INTRODUCTION
Chapter 11. Tools for Restructuring the Economy
Lester R. Brown, Eco-Economy: Building an Economy for the Earth
(W.W. Norton & Co., NY: 2001).
In Chapter 1, I cited �ystein Dahle's warning
that the failure of prices to tell the ecological truth could undermine
capitalism, just as the failure of prices to tell the economic truth
undermined socialism. The Chinese recognized this risk of prices
not telling the ecological truth when they banned tree cutting in
the Yangtze river basin following the near-record flooding in 1998.
They said that a tree standing was worth three times as much as
a tree cut. If they had included not only the flood control value
of trees but also the value in recycling rainfall to the country's
interior, a tree standing might easily be worth six times as much
as a tree cut.1
The use of a highly valued resource such as a tree for a lowly valued
purpose such as lumber imposes an economic cost on society. Similarly,
since the price of a gallon of gasoline does not include the cost
of climate change, it too imposes a cost on society. If losses such
as these, now occurring on an ever larger scale, keep accumulating,
the resulting economic stresses could bankrupt some countries.
The key to sustaining economic progress is getting prices to tell
the ecological truth. Ecologists and economistsworking
togethercan
calculate the ecological costs of various economic activities. These
costs can then be incorporated into the market price of a product
or service in the form of a tax. Additional taxes on goods and services
can be offset by a reduction in income taxes. The issue in "tax
shifting," as the Europeans call it, is not the level of taxes but
what they tax.
There are several policy instruments that can be used to restructure
the economy, including fiscal policy, government regulation, eco-labeling,
and tradable permits. But restructuring the tax system is the key
to eliminating the crippling economic distortions. Tax policy is
particularly effective because it is systemic in nature. If taxes
raise the price of fossil fuels to reflect the full cost of their
use, this will permeate the economy, affecting all energy-related
economic decisions.
Today's fiscal systems, a combination of subsidies and taxes, reflect
the goals of another eraa
time when it was in the interest of countries to exploit their natural
resources as rapidly and competitively as possible. That age has
ended. Now natural capital is the scarce resource. The goal is to
restructure the fiscal system so that the prices reflect the truth,
protecting the economy's natural supports.
It is not easy to grasp the scale and urgency of the needed restructuring.
Reestablishing a stable, sustainable relationship between the global
economy and the earth's ecosystem depends on restructuring the economy
at a pace that historically has occurred only in wartime. When national
security is threatened, governments take extreme measures, such
as drafting able-bodied men into the armed forces, commandeering
natural resources, and sometimes even taking over strategic industries.
Although it may not yet be obvious to everyone, we may well be facing
a threat that is comparable in scale and urgency to a world war.
ENDNOTES:
1.
Parallel of ecological and economic truths from �ystein Dahle, discussion
with author at Worldwatch Briefing, Aspen, CO, 22 July 2001; Erik
Eckholm, "Chinese Leaders Vow to Mend Ecological Ways," New York
Times, 30 August 1998; Erik Eckholm, "China Admits Ecological Sins
Played Role in Flood Disaster," New York Times, 26 August 1998;
Erik Eckholm, "Stunned by Floods, China Hastens Logging Curbs," New York Times, 27 February 1998.
Copyright
© 2001 Earth Policy Institute
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