Ladies and Gentlemen,
Thank you to the NSFPA and Steve McIntosh for the kind invitation to be here today. It is an honour to be invited to speak to such an important and prestigious gathering of people so important to the future progress and prosperity of this province and region. And I am doubly honoured to be paired with Patrick Moore as one of the ‘bookends’ of your event, because I believe that Patrick is an important voice of reason in a sea of emotionalism in the environmental arena. Patrick, as I recall, woke up one day and said to himself, I know what I’m against, but I don’t know what I’m for, I know what I don’t want to see happen, but what am I building, what am I making happen? And he went on to become not only the scourge of the manipulative excesses of the environmental movement, but also has become a wonderful skilful entrepreneur.
I think my role here today is to complement some of Patrick’s message by widening its application. I am sure that many of you are hurt and confused by the anger and emotion that are directed against you and your industry, an anger and emotion that is directed against others as well – farmers, fishermen, aquaculturalists, miners, developers, manufacturers and others – who work within the natural environment and attempt to shape that environment, in a constructive and responsible way to suit and respond to human purposes and needs. And your chief reward often seems to be invective, distrust, manipulative politics and hurtful caricatures of the businesses that you pursue. A woman I know wrote a book debunking many of the myths of environmentalism because, she told me, she was shocked one evening when her young daughter after some early environmental indoctrination at school, burst into tears on learning that her bed was made of wood, which meant that trees had been killed for her.
Just as we once upon a time used to say that the devil could quote scripture to his purpose, today I think it is right to say that emotion can quote science to its purpose, and nowhere is that more true than in the environmental field. What I am going to try to do in this talk is to lay out the reasons why much of the criticism that is made of humanity’s environmental impact on the planet is misplaced and counter-productive, and why we should be not only proud but delighted by the overall progress that we, as stewards of the planet’s resources, have achieved in the past 200 years or so. I am then going to try and use the balance of my talk to describe some of the ways in which we could improve that performance even more, using some illustrations from the forestry industry to make my point. In other words I am going to try and demonstrate to you why thoughtful analysis shows us what you have always known in your heart: that responsible businesspeople like yourselves, acting within the law and the economic incentives of a market economy, produce value for others and enhance the well-being of the planet, while helping to generate the wealth that makes cleaning up the environment possible.
Let me start by noting that it is my belief that there is something deeply rooted in the human psyche that believes that good fortune is the product of undeserved luck, and that we will be punished tomorrow for enjoyment and success today. As the mother of an old friend used to say, whenever he would exult about a fine summer’s day, “Aye laddie, and ye can be sure we’ll pay for it later.”
This belief that success will bring in its train dire consequences, that we will suffer later for having done well today, has been particularly prevalent in the last two hundred years or so, at a time, ironically, when human intelligence and ingenuity have consistently and repeatedly unlocked technological and scientific wonders that have raised the standard of living of each generation compared to its predecessor, while vastly increasing the ability of human society to support larger numbers of people.
Thomas Malthus earned economics the nickname of the dismal science in the 18th century by observing that the population was growing faster than the food supply. He predicted mass starvation.
In the 1970s, the Club of Rome predicted massive shortages of natural resources due to overconsumption and overpopulation, with disastrous effects on human health and material well-being.
In 1980, the Global 2000 Report to the President, wrote: “If present trends continue, the world in 2000 will be more crowded, more polluted, less stable ecologically, and more vulnerable to disruption than the world we live in now. Serious stresses involving population, resources and environment are clearly visible ahead. Despite greater material output, the world’s people will be poorer in many ways than they are today.”
On the front page of the Chronicle Herald last year, in an interview with Ron Coleman, of the Genuine Progress Indicator group, it was claimed that the resources of four more planets would be needed to maintain us at our current levels of consumption. We were exhorted to give up cars for bicycles.
Time and again, people have looked at growing human prosperity, improving health and population increase and told us that we were living in a fool’s paradise, that it obviously couldn’t continue, that our prosperity was at the cost of others, such as the poor or future generations, and that we would pay the price for our irresponsible wickedness.
