Human WellBeing and the Natural Environment

Human Well-Being and the Natural Environment

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Human Well-Being and the Natural Environment

Partha Dasgupta

Great Clarendon Street, Oxford OX2 6DP

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First published 2001

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British Library Cataloguing in Publication Data

Library of Congress Cataloging in Publication Data

Dasgupta, Partha.

Human well-being and the natural environment/Partha Dasgupta.

p. cm.

1. Sustainable development. 2. Natural resources—Management. 3. Human ecology. I. Title

HD75.6 .D367 2001 306–dc21 2001036597

ISBN 0-19-924788-9

To Carol

as always

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Preface

This essay is on measuring the quality of life, a problem on which Ihave worked periodically ever since becoming a

student in economics. A few passages, from Chapters 6 and 14, have even been lifted from my doctoral dissertation of

1968 (Ihave worked on the subject that long!). And there are chapters, particularly the Appendix, which report

findings only a year or so old. The subject surrounding the problem is a complex one. One way or another, it pervades

a number of disciplines. But the problem's relevance extends beyond the academic realm. International organizations

routinely publish cross-country estimates of the quality of life, journalists and commentators publicize them, national

governments are obliged to take note of them, non-governmental organizations criticize them, and intellectuals reflect

upon them. Since much of the purpose of measuring the quality of life is to help search for ways to improve life's

quality, the exercise reduces to valuing objects and evaluating policies. Today, quality-of-life indices broker political

arguments and together form a coin that even helps purchase economic and social policy.

But the flurry of activity doesn't mean that the subject has progressed evenly. Since people have strong feelings about

the matters involved, debates are often acrimonious. Moreover, intellectual training differs across the biological

sciences, the social sciences, and the humanities. Findings are often misunderstood and are on occasion even misused.

In shaping this essay I have been influenced by such incidents, and Ioffer illustrations when the occasion demands.

Broadly speaking, there are two ways to attack the problems inherent in valuing and evaluating. One is to start at an

abstract level and proceed to concrete problems, as and when abstract considerations yield results that are capable of

being applied, or when they refuse to yield results. The other is to start with concrete problems, even mundane

problems, and move towards abstraction, so as to check that the findings have general validity. Which route one

follows is a matter of taste and ability. Personally, I find the latter route more congenial. The present essay traces that

route.

Books are in part autobiographical. Over the years, a good deal of my own research has been to help develop the

economics of environmental and natural resources. Much of that too has been in the context of poor regions and the

people who inhabit them. Inevitably, I reacted adversely to the fact that the natural environment is absent from

national accounts, from quality-of-life indices, and, more generally, from official development economics. Ifound it

puzzling too that, in its turn, official environmental and resource economics have made

no contact with poverty in poor countries. The two fields of specializations had passed each other by and had

weakened in consequence. Just how much they have suffered will become apparent in the chapters that follow.1

In great measure, their detachment from each other continues. For example, in responding to the inadequacies of

Gross National Product (GNP) as an index of social well-being, one influential group of development economists

seem content to study measures of current well-being (expectancy of life, infant survival, public expenditure) when

describing the state of the world and devising prescriptions for governments. 2 To many, this has very limited appeal. It

appears odd to ecologists, who are trained to study the many slow processes that are influencing long-term

development possibilities and so can't help peering into the future. A seemingly natural retort to ecologists is that

people come first and that, after all, present anguish should matter most. But that would be to miss the point. The

present is the past's future. Moreover, the future has an unnerving habit of becoming the present. An effective

response to ecologists would be to work within a framework for valuing and evaluating that combines present and

future concerns. Economics has had such a framework in place for several decades. In this essay I draw upon the

literature.

But with two significant differences.

First, welfare economics has neglected ecology and, thereby, demography. In this essay I give particular attention to the

natural environment and show how it can be brought into economic reasoning in a seamless way. Secondly,

intertemporal welfare economics, including the literature on ‘green’ national accounts, was developed for a society in

which the State is not only trustworthy, but also optimizes on behalf of its citizens. Policy prescriptions emerging from

the theory are for Utopia or, at worst, for what James Meade called Agathotopia (the ‘good-enough society’).3 But they

are not directly relevant for the world we have come to know—perhaps, most especially, for today's poor countries, the

majority of which are a far cry from Agathotopia. Recently, intertemporal welfare economics has been extended to

Kakotopia (today we would call it the ‘dysfunctional society’, or, at best,

viii PREFACE

1 Ihave grumbled about these deficiencies on a number of occasions. See The Control of Resources (Cambridge, Mass.: Harvard University Press, 1982); ‘The Resource Basis of

Economies’, Commencement Day Address, Export–Import Bank of India, Bombay, 1987; ‘Environmental and Resource Economics in the World of the Poor’, Forty-fifth

Anniversary Lecture, Resources for the Future, Washington, 1997; ‘The Economics of Poverty in Poor Countries’, Scandinavian Journal of Economics, 1998, 100: 41–68; and

‘Population and Resources: An Exploration of Reproductive and Environmental Externalities’, Population and Development Review, 2000, 26: 643–89.

