Shell-shocked investors bouncing between stocks, bonds, and real estate are putting their money in all the wrong places, according to a paper published in Science magazine. The best deal going, by a wide margin, is the environment.
An annual investment of U.S. $45 billion in preserving large tracts of wild nature, said the paper's authors, would yield an annual return to society of between $4.4 trillion and $5.2 trillion in "ecosystem services" like water filtration and climate regulation, a 100 to 1 return on the investment (ROI).
Greenbacks aren't rushing into green causes because the market-based economy doesn't tell the whole financial truth, according to Robert Costanza, director of the Gund Institute for Ecological Economics at the University of Vermont and one of the paper's co-authors.
"Converting ecosystems typically benefits only a few private individuals," he says. "Leaving wild nature wild produces benefits in the form of ecosystem services, but these services are public, rather than private goods. They serve society as a whole and aren't captured by the imperfect market."
In economics, a "public good" is one that benefits everyone, whether they pay for it or not. For example, a private good like a car benefits only the person who buys it, while a public good like clean air benefits everyone.
Markets work on the idea that people will pay for the best goods, which motivates producers to provide them. Priceswhich are determined in part by how much people are willing to pay for somethingtell producers what the best use of their resources would be. That way, members of society get what they want.
But most economists agree that markets have trouble providing public goods, because an individual doesn't lose the public good if he or she decides not to pay for it. A person can't buy clean air just for him or herselfhe or she has to buy it for everyone. This means that it isn't profitable for private companies to provide things like clean air or military defense. Prices thus don't give producers a motivation to produce things that people want, but can't buy for themselves.
Calculating the Real Costs
The paper constructs a careful argument to recast the globe's balance sheet so it takes into account environmental research about the relative benefits of developed and undeveloped ecosystems.
Costanza and his co-authors first wanted to determine the full economic impact of developing wild areas, adding environmental factors to the mix.
They identified five studies that compared diverse "biomes," or massive ecosystems, before and after development took placefor instance, a tropical forest in Selangor, Malaysia that was converted to high-impact logging and a mangrove system in Thailand that became an aquaculture and shrimp-farming economy.
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