Contract with America:
Costing the Earth?
Sharon Beder
This is a final version submitted for publication.
Minor editorial changes may have subsequently been made.
The rationale embodied in the bill is to "provide more cost-effective and cost-reasonable protection to human health and the environment" by using "scientifically objective and unbiased" consideration of risks, cost and benefits as a basis for decision-making. This raises the question of whether environmental and health costs and benefits can be assessed in a scientifically objective manner. Environmental controversy arises because different groups of people have varying appreciation of the environment and what it is worth.
Under the bill costs and benefits would be quantified as much as possible. The reduction of political values to numbers enables such analyses to appear to be scientifically objective when they are not. "Numbers carry an unwarranted authority" [1] because they are associated with rationality and neutrality. Asking economists to assign numbers to values, as this bill would involve, is unlikely to resolve value conflicts. But it will give more influence to the values of one group of people--the economists and those who employ them.
Economists favour quantification because it makes the comparison of costs and benefits easier and they argue that the use of numbers make value judgements explicit and force decision-makers to think about values in a more systematic and reasoned way [2]. But in fact the way that the numbers are arrived at can be subject to manipulation and, at the very least, will reflect the value judgements of the analyst.
Perhaps more important than the values built into cost benefits analyses, however, are the values that are left out of them. Good decision-making involves moral judgements as well as judgements of cost effectiveness. For example, child labour or slavery would be considered immoral even if the economic advantages to the whole society outweighed the costs to some individuals. Cost-benefit analysis can be used to avoid considering the moral dimensions of a decision. New Zealand politician Marilyn Waring [3] says that the moral value of averting injury, saving life and ensuring healthy working conditions are ignored in a cost-benefit analysis. "The value of safety is its costs and benefits relative to lost or gained production, possible legal suits, different groups of workers, and the allocation of scarce resources".
An obvious political and ethical issue ignored by cost-benefit analysis is that of distribution of costs and benefits. The costs of environmental, health and safety legislation tend to fall on employers and businesses. The benefits of those laws tend to go to employees and the wider public. If costs outweigh benefits and the legislation cannot go ahead, it is the businesses that benefit and the public who suffer. In the US it is particular sectors of the public who suffer most--the poor and people of colour. Robert Bullard [4], professor of sociology at the University of California, claims "people of color (African Americans, Latino Americans, Asian Americans, and Native Americans) are disproportionately affected by industrial toxins, dirty air and drinking water, and the location of noxious facilities". Studies in 1983 by the US General Accounting Office and in 1987 by the United Church's Commission for Racial Justice provide statistical support for Bullard's assertions.[5]
Even in narrow economic terms it is not clear that costs to individual firms translate into costs to the nation's economy. A firm forced to reduce pollution levels buys equipment off another firm and so what is a cost to one firm can be a benefit to another firm. For example in the USA pollution control equipment is a multi-billion dollar business that is growing at about 18% per year. Pollution control also creates many more jobs than it eliminates [6].
Another distributional issue that cost-benefit analysis neglects is intergenerational equity, one of the foundations of the concept of sustainable development. Normally in a cost benefit analysis, future costs and benefits are discounted (reduced) because it is assumed that they are not worth as much as present day costs and benefits to people alive today. Discounting discriminates against future generations by saying that future environmental or health benefits are worth less than present day costs. Because costs that are more than thirty years away become almost valueless using normal discount rates, long-term environmental costs such as resource depletion may be effectively ignored. "Except at very low discount rates, a tree that takes 40 years to grow would have a very low value today to show against its costs."[7]
David Godden [8], resource economist at the University of Sydney, defends the use of a discount rate. He says that if a discount rate is not used then this is effectively putting the discount rate at zero. He argues that if current trends continue future generations will be wealthier than current generations "and not discounting by the expected rate of growth of real per capita incomes will discriminate against the current generation."
In contrast Herman Daly, former senior economist with the World Bank, and John Cobb [9] argue: "The operational basis of discounting is that there exists a concrete process of depositing money in the bank where it grows at a given rate of interest and this process is viewed as an alternative to investing one's money in any particular project. In their models economists seem to consider all good things as equivalent to a sum of money in the bank, and therefore to expect that good thing, whatever it is, to grow like money in the bank. But when in their models economists discount future utility or happiness, then we are already getting into misplaced concreteness, because there is no real world operation by which satisfaction today can be stored in a fund and even if there were, there is no reason to expect such a fund to grow to give greater satisfaction tomorrow ."
Despite these limitations to cost-benefit analyses, environmental economists have been developing methods to quantify environmental values. One of the most popular methods is to derive a market value from the surveys to find out how much people are willing to pay to preserve or improve the environment --contingent valuation. Unfortunately such surveys can be very inaccurate, because people will understate the amount they would pay if they think there is a chance they might actually have to pay that amount. This is because people know that if others pay and they do not, they will get the benefit anyway--they can become `free riders'. On the other hand, if people believe they will never be asked to pay up, they may exaggerate the amount they are willing to pay.
