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The 3rd Yan Fu Memorial Lecture: Nature and Economic Development


 This year, the Third Annual Yan Fu Lecture was held on 28 September in Wanzhonglou with keynote speaker Partha Dasgupta speaking on Nature and Economic Development.  In his opening speech, Justin Yifu Lin noted that Professor Dasgupta's topic was espeically poignant as Dr Yan Fu was the first person to translate two fundamental works of Western thought, Darwin's Theory of Evolution and Adam Smith's Wealth of Nations into Chinese.  An accomplished scholar at Cambridge University, Partha Dasgupta is an active researcher and has published many works, his latest titled Human Well-being and the Natural Environment.

Professor Dasgupta opened his talk by refering to nature as a "factory free of charge," manufacturing products, including the environment in which we live, on a daily basis for free.  Incorporating this production base into economic reasoning when assessing growth and the sustainability of growth was the core of Dasgupta's speech.  He also emphasised the position of the poorest members of the poorest nations being those most directly affected by changes in this "sector" of the economy.  It is for this reason that he has focused on this part of the world in his examination the effect of environmental change on economic development.  

A theme throughout Dasgupta's talk was that present indicators of growth and development that are used, such as GDP and HDI (the Human Development Index as set by the UN), are not indicators of future development, only present and past development.  Inclusion of environmental factors in considerations of economic development, which can have delayed effects on the economy, has not been accepted.  Dasgupta attributed this to a "tension" between economists and environmental scientists.  Technological and institutional progress, for economists, results in economic growth and paint a rosy picutre for future development, but environmentalists warn that the damage to the base of the economy (the environment) will eschew this apparent growth in the future.  Dasgupta calls this damage "depreciation of [natural] capital."  Dasgupta cited the 1987 Brundtland Report as an important step in the integration of natural capital into economic forcasting.  The report called for seeking "development that meets the needs of the present without compromising the ability of future generations to meet their own needs."

In how to deal with proper analysis of long-term growth, Dasgupta emphasised Wealth of a nation and not its GDP or HDI values per capita as the proper index for sustainable growth.  To this point, he outlined a proof in which he and a fellow researcher examined the value of wealth over time as a function of the vector of capital over time, including changes in insitutions and systems, both political and economic.  Dasgupta based the concept of natural capital on ecosystems, seeing them as fundamental capital assets because they are the base for other capital assets.  The destruction of ecosystems is equivilant to or can result in the depreciation of capital, but this type of depreciation is usually unreversable and often sudden.  It was also the sudden nature of this depreciation that Dasgupta pointed out as a problem for traditional economic theory.  He also noted that at the urban level, where most economists operate, ecosystems are a luxury (i.e. a park or garden), not relevant to economic growth and progress, whereas at the rural level, they are indespensable and local populations suffer and in poorer areas are often not able to take advantage of theorized substitution possiblities.  It is exactly these "extra-economic" considerations that are not taken into account in GDP or HDI.  Therefore, in Dasgupta's proposed model, GDP and HDI could be showing positive growth, while if environmental factors were considered, growth of general Wealth of a nation per capita could be negative.

It is this last situation that is shown clearly in data presented by Dasgupta.  In poorer developing nations, mainly in South Asia and Sub-Saharan Africa, this is a common phenomenon and therefore these areas are the main focus of his research.  Dasgupta used the case of Bangladesh to indicate this point.  Using the example of Bangladesh, while GDP growth per capita in that country showed a valueof 1.88%, General Wealth per capita, using his model, was negative at -0.64%.  This was mainly due to the depreciation of natural capital, i.e. the decrease in forests, quality of land and increase in carbon emissions.  However, in China, he pointed out that investment in other capital such including labor and technology has allowed China's General Wealth to increase, but compared to GDP growth of over 7%, growth in General Wealth was only a little over 4%, also the result of depreciation of natural capital.

Dasgupta also discussed the problem of "social discounting."  Currently, most economists do not consider future benefit profitable enough at the present time to take relevant steps in resolving depreciation of natural capital.  A decline in consumption, a possible result of this depreciation, is considered as impossible in many economic circles, but Dasgupta pointed out that it is happening in Sub-Saharan Africa, partially the result of environmental degredation.  He said that we must bring future "negative discounting" to today's considertations to measure actual long-term growth.

Ultimately, Professor Dasgupta's hoped that economists would begin using an "environmental background when thinking economically."  Sustainable growth, especially for developing countries is an immediate consideration.  His data on growth of Wealth as opposed to GDP should be a wakeup-call for rexamining future economic development instead of being satisfied with optimistic numbers as shown in GDP and other indicies.