We’re still waiting.
The reason we’re still waiting, why the ecosystem hasn’t collapsed, why we are still successful in feeding ourselves, why incomes are rising and health status improving around the globe is that the doomsayers have completely misunderstood the way the world works.
Of all their misunderstandings, two stand out. They don’t understand what natural resources are. And they don’t understand that the greatest natural resource of all is human ingenuity.
It may be popular, but it is quite incorrect to think of natural resources as exhaustible, as something of which there is only so much and when we use it up it is gone forever. If, for example, natural resources were actually getting scarcer, then the price would go up. That’s part of what prices are for, to signal shortages and availability.
But the price of natural resources has been in decline for centuries. Remember the famous bet between ecologist Paul Ehrlich and economist Julian Simon. Simon bet Ehrlich that the prices of any five natural resources Ehrlich chose would drop over a 10 year period, whereas Ehrlich, inspired by the Club of Rome, was convinced that we were on the cusp of huge shortages driven by overconsumption and population growth, and that therefore prices would have to rise rapidly. Ehrlich paid up in 1990.
Ehrlich, like his many forerunners, forgot that shortages and rising prices are an opportunity. Malthus didn’t foresee that farmers could become hugely more productive in response to rising demand for food, eventually unleashing the last century’s Green Revolution. Aquaculture, hydroponics and other technologies will allow us to keep feeding the world’s population, probably at a declining real cost. And note that we in the West do not feed ourselves at the expense of people in the Third World. On the contrary, it is western innovation that has largely made it possible for the burgeoning populations of the world to be fed. Human ingenuity has vastly increased the carrying capacity of the planet. And we are nowhere near the limit of what such innovation and inventiveness can accomplish. It has been estimated that if the very best technology were made available throughout the world, and property rights attached to agricultural land were sound everywhere, we could easily feed a billion more people than we do today.
That’s the other thing that the pessimists haven’t understood. Human beings are not simply parasites on the bounty of nature. The two greatest forces now shaping the world are nature and human ingenuity, and the latter is our greatest natural resource. We now require less and less land to feed each human being. We need less and less steel for each car and copper for each telephone connection and gas for each mile travelled and lumber for each house built than we ever did before. Those resources are valuable, and it makes no sense to use more than the minimum necessary in each instance. And that minimum is falling all the time, because it pays to make it fall. When things get in short supply, human ingenuity comes up with cheaper alternatives, or invests time and intelligence in increasing the supply, both of which ease the shortage.
Just one example: the telephone. If you look at pictures of cities early in the last century, you will often see a forest of utility poles carrying hundreds of copper wires to connect telephones to each other. Copper is a non-renewable natural resource. If we had had to run that many wires to connect each and every person on the planet to the central communications system that is the telephone, it is perhaps possible that it would have been beyond the limit of our planet’s copper resources.
So of course now that billions of people are connected to the telephone, the price of copper has skyrocketed and the extension of telephone service to the billion plus people who have never made a telephone call has now stopped, right?
Wrong. In fact the price of copper has been falling for years, overhead wires are rapidly disappearing, and those cables that do connect us are often made of fibre-optics, made of cheap and plentiful materials like sand, and those materials carry literally millions more bits of data per second than the old copper wires.
Moreover, we have developed a whole wireless technology that is not connected to the network by any physical object at all, and satellites carry many of the signals between cities and countries. We are vastly extending the reach of the telephone with fewer and fewer resources consumed, and the value of the resources that are consumed is also falling, as we move resources to higher value uses.
Let me take now just a moment, to go through the obligatory (but thankfully cursory!) review of the evidence of whether the state of humanity is in fact improving or declining. I am keeping it short, not because there is any lack of information about how the state of the world is improving, and not declining, but because the statistical battle is not very interesting or informative. What really needs to happen is for people to understand the role that the human mind plays in making human activity sustainable on this planet, and because that is so little understood, it is that on which I wish to concentrate my attention.
