Beijing, China is one of the largest and fastest growing cities in the world. Its current population is more than 20 million people, and the population is expected to exceed 25 million by 2020 and possibly 50 million by 2050.1
The purpose of the following chapter is to trace the historical origins of our present-day concept of wealth, by examining how human perceptions of wealth have evolved over previous eras. These changing perceptions are important to understanding our present predicament — which is to “undervalue” the contribution of nature to our economies. This misalignment between our exploitation of nature and the creation of wealth is fundamental to the structural imbalance in modern economies. In subsequent chapters, we explore the causes and consequences of this imbalance.
In the previous two chapters, we learned that the economic wealth of a nation comprises three distinct assets: manufactured, or reproducible, capital, such as roads, buildings, machinery and factories; human capital, such as the skills, education and health embodied in the workforce; and natural capital, including land, forests, fossil fuels and minerals and ecosystems that provide valuable goods and services. However, the total or national wealth of an economy also includes the accumulation of sizable financial assets, such as monetary metals and currency, bank accounts, government bonds, corporate bonds and stocks, mutual funds, insurance policies, pension funds, trade credit, and foreign-owned assets (see Figure 1.1).
A critical problem facing humankind today is the rapid disappearance and degradation of many ecosystems worldwide. For the first time in history, fossil fuel energy and raw material use, environmental degradation and pollution has occurred on such an unprecedented scale that the resulting consequences in terms of global warming, ecosystem decline and environmental degradation are generating worldwide impacts. As a consequence, we are on the verge of a new era, the “Age of Ecological Scarcity”.1
As previous chapters have explored, there is a growing structural imbalance in the world economy, which has at its core a fundamental misalignment between our exploitation of nature and the creation of economic wealth. One aspect of this misalignment is that rich and large emerging market economies become carbon-dependent, whereas the majority of low and middle-income countries are resource-dependent. Another is the increasing dependence on exploiting more natural resources, such as fossil fuels, minerals, forests and non-renewable material use. But the most dramatic declines in recent decades have been in ecological capital — ecosystems such as wetlands, coral reefs, grasslands and freshwater systems that also provide valuable goods and services to economies. In addition, with greenhouse gas emissions continuing to grow, the Earth’s ability to absorb these emissions is diminishing.
At the heart of structural imbalance in the world economy is the underpricing of nature. In this chapter, we explore the factors underlying this pervasive problem. In particular, we focus on a key question: If natural and ecological capital are valuable sources of economic wealth, why are we squandering these assets? In addition, if ecological scarcity and natural capital depreciation are on the rise, why are we are we doing so little to address these problems?
Up to now, this book has focused on how nature is used to create wealth. Here, we explore how that wealth is distributed, and its economic implications.
The world economy today is facing two major threats: increasing environmental degradation and a growing gap between rich and poor. Drawing on historical and contemporary evidence, this book has argued that these two threats are symptomatic of a growing structural imbalance in all economies, which is how nature is exploited to create wealth, and how this wealth is distributed among the population. The root of this imbalance is that natural capital is underpriced, and hence overly exploited, whereas human capital is insufficient to meet demand, thus encouraging wealth inequality.
As outlined in the previous chapter, in order to end the current structural imbalance in the world economy, all economies need to address simultaneously the two key sources of this imbalance: the underpricing of natural capital that leads to its overexploitation, and the insufficient accumulation of human capital to meet the demand, which contributes to wealth inequality. Also, there must be additional policies aimed at encouraging structural transformation in resource-dependent developing economies and ending the significant pockets of rural poverty found worldwide. Finally, as we have seen throughout this book, the global impacts of environmental degradation are becoming a pressing problem. Thus, overcoming these worldwide market failures and environmental threats, especially climate change, ecological scarcity and declining freshwater availability, requires creating global markets.
The world economy today is at a crossroads. As Mahatma Gandhi once said, “Earth provides enough to satisfy every man’s need, but not every man’s greed.”
