New Bottom Line Volume 6.7 – Nature's Services: Our invisible bank account comes into focus

March 27, 1997

What are things worth? How do we determine value? What is the exchange rate of a sunset? More to the point: What price can we place on the ecosystem services we have lost, and that we are poised to lose?

Ecosystem services? Listen up, because this is not just the next big thing. This is a very big thing.

Pause a moment, and consider the products and services provided to human society by living systems, and the ways human society is dependent on the health of natural ecosystems. Nature’s Services: Societal Dependence on Natural Ecosystems (Island Press), an important new book edited by Stanford University biologist Gretchen C. Daily, does just that.

Natural ecosystems serve human society in many direct and indirect ways. They produce a wide range of “ecosystem goods”–seafood, fodder, fuelwood, timber, and pharmaceutical products. And they provide indispensable, life-supporting “ecosystem services”–purification of air and water, detoxification and decomposition of wastes, climate regulation, and soil fertility regeneration. They are the fountain of biodiversity, essential to agriculture, the pharmaceutical industry, industrial enterprises–and life itself.

As Natural Step founder Karl-Henrik Robèrt puts it even more dramatically, photosynthesis is the fundamental source of all value on earth, since the green cell is the only significant way that ambient solar energy can be captured to create “net order” by driving the structuring of matter into sugars, proteins, living creatures, economies and art. Yet when does “Net Primary Productivity” ever figure into a company’s or nation’s chart of accounts?

Nature’s Service is probably the first systematic attempt to chronicle and value this cornucopia. More than 30 eminent scientists and economists have contributed chapters that document ecosystem products and services, explore both philosophical and economic issues of valuation, offer case studies of selected ecosystem products and services, and discuss the policy implications of these findings.

Consider: One third of human food comes from plants that are dependent on wild pollinators, such as birds, bees, flies, and bats. Without the service provided by these animals, many plant species could face extinction and many crops would cease to exist economically. Yet many pollinator species are threatened by human activity. Who pays?

Consider: Biodiversity is a critical source of ecosystem services and provides many genetic and biochemical resources for agricultural and pharmaceutical industries. It’s not just a matter of the exotic, such as rainforest sources of new pharmaceuticals; the transfer of genetic material from wild to domesticated crops accounts for half of the annual gains in agricultural productivity. Who pays?

But that’s just the tip of the iceberg. Consider: such foundations of agriculture as soil formation, and natural pest control; seed dispersal; flood control; water purification; production of oxygen; mediation of both global and local climate; and the design intelligence of 3.8 billion years of R&D.Who pays?

It’s an obvious management precept that what gets measured gets managed, what gets measured gets valued. Is it any surprise that the invisible bank account of natural capital is being squandered.

Fortunately its dimensions are now starting to come into focus. “Just as one cannot capture the full value of a human life in economic terms, it would be absurd to try to estimate the value of nature in strictly economic terms” Daily writes. “But estimates of the lower-bound, marginal value of nature’s goods and services–in the trillions of dollars–are critical to informing decision makers.”

This is true for decision-makers in business (and households) as it is for those in government. Imagine trying to run a business (or a household) without accurate information on what you own, what you owe, where your income comes from. You might just as well try to drive down the freeway with a windshield coated with mud.

For too long, economists have pretended that significant components of the real economy could be ignored as “externalities,” since they are external the exchange processes of the market. The environmental movement has tried to teach us that they are not external to the biosphere. Daily and her colleagues are now showing us that these externalities don’t stay external!

But we are locked in a conundrum. Even those companies that recognize their economic dependence on ecosystem goods and service must operate within a market system that largely–or in any case formally–does not. As Garrett Hardin observed in “The Tragedy of the Commons,” our economic system provides incentives to those who pursue private advantage, disincentives to those who would nurture common resources.

So we face a dual challenge. First, the policy challenge to rewrite the “rules” of economics, and the Generally Accepted Principles and Practices of accounting, so that “externalities actually show up on budgets, balance sheets and profit and loss statements, where decision makers can see them. Second, the management challenge to design and implement business strategies that treat natural capital with a much respect as economic capital–and that still deliver profit to shareholders. It’s no small challenge. But fortunately these innovations are underway.

To be continued.

(c) 1997 Gil Friend. All rights reserved.

New Bottom Line is published periodically by Natural Logic, offering decision support software and strategic consulting that help companies and communities prosper by embedding the laws of nature at the heart of enterprise.

Gil Friend, systems ecologist and business strategist, is President and CEO of Natural Logic, Inc.

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