But to dwell for a moment on the statistics, by almost any measure of human well-being, the state of humanity has improved over the course of the last two hundred years, and, generally speaking, it has improved more in those two centuries than in the whole of the rest of human history, and this in spite of the fact that humanity’s numbers have grown hugely.
Since 1800, the global population has increased about 6-fold. Manufacturing output has increased 75 times in value. Total global economic product has risen more than 50-fold. And this increase in human wealth has improved the state of humanity throughout the world:
The average person’s life expectancy at birth has doubled, infant mortality is less than a third of what it used to be, and real income has grown 7-fold. Food is cheaper, children are less likely to go to bed hungry and women are far less likely to die in childbirth.
At the beginning of the 20th C., average life expectancy in developing countries was about 30. By 1960 it had risen to 46, and by 1998, it had hit 65. Longevity in the developing economies is higher than it was in the world’s wealthiest economy, Britain, 100 years ago. People live longer in the developed world, but the developing world is improving faster. The number of doctors per 1000 in the poorest countries has doubled since 1980.
Children are likelier to be at school than at work. People are more educated and freer to choose their rulers and express their views, as measured by a number of human progress indexes around the world. Work is less physically demanding and people work fewer hours.
Global inequality is declining, and that decline is accelerating. The chief statistical measure of inequality (the gini co-efficient) for the entire world declined from .6 in 1968 to .52 in 1997, a reduction of more than 10%.
We generate far fewer pollutants per unit of GDP, and in fact the richer countries become, the cleaner their environment. It is no accident, for example, that Halifax is, at the historic height of its prosperity, is about to devote major resource to cleaning up its harbour and therefore reduce its claims on nature.
In fact, the correlation between wealth and environmental cleanliness is almost universal. A country which is poor cannot afford to bother about the environment at all. Condemning them to current levels of economic development is to condemn them to filth, disease and environmental poisoning. To open to them the possibility of participating in institutions that permit and reward the creation of new wealth opens up the possibility of a cleaner and healthier environment.
In fact, there is a fairly precise turning point in environmental cleanliness. At a GDP per capita of around $8,000US, people feel able to devote more resources to cleaning up the environment. And as Western society has become richer, it has cleaned up its environment the fastest. In most major US cities in the 70s, air quality was unhealthy for 100-300 days per year. That has fallen to less than 10 days a year, except for LA, where it is 80 days a year, but even that is a 50% improvement. And remember that this has been achieved in the face of population and economic growth of sizeable proportions.
So economic growth is the key factor allowing us to reduce most of the problems facing humanity. Where hunger continues to be a problem, for example, it is due almost exclusively to two factors. One is politics and poor quality institutions that prevent investment in land, and the second is standards of living too low to allow access to the very latest in modern technology.
Prescriptions to fix the world’s problems by restricting economic growth are in fact a prescription for the exact opposite.
These prescriptions are based on the notion that human prosperity and well-being are an illusion, bought at the expense of the productive capital of the Earth. Human beings add nothing, on this view, and subtract everything. But this is wrong. Human beings add something crucial to the world. They add their intelligence to it. And the history of humanity has been one of the successful incremental application of human intelligence to the problems of nature and humanity. It is not that we do not face problems. Of course we do. But we cannot stop with the identification of problems, we must also look at the mechanism we have successfully used to solve every one of the significant challenges that humanity has faced since the dawn of time: our minds. The wealth of humanity comes from mixing natural and human capital in differing proportions, and as natural capital becomes scarce in one context or another, we invent ways to sustain it, supplement it or replace it. Thomas Malthus and his ilk are not wrong in having identified challenges facing the human race at specific moments in our history – they have simply misunderstood how the right human institutions, such as private property, the rule of law, contract, incentives and human intelligence all work together to reliably solve those problems, even when we cannot foresee with precision what the solution will look like.
