capital (material goods) was the primary focus.

However, Dasgupta argues that this framework is short-sighted: “I think it’s a mistake to use GDP as the economic index,” he said. “It doesn’t include the depreciation of capital assets that accompanies production.”

Humans are fishing, farming, felling and fracking at an unsustainable rate. Economic productivity is strong, but as Dasgupta points out, it’s entirely dependent on the very natural resources it threatens.

Using inclusive wealth, Dasgupta explained, allows economists to measure the aggregate value of produced capital, human capital, and natural capital. Any increase or decrease in these capital assets affects the wealth of society, which Dasgupta believes is a more useful marker of well-being than income or GDP. 

When you measure inclusive wealth, Dasgupta said that the situation immediately becomes more clear. Natural capital is deteriorating, while produced capital and human capital are continuing to appreciate.

Dasgupta pointed to an estimate from the United Nations Environment Programme: from 1992 to 2014, produced capital doubled globally, human capital increased by 13 percent, but natural capital declined by 40 percent. This imbalance threatens the viability of the entire system.

“We think of the human economy in terms of output. And I think that's a big mistake. If we decompose the output into the factors, then if there's a great imbalance in one of the factors, which, in this case, is natural capital, then it should be the other way around. We ought to be thinking about economic possibilities starting not from produced capitals, but from the ground up, ” Dasgupta said.

Identifying the problem and developing accurate tools of measurement is important progress. But Field prompted Dasgupta for solutions, asking Dasgupta how we can address this ecological – and economic – crisis. Dasgupta emphasized the importance of instilling cultural stewardship values in a society, primarily through the education system. In the U.K., Dasgupta has advocated inclusion of a mandatory natural studies curriculum. 

“I think what we do need is some serious readjustment to our educational system,” Dasgupta said. “So that children, as they grow up, find it instinctive not to tarnish their neighborhood.”

Explore More