Economy and ecology: two words, same origin

As human civilization progresses we can see that many environmental risks are being mitigated. The root cause a cultural change in how we give value to the environment both culturally and economically.

The clearest example is the fact that nowadays nature is no longer a 'wild' place: for instance, Africa used to be called 'the wild continent'. Nature now is rather something necessary for humans. Moreover, those African wild areas are now places people around the world visit to contemplate nature and to learn from nature's peace and equilibrium. In the past, cities were protected by walls and fences from the 'wild'. Today, new urban planning requires more 'green spaces' within urbanized perimeters.

Etymologically, the terms 'economy' and 'ecology' have almost the same meaning. While 'economy' comes from the Greek 'oikos' -home- and 'nomos' -management, regulation-; the term 'ecology', first used by the German Ernst Haeckel in 1866 means 'oikos' and 'logia' -study-. Consequently, a clear and common meaning can be seen: 'oikos' refers to 'home', whether as a household, or 'home, our Planet, the natural world', as the ecosystem upon which we deeply depend. The terms 'nomos' and 'logia' also refer to logical, not simply random, patterns and consequently they are not such distant concepts either.

The definition of 'classical economics' is framed around how humans barter goods and services within a market context. This definition focuses on how parties will seek the lowest possible price for the production/delivery and consumption/use of goods and services. This concept of economics, is today, too simple. It neglects the 'oikos' aspect; that is, the natural ecosystem. As a result, very often this sort of understanding of economics damages the environment. But sooner or later it will hit back at the very market that triggered negative effects such as the misuse of resources or pollution, producing a kind of 'boomerang' effect.

These economic inefficiencies were often called 'externalities of the economy'; referring to those issues – in this case, environmental– upon which the market economy did not set a price. As a consequence, the price was paid by third parties who may have been neither producers nor consumers of the goods and services that triggered, for instance, pollution. A classic example is the citizen who does not use a car and yet is affected by respiratory diseases caused by fossil fuel associated air pollution.

Environmental damage affects markets and thus commercial activities. It causes scarcity of some goods/assets. These might be 'acceptable noise levels in a city' –the real estate market; or the depletion of commercial fisheries – the food market; or the deterioration of 'air quality' –the real estate market and public health costs; or the closure of beaches because of 'polluted waters' – the tourism industry.

As Adam Smith, father of 'classical economics' would say, 'the invisible hand of the market' acted and environmental aspects have begun to affect the prices of goods and services.

There are two challenges in terms of the relationship between 'classic economics' and 'ecology' as the pure science of nature, isolated from human behaviour.

The first challenge is that environmental damages do not generally hit market performance immediately, but perhaps only years after pollution affected nature - a time lapse problem. No less important is the 'location problem': pollution events may occur kilometres away from the area where the larger ecosystem or human health is finally affected.

The second challenge is how to implement environmentally sensitive market regulations without performing 'major surgery' – which is to say, without triggering a mass market disruption and thus leaving many economic actors 'out of businesses'.

The recognition that ecosystems provide 'services' to human civilization was initially appreciated by the Sumerians, who prohibited the felling of trees in area around the Tigris-Euphrates basin. Plato, the Greek philosopher, also recognised environmental damage caused by deforestation. Environmental 'first mover' Alexander von Humboldt did the same in remarkable fashion in the early 1800s. Humboldt also recognised environmental issues such as monoculture and the misuse of superficial water for crop irrigation.

In 2005, the MEA or 'Millenium Ecosystem Assessment' was published. It is an in-depth report requested by the United Nations. In this report, it was recognized that, globally, ecosystems provide the following services to the global economy:

• Supporting Services (nutrient recycling, primary production, soil formation, provision of habitats and pollination)

• Provisioning Services (food, raw materials, genetic resources, water, medicinal resources, energy, ornamental resources, biogenic minerals - quartz, diamonds, pyrite, calcium, etc.)

• Regulating Services (regulation of species, pest and disease control, waste decomposition, carbon capture and climate regulation, water and air purification).

• Cultural Services (historical, spiritual, recreational, therapeutic and cultural).

If we want to internalise those 'externalities of the economy', the greatest challenge of current markets seems to be a clear tendency towards 'globalisation'. Today, local markets tend to disappear, engulfed by the global market. Certainly, in order for a global market to emerge human culture must be totally homogenised and standardised. This seems to be against the very nature of humankind, so diverse in its ethnic groups and cultures. Perhaps in the future markets could be created around to ecoregions responding more or less to the same ecosystemic and cultural conditions.

Planet Earth, as a global ecosystem, has an 'connectivity' factor. This connectivity can be clearly seen in the ways that elements such as water and air flow. They do not know boundaries or limitations as moving from one location to another on the planet.

Today, universities teach subjects such as 'environmental economics' and 'natural resource economics'. For the former, the main focus of study is how to allocate prices for pollution; and for the second, the focus is what would be the most efficient rate for the consumption of natural resources.

We can learn some economic strategies from case studies where environmental damage was successfully minimised and the use of natural resources was improved:

Fisheries regulation: A study compared the strategies of the USA and Canada for managing commercial fisheries. The USA adopted a 'command and control' approach in terms of fish size, zoning and fishing effort; Canada implemented ITQ or Individual Transferable Quotas, which much better represented the reality of the fishing industry. The results of the implementation of both strategies showed that the Canadian scheme maintained and even increased fishing stocks and industry profitability; the opposite happened in the neighbouring country.

Transportation: Singapore, a nation with high purchasing power but with a very small territory, has developed its best possible transportation policy to deal with environmental harm. As a result, Singapore today has no traffic problems and no significant levels of air pollution associated with car usage. Among its solutions: an annual quota system for new vehicles registration. Registering a car became more expensive than buying a car, but the quota system also created a market where car owners could freely transfer their car registration to other new car owners. Singapore also established different prices for tolls and parking, according to zones and times. Importantly, a large percentage of the funds raised by the government with this car registration approach were directly invested in public transport, that is, transforming a problem into a benefit for citizens.

Land use regulation: In Thailand, in the village of Tha Po, it was demonstrated in an economic study carried out by two economists that the removal of 550 ha of mangroves for the purpose of prawn aquaculture produces more damage than profit because mangroves are breeding areas for many other commercial fish species. The elimination of mangroves affects local commercial fishing and in addition removes the economic benefit of the mangroves in relation to flood and soil erosion control, affecting agriculture and the property industries too.

Land use and water regulation: In 1989, the City of New York, with almost 9 million inhabitants was forced by the new 'Healthy Water Act' to acquire water purification plants valued at $8 billion. The local government, instead of investing in expensive plants, invested in buying the lands upstream - some 56,000 ha throughout the catchment area of the Catskill-Delaware basin, from where 90% of the city water comes from. These lands are located about 250 km upstream. At that time the area was subject to the following land use: 61% forestry, 500 farming stations and some 60 rural villages.

New York's great achievement was to acquire land upstream to its water sources. This land was worth $240 million, and another $310 million over ten years. As a result, New York's government saved on the difference between the investment that would have been outlaid on purification plants and the price of the land acquired. The water quality of the basin has dramatically and directly improved as a result of the services of a now protected ecosystem – also improving local biodiversity. As a bonus, the city's new land began to produce income from the tourism and recreational industries.

In a nutshell: markets are always flexible and tend to look for efficiencies. Today, the undeniable tendency is to incorporate environmental efficiencies.