2 The well-known Human Development Index in the annual Human Development Report of the United Nations Development Programme is a prominent case in point.

3 J. E. Meade, Agathotopia: The Economics of Partnership (University of Aberdeen Press, 1989).

imperfect society).4 Iam concerned here with valuation and evaluation in Kakotopia.

Ipay attention to the ways in which our quality of life is now known to be tied to the natural environment. Methods of

valuation and evaluation are developed and are put to work in that context. When the occasion demands and evidence

is available, Iapply the methods to data on poor countries. The picture that emerges of recent experiences of

development processes is sobering and contrasts sharply from the one portrayed in writings that focus on the current

quality of life as a measure of economic progress. But it is hard to resist moving from the concrete to the abstract, and

Iam singularly weak of character. A number of chapters focus on the foundations of reasoning about human well￾being. The essay as a whole is an iteration between the concrete and the abstract.

Although the subject of the essay is the domain of several disciplines, the style Iadopt reflects my own specialized

training. Iassume a point of view of the circumstances of living that gives prominence to the allocation of

resources—among contemporaries and over time. One hallmark of the viewpoint is to study human well-being in

terms of its commodity determinants and the institutions that shape resource allocation. Another is to reason

quantitatively. Moreover, because it is subject to empirical discipline, the inquiry encourages approximations. Inevitably,

the viewpoint is partial. But increasingly Ihave come to realize that it is possible to look outward from that partial view

to catch a glimpse of the larger enterprise called ‘living’. Itry to do that regularly in this essay.

Ibelieve it is on each of these scores that moral and political philosophers sometimes misunderstand what we

economists are up to. A few years ago, at an evening seminar at the British Academy, a distinguished moral

philosopher read a paper attacking economists for inferring human well-being from the choices people actually make. I

don't know who had advised my philosopher colleague on what economists actually write, but he was evidently

unaware of a huge empirical literature on valuation that goes well beyond what he imagines it does.5 Nor, it seemed to

me, did he appreciate that the short-cuts social scientists resort to are influenced by the scope of the problem they

happen to be tackling.

PREFACE ix

4 P. Dasgupta and K.-G. Mäler, ‘Net National Product, Wealth, and Social Well-Being’, Environment and Development Economics, 2000, 5: 69–93. Iam grateful to Prof. Malcolm

Schofield, of St John's College, Cambridge, for suggesting that the name ‘Kakotopia’ best describes the kind of society Istudy here.

5 Ipersonally found the accusation ironic, because Ihad published a treatise only a few years earlier, on destitution and well-being, where well-being was given a wider

interpretation than one based exclusively on ‘revealed preference’, which is what the philosopher was attacking. See An Inquiry into Well-Being and Destitution (Oxford:

Clarendon Press, 1993).

Consider the following questions, which are representative of the kinds asked of economists:

1. The traffic on a highway is heavy, causing delays. There is a proposal to enlarge the road. Should it be accepted?

2. The State in a poor country has for some decades been subsidizing the use of the country's natural resource

base. Should it continue to do so? Should the subsidies be enlarged, or should they be reduced?

3. There are plans among international bodies to help rebuild a poor country, which has been racked by civil strife

and corrupt government. What should the mix of government engagement, private enterprise, and civic

involvement be?

There is a clear sense in which reasoned responses to the successive questions would be more elaborate, more hesitant,

requiring greater sensitivity to life's nuances. People's preferences inferred from past behaviour may well be a

reasonable basis for a response to the first question on the list. (How else would we know what the traffic will bear?)

Even if it weren't entirely reasonable, Idon't believe that Aristotle, whose writings are regarded by philosophers as the

touchstone of speculations on the ethical life, could help decide how else one should go about advising what to do.

Aristotle does have useful things to say on the third question, but only as a prelude. As matters stand today, substantive

responses to the questions would require a good dose of modern economics, with all its technicalities. They would also

require inputs from anthropology, ecology, and political science. The present essay reflects this experience.

Ihave written this book not only for fellow economists, but also for students of economics, environmental studies,

political science, and political philosophy. It is intended even more broadly for the general citizen interested in what are

among the deepest and most urgent social problems we face today. The reader Ihave in mind is someone who wants

to know if there is a workable language in which to discuss economic policy without ignoring the centrality of the

natural environment in our lives. Iimagine this reader to be shrewd and (even if an economist) sceptical of economics.

