Partha Dasgupta vs. Jared Diamond

Partha Dasgupta, a Cambridge economist, recently wrote a sympathetic yet critical book review of Jared Diamond‘s book Collapse: How Societies Choose to Fail or Survive in the London Review of Books. In it Partha Dasgupta critiques the book for its failure to adress tradeoffs and advances the concept of inclusive wealth.

Dasgupta critiques Diamond for not being more explict about tradeoffs among ecosystem services:

The more important reason why Diamond’s rhetoric doesn’t play well any longer is that it presents only one side of the balance-sheet: it ignores the human benefits that accompany environmental damage. You build a road, but that destroys part of the local ecosystem; there is both a cost and a benefit and you have to weigh them up. Diamond shows no sign of wanting to look at both sides of the ledger, and his responses to environmental sceptics take the form of ‘Yes, but . . .’ If someone were to point out that chemical fertilisers have increased food production dozens of times over, he would reply: ‘Yes, but they are a drain on fresh water, and what about all that phosphorus run-off?’ Diamond is like a swimmer who competes in a race using only one arm. ‘In caring for the health of our surroundings, just as of our bodies,’ he writes at one point, ‘it is cheaper and preferable to avoid getting sick than to try to cure illnesses after they have developed’ – which sounds wise, but is simply misleading bombast. Technology brings out the worst in him. At one point he claims that ‘all of our current problems are unintended negative consequences of our existing technology,’ to which I felt like shouting in exasperation that perhaps at some times, in some places, a few of the unintended consequences of our existing technology have been beneficial. Reading Diamond you would think our ancestors should all have remained hunter-gatherers in Africa, co-evolving with the native flora and fauna, and roaming the wilds in search of wild berries and the occasional piece of meat.

Here I should put my cards on the table. I am an economist who shares Diamond’s worries, but I think he has failed to grasp both the way in which information about particular states of affairs gets transmitted (however imperfectly) in modern decentralised economies – via economic signals such as prices, demand, product quality and migration – and the way increases in the scarcity of resources can itself act to spur innovations that ease those scarcities. Without a sympathetic understanding of economic mechanisms, it isn’t possible to offer advice on the interactions between nature and the human species.

And presents the idea of inclusive wealth:

An economy’s productive base consists of its capital assets and its institutions. Ecological economists have recently shown that the correct measure of that base is wealth. They have shown, too, that in estimating wealth, not only is the value of manufactured assets to be included (buildings, machinery, roads), but also ‘human’ capital (knowledge, skills health), natural capital (ecosystems, minerals, fossil fuels), and institutions (government, civil society, the rule of law). So development is sustainable as long as an economy’s wealth relative to its population is maintained over time. Adjusting for changes in population size, economic development should be viewed as growth in wealth, not growth in GNP.

A state of affairs in which GNP increases while wealth declines can’t last for ever. An economy that eats into its productive base in order to raise current production cannot do so indefinitely. Eventually, GNP, too, would have to decline, unless policies were to change so that wealth began to accumulate. That’s why it can be hopelessly misleading to use GNP per head as an index of human well-being. Recently the World Bank published estimates of the depreciation of a number of natural resources at the national level. If you were to use those data (and deploy some low cunning) to estimate changes in wealth per capita, you would discover that even though GNP per capita has increased in the Indian subcontinent over the past three decades, wealth per capita has declined somewhat. The decline has occurred because, relative to population growth, investment in manufactured capital, knowledge and skills, and improvements in institutions, have not compensated for the decline of natural capital. You would find that in sub-Saharan Africa both GNP per capita and wealth per capita have declined. You would also confirm that in the world’s poorest regions (Africa and the Indian subcontinent), those that have experienced higher population growth have also decumulated wealth per capita at a faster rate. And, finally, you would learn that the economies of China and the OECD countries, in contrast, have grown both in terms of GNP per capita and wealth per capita. These regions have more than substituted for the decline in natural capital by accumulating other types of capital assets and improving institutions. It seems that during the past three decades the rich world has enjoyed sustainable development, while development in the poor world (barring China) has been unsustainable.

8 thoughts on “Partha Dasgupta vs. Jared Diamond”

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  3. Partha Dasgupta’s faith in cost-benefit analysis is touching, but, in the context of the environmental issues/trade-offs, not particularly helpful. He himself more or less acknowledges that measuring “wealth” (especially when it includes natural capital and institutions) is awfully hard, and the actual estimates are usually questionable. The trouble with natural capital and institutions, in particular, is that their “decumulation” is seen only in the actual results: rise of deserts or emergence of failed states — which leads to circular argumentation. Jared Diamond may have indulged too much in “doom and gloom”, but economics — the dismal science — does not provide much comfort either.

  4. The following is the text of the letter I sent to LRB commenting on Dasgupta on Diamond. An edited version of the letter was published.

    Partha Dasgupta writes as an economist. So do I. Presumably I am supposed to be grateful for Dasgupta assuring LRB readers that the way many economists think about environmental problems is the correct way to evaluate public policy a policy should be accepted if and only if it is expected to lead to an increase in wealth per capita. But I am exasperated by the imperious tone of such pronouncements, which will only serve to isolate economics further from environmental debate in the humanities and social sciences. Dasgupta continues there is no evidence [Jared Diamond] even realises he doesnt have the equipment to hand with which to study our interactions with nature and worries that Diamonds readers will likewise not even notice that they havent got the tools. Of course the tools, equipment and toolkit to which Dasgupta refers concern the contraption he terms modern economics. Dasguptas use of modern as a badge of honour would make Blair proud. He mentions modern theories of economic development and modern decentralised economies; in both cases the adjective is used to ignore and belittle alternatives without bothering to discuss them.

    Debate is not encouraged by hints that only those with the right tools are qualified to speak. This is black box economics: out of my technical hat I bring the correct policy, but sorry, no explanations or reasons since its too technical for you to understand. This technical guff needs a good lesson in market discipline. The vast majority of politicians, policy-makers and opinion-formers have no understanding or interest in intricate technical stories (theyre called models). More importantly, theres little evidence that even for those who do understand, the technical stories have any influence on their thinking. Market economists are supposed to respond to customer demand, not rebuke them for failing to have the right toolkit.

    The customers crave understanding; economists might begin with some honesty about the limitations of economic analysis. Dasgupta is right to emphasise the uncertainties which plague attempts to quantify natural capital, but wrong to imply that the solution is less biased quantification. Since Keynes, most applied economists have accepted that genuinely uncertain outcomes cannot be quantified. Only the most austere Bayesians believe everything has a probability. Setting problems of uncertainty aside, quantification remains spurious. We would think it absurd to invoke cost-benefit analysis to justify say, homeland security policy. Environmental security should not have to pass such a test either. Bush and Blair know that cost-benefit analysis cannot legitimise their military expansion plans; they must appeal to morality. In this respect at least, environmentalism can learn from them.

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