But there are very specific circumstances and institutions that are necessary for this creative mixing of human intelligence and natural capital to take place as quickly and on as broad a scale as is needed. For to continue to progress, humanity needs more economic growth, not less, and needs it to occur in ways that allow us to husband our resources, preserving their value for not only ourselves but future generations. For while I have described the important progress that we have made over the past 200 years, there is still ecological damage that occurs, and growth can be either sustainable or not, depending chiefly on the incentives that we put around the decisions that we make.
For example, we know that forest ecosystems in tropical regions are often not managed sustainably, but are rather “mined”, the timber stripped out, the forest levelled, the ecology destroyed, often resulting in the creation of poor quality farm land far from markets. This is reminiscent of what happened in the West to the buffalo, who were hunted to extinction, and the cod stocks which we have helped to near annihilation on the East Coast.
But notice something absolutely vital here. In each of these cases, the incentives were not in place for people to manage these resources sustainably. And by incentives I’m not talking about government subsidies or tax breaks. I’m talking about the basic institutional structure of property that allows people to establish ownership over a resource, thereby acquiring a reason to husband that resource, and invest in it for its long term sustainability.
Now it is a common belief in our society that it is private individuals and businesses that are rapacious exploiters of our natural resources, and governments who are the stewards of the long term interests of society, of the common good. I would submit to you that in fact the balance is at worst about even between the two and, more likely, actually favours private ownership of resources as not only most conducive to economic growth but also to the long term health of the resource.
It is quite well established, for example, that the collapse of the groundfish stocks off our coast was driven in large part by the fact that the fish stocks belong to the government. But the government derives little value from its ownership of the fish. Its chief benefit is a political one: being able to distribute access to the stocks in such a way as to sustain their political base in coastal regions. And of course it is a commonplace to note that the political horizon of governments can rarely be longer than a maximum of four years, because the next election is never farther away than that. After the next election each problem is potentially someone else’s responsibility, whereas short term political calculation can often pay short term electoral benefit. That is not only how we managed to destroy the cod stocks, but also how we managed to run up a national debt of nearly 600 billion dollars, or a provincial debt of about $11-billion, one of the worst in the country.
On the other hand, while there are certainly people in the business world out for a short term profit, their irresponsible behaviour almost always catches up with them. If they run down the long term value of their assets through poor management, they pay a direct personal cost when the time comes to sell. In other words, ownership of assets introduces a direct and tangible accountability for the quality of stewardship of the resource. If governments cut their spending and run down their capital in hospitals and schools and government buildings and the human capital of their workers, it shows as a cost saving on their books. If you in private business do the same thing it shows up as a loss of asset value on the balance sheet.
That would suggest that the biggest problems of sustainability we face in managing our resources would be where governments either own the resources and do not seek to manage them in accordance with sound economic incentives, but allow politics to dominate their decision making, or where governments seek to use their power to make private owners of resources manage them in accordance with political rather than economic imperatives.
And in fact in the forestry sector in Canada and elsewhere, that is precisely what we find. We all know that governments in Canada have traditionally treated the natural resources that they own as if they had little value in themselves. Their main interest to their government owners has been as a means to subsidize the creation of employment. We have often sold those resources at less than their true market value in exchange for job creation. We weren’t too fussed about the fact that those jobs were not, on any economic definition, sustainable, or that by artificially depressing the value of the resource we were destroying the conditions in which it made sense to invest in the latest technology, thus helping to keep our productivity lower than it should have been. And we really didn’t seem to mind at all that by keeping the price too low, we were giving people a reason to consume more of our natural resources than they really needed. We were transferring value from the owners of the resource, the citizens of the country, to consumers of the resource, often in other countries. That’s the very opposite of the good environmental stewardship that we now all claim to want, and is the fruit of short termism by governments.
And even where governments have not enjoyed the ownership of forest resources, as is the case, for example, in much of the Maritimes and in some other parts of the country, they have used regulatory and tax policy in ways that threatened the incentives for sustainable long term management that sound property rights usually create. For years wood lot owners had to battle against provincial government pressure to harvest timber at unsustainable rates. Governments often want to see such harvesting for political reasons, but it is not in the interests of people managing their forest resources in the long term interests of society.
Tax policy has had a similar effect. There is a family in central Ontario that for two generations has nursed a large forest back to health after severe logging or mining of the forest resource in the early 20th c. Then the government moved to a market based valuation system for land in the province, and suddenly these people, who had been responsible stewards of the land, realising income from both sustainable logging and recreational and educational uses of their land were being taxed on the theoretical commercial value of the land if it were subdivided and sold for development. This almost destroyed one of the finest stands of timber in Central Ontario, the first Canadian forest to be certified for sustainability by the International Forest Stewardship Council.
Consider the case of the International Paper Company in the American South. They own 2.1 million acres of forest land in that region, an area equivalent to Yellowstone National Park. They have realised that they can maximise the value of their asset by a combination of outdoor recreation and timber harvest uses. They sell hunting and fishing leases on their land as well as daily recreation permits. They now estimate that 25% of the value generated by their lands is due to the recreation aspect. The value to them is increasingly in having tress, and not just cutting them. The story is the same in the historic Montebello seigneury on the Quebec side of the Ottawa valley. This is a famous resort area that rents out whole lakes, complete with camps, etc. for a week at a time, and is the home to a famous CP resort hotel. But fully three quarters of the revenue generated by that land comes from the sustainable logging operations that are carried out in such a way as to maintain and enhance the _ of the revenue that comes from the recreational uses.
But I don’t mean that there is anything magic about private ownership vs. public. The key here is the incentives, the rewards for maximising the return from the resources on a sustainable basis. Evidence that the public sector too will respond to the right incentives for forestry management comes from a fascinating comparison of federal and state public ownership of forest lands presented to the US Congress in testimony by my friend Don Leal at the Political Economy Research Centre in Boseman Montana. He compared the performance of the National Forest Service reserves right next to a number of virtually identical state forest reserves in Montana and Minnesota. What he discovered was that for every $1 the US Forest Service spent in harvesting timber on its lands, it realised 25 cents in sales revenue, while on the neighbouring state lands, the return was $4 for every dollar spent.
Why was the Forest Service’s performance so much poorer than the performance of the state reserves in Montana and Minnesota?
Because they have an overriding requirement to generate income from timber and other goods and services marketed from their forest lands.
By law these lands must generate income to fund public schools and county services. That means that school districts and local taxpayers have a vested interest in their performance. These groups enjoy legal standing when it comes to making sure that these forests generate revenues from timber sales. When this does not occur–when, for example, state and county land managers fail to make timber purchasers honour their financial commitments or when they bow to environmentalists’ pressures and halt a timber sale– courts for the most part have ruled in favour of the trust beneficiaries. They have declared that land managers must honour the requirement to maximize returns.
In contrast to state and county forests, no one has a personal financial stake in the income generated from national forest assets. Moreover, these forests are legally under no obligation to generate income. Gross receipts from timber sales go to the U.S. Treasury (what we would call consolidated revenue) and to general timber activity funds, such as road building and reforestation. Congressional appropriations are used to offset losses. Hence, there is little, if any, incentive for the Forest Service to keep its costs low.
National forests have no bottom line, and without it, the Forest Service lacks an objective measure from which to assess its performance. As Don’s report indicated, many of Service’s activities have accomplished little in the way of environmental quality and much in the way of increased costs. The evidence indicates that federal timber sale programs could achieve much better economic performance without sacrificing environmental quality if they operated with the same income incentive as the state forest reserves.
So there you have it, ladies and gentlemen. Economic growth, within a system of property rights that ensures that people have incentives to preserve the value of resources, but are also forced to pay the true costs of their own activities, has not been the scourge of mankind. Instead of being the source of environmental degradation, it is the system that has generated the wealth that has allowed our planet to support far more human life than would have been thought possible even a century ago