Willingness to pay is also influenced by a person's perceptions of monetary value, their personal income, how well informed they are about the state of the environment and the principles of ecology, and what they are told about the area in question by the person conducting the survey. John Bowers [10], in a report prepared for the British Association of Nature Conservationists, points out that the problem of valuing environmental resources lies "in the difficulties of determining the value of any particular species or example of habitat type to the system as a whole. Decisions rarely involve stark choices between survival and extinction for particular species or eco-systems. Rather they involve questions of more, or less. Opting for less increases the risk of extinction, but by how much? And if extinction does follow how does one value this?... The scientific community has no answers to these questions; what can one hope to obtain by asking the public?"
Another method economists use to put a monetary value on the environment is the use of proxies for values--hedonic pricing. This is a method that assumes that the value of environmental assets can be found by considering the prices of the closest market substitutes. For example, a lake that is used for fishing might be valued by calculating what people spend on private fishing facilities. Another market substitute commonly used is property values. The economic analyst attempts to work out what part of the difference in property values in two neighbourhoods might be attributable to environmental factors and thereby infer how much people are willing to pay for improved environmental quality.
Like contingent valuation and hedonic pricing, most methods used by economists are anthropocentric - that is they only measure value to humans. For deep ecologists this is unacceptably arrogant and denies living things an intrinsic value. But many people who are not active environmentalists object to pricing the environment merely because it represents a further creep of the market and economics into areas of life that have traditionally been considered above material concerns. Daly and Cobb [9] note that there is considerable reluctance by the public to take part in contingent valuation surveys. They quote a researcher who argues that "respondents believe that environmental policy--for example, the degree of pollution permitted in national parks--involves ethical, cultural, and aesthetic questions over which society must deliberate on the merits, and that this has nothing to do with pricing the satisfaction of preferences at the margin".
If cost-benefit analysis is to be used as a primary decision-making tool, as the US legislation affirms, then some environmentalists fear that non-quantified costs and benefits will not be taken as seriously as those that are detailed in dollar terms. Others argue that the reduction of decision-making to economic variables will enable the progressive destruction of the environment. Biology professor David Ehrenfeld [11] says "It does not occur to us that by assigning value to diversity we merely legitimize the process that is wiping it out, the process that says, `The first thing that matters in any important decision is the tangible magnitude of the dollar costs and benefits.' People are afraid that if they do not express their fears and concerns in this language they will be laughed at, they will not be listened to. This may be true...But true or not, it is certain that if we persist in this crusade to determine value where value ought to be evident, we will be left with nothing but our greed when the dust finally settles."
References
[1] I. Barbour, 1980, Technology, Environment and Human Values, Praegar, New York.
[2] P. Abelson, 1979, Cost Benefit Analysis and Environmental Problems, Saxon House, UK, pp. 197-8.
[3] M. Waring, 1988, Counting for Nothing: What Men Value and What Women are Worth, Allen & Unwin, New Zealand, p. 20.
[4] R.Bullard, 1993, "Anatomy of Environmental Racism", in Toxic Struggles: The Theory and Practice of Environmental Justice, ed. R. Hofrichter, New Society Publishers, Philadelphia, p.25.
[5] R. Hofrichter, 1993, "Introduction" in Toxic Struggles: The Theory and Practice of Environmental Justice, ed. R. Hofrichter, New Society Publishers, Philadelphia, p. 2.
[6] G.T. Miller, 1990, Living in the Environment, 6th edn, Wadsworth, Belmont, California, p. 579.
[7] Ecologically Sustainable Development Working Group Chairs 1992, Intersectoral Issues Report, AGPS, Canberra, p.14.
[8] Sharon Beder, 1991, Cost-Benefit Analysis: An Explanation Using the Sydney Harbour Tunnel as a Case Study, University of Sydney, NSW.
[9] H.E. Daly and J.B. Cobb 1989, For the Common Good: Redirecting the Economy toward Community, the Environment, and a Sustainable Future, Beacon Press, Boston, pp. 153-4 and 191.
[10] J. Bowers, 1990, Economics of the Environment: The Conservationists Response to the Pearce Report, British Association of Nature Conservationists, p. 17.
[11] D. Ehrenfeld 1988, `Why put a value on biodiversity?' in Biodiversity, ed. E. O. Wilson, National Academy Press, Washington DC, p. 213.
Professor Sharon Beder is a visiting professorial fellow at the University of Wollongong.
Sharon Beder's Publications can be found at http://www.herinst.org/sbeder/