Isee her demanding intellectual evidence before being convinced of anything. So, Ialso imagine she doesn't want me

to cut corners in my exposition.

Ihave placed the rigorous argument justifying the text in a lengthy Appendix and a few formal examples that help to

illustrate the arguments in four starred chapters. This isn't a relegation; Ihave done it only because my reader doesn't

necessarily know mathematics. However, she appreciates that an easy read can mislead. Most especially, she knows that

it is a convenient myth that anything worth knowing can be explained in easy sentences. She also knows that there are

readers (for example, economists) who would find the arguments easier to follow if presented in terms of formal

models. So she is not put off when the

x PREFACE

occasional notation appears in the text, as long as it is accompanied by words of interpretation. My reader is someone

willing to work hard with me.

The essay originated in my Arrow Lectures at Stanford University in April 1997 and in a Plenary Lecture Idelivered at

a conference at the World Bank on evaluation and poverty reduction, in June 1999.6 They were in effect early drafts of

Parts I and II of the book. The issues discussed in Parts III and IV were the basis of a lecture delivered at the Annual

Conference of the European Association of Environmental and Resource Economists (Crete, June 2000), of my

Presidential Address to the Royal Economic Society at its Annual Conference (University of St Andrews, July 2000),

the Mullin Lecture at the University of Maryland Baltimore Campus (September 2000), the Wiegand Lectures at Duke

University (October 2000), and lectures at the AGORA/SIAS Symposium at the Institute for Advanced Study Berlin

and the Collegium Budapest (both in November 2000). Part V is based on a lecture delivered at the conference on

Ethics, Economics and Environment, at the Swedish Collegium for Advanced Study in the Social Sciences, Uppsala, in

1995. But the immediate motivation for preparing the essay was an invitation to deliver the Tanner Lecture on Human

Values at the University of Michigan, Ann Arbor (October 2000). A condition of the Tanner Foundation is that the

lectures be written in advance of the occasion. It was while preparing the Tanner Lecture that I realized I was writing a

book. The essay's overall design, however, reflects my attempt to respond to a letter Ireceived from Peter Raven,

director of the Missouri Botanical Garden, St Louis, in which he asked why it is that macroeconomic forecasts rarely

have the natural environment built into them, and enquired if it is because economics doesn't have a language in which

to study ecosystems as capital assets.7

My understanding of ecological processes and the way they shape, and are in turn shaped by, human activities has been

sharpened over the years through my association with the Beijer International Institute of Ecological Economics in

Stockholm, which offers an uncommonly good environment for interdisciplinary exchanges. Over the past several

years, the Institute has organized, at the marine field station on the island of Askö in the Trosa archipelago, an annual

meeting of ecologists and economists to discuss research problems of mutual interest. The meetings have been

administered by Astrid Auraldsson and Christina Leijonhufvud with a touch that has regularly established a mood

conducive to intellectual discourse. These meetings have influenced the way Ihave framed many of the questions

raised below. For this Iam most grateful to Sara Aniyar, Kenneth Arrow, Bert Bolin, Gretchen Daily, Paul Ehrlich,

Carl Folke, C. S. (‘Buzz’) Holling, AnnMari Jansson, Bengt-Owe Jansson, Simon-Levin, Karl-Göran Mäler, Tore

Söderqvist, and Brian Walker, each of whom has been a regular attendant of the occasion.

PREFACE xi

6 See ‘Valuation and Evaluation’, in O. Feinstein and R. Picciotto (eds.), Evaluation and Poverty Reduction (Washington: World Bank, 2000).

7 Letter, 19 August 1999.

For more than a decade, Karl-Göran Mäler (director of the Beijer Institute) and I have conducted a teaching and

research programme in environmental and resource economics for university teachers of economics in poor countries.

My understanding of the subject of this essay has been shaped by the many discussions Ihave had with participants in

this programme, too numerous to mention individually.8

My intellectual debts on these matters are, of course, wider still and go back further. Over the years Ihave benefited

from discussions and correspondence with Scott Barrett, Simon Blackburn, John Broome, Gretchen Daily, Carol

Dasgupta, Paul David, Jayasri Dutta, Paul Ehrlich, Yehuda Elkana, Jack Goody, Frank Hahn, Geoffrey Heal, Robert

Hinde, Bengt Kriström, Wolf Lepenies, Stephen Marglin, Alaknanda Patel, I. G. Patel, Elinor Ostrom, Charles

Perrings, Peter Raven, John Rawls, Debraj Ray, Paul Seabright, Amartya Sen, Ismail Serageldin, Robert Solow,

Hirofumi Uzawa, Jeff Vincent, and, most especially, Kenneth Arrow, Karl-Göran Mäler, Eric Maskin, and James

Mirrlees. Many of the ideas developed here were given to me by them, and they will recognize that.

The Tanner Lecture was followed by a seminar chaired by Stephen Darwall, where the text was subjected to probing

questions by Debra Satz, T. N. Srinivasan, Jeremy Waldron, and members of the Department of Philosophy at the

University of Michigan, Ann Arbor. Kenneth Arrow, Scott Barrett, Jeremy Edwards, Robert Hinde, Karl-Göran

Mäler, Andrew Schuller, Robert Solow, Jeff Vincent, and two readers for Oxford University Press commented on

earlier drafts of the essay. The present version reflects the impact of their comments. Louise Cross has helped me in

innumerable ways to prepare the essay for publication. Sue Hughes edited the typescript Isubmitted to Oxford

University Press with an understanding that Ihave now come to anticipate. To all these good people, Iam most

grateful.

Partha Dasgupta

St John's College

Cambridge

March 2001

xii PREFACE

8 The programme began in 1989 under the auspices of the World Institute for Development Economics Research (WIDER) in Helsinki, and has been funded since 1994 by

the MacArthur Foundation in Chicago and the Swedish International Development Authority (SIDA). Two recent developments of the programme have been the

establishment of the South Asian Network for Development and Environmental Economics (SANDEE), based in Kathmandu, Nepal, and the Research Accounting

Network for Eastern and Southern Africa (RANESA), based in Pretoria, South Africa. Both SANDEE and RANESA fund teaching and research workshops in

environmental and resource economics, and award research grants to enable economists based in South Asia and in Eastern and Southern Africa, respectively, to work on

both local and transfrontier environmental problems. These developments would not have been possible but for the encouragement and support given by Lal Jaywardena,

previously director of WIDER; Dan Martin, previously of the MacArthur Foundation; and Mikael Stahl of SIDA.

Contents

Summary and Guide xviii

Introduction: Means and Ends 1

I.1.Making Comparisons 1

I.2.Disagreements over Facts and Values 3

I.3.Valuation and Evaluation in Kakotopia 7

PART I: VALUING AND EVALUATING 9

Prologue 11

1. The Notion of Well-Being 13

1.1.Personal to the Social 13

1.2.Welfare and Well-Being 14

1.3.Human Rights as Constituents of Well-Being 15

1.4.Positive and Negative Rights 18

1.5.Aggregation in Theory 19

1.6.Numerical Indices: Complete vs. Partial Ordering 20

1.7.Complete vs. Partial Comparability of Well-Being 22

*1. Ordering Social States 24

*1.1.Definitions 24

*1.2.Efficient Liberalism 25

2. Why Measure Well-Being? 27

2.1.Measuring Economic Activity 27

2.2.Comparing Groups 27

2.3.Comparing Localities 28

2.4.Measuring Sustainable Well-Being 29

2.5.Finding Criteria for Policy Evaluation 30

2.6.Four Senses of Plurality 30

3. Constituents and Determinants of Well-Being 33

3.1.Constituents or Determinants? 33

3.2.Valuation, Trust, and Institutions 34

3.3.Happiness 36

3.4.Imitation and the Demonstration Effect 38

PART II: MEASURING CURRENT WELL-BEING 41

Prologue 43

4. Theory 45

4.1.Citizenship: Civil, Political, and Socio-Economic 45

4.2.The Need for Parsimony 46

4.3.Exotic Goods and Basic Needs 48

4.4.Civic Attitudes, Entitlements, and Democracy 50

4.5.Aggregation in Practice 53

4.6.Cardinal or Ordinal Indices 54

5. Current Quality of Life in Poor Countries 56

5.1.The Data 56

5.2.Borda Ranking 59

5.3.GNP and Current Well-Being 62

5.4.The Contemporary Poor World 63

5.5.Civil Rights, Democracy, and Economic Progress: Theory 66

5.6.Civil Rights, Democracy, and Economic Progress: Illustration 69

5.7.Geography of Poverty Traps 76

5.8.The Human Development Index: Development as What? 80

PART III: MEASURING WELL-BEING OVER TIME 85

Prologue 86

6. Intergenerational Well-Being 89

6.1.The Ramsey Formulation 89

6.2.Discounting the Future 94

6.3.Public and Private Ethics 96

6.4.Population Growth 98

6.5.Uncertainty 101

*6. Intergenerational Con

flicts 104

*6.1.Present vs. the Future 104

*6.2.Declining Discount Rates 105

xiv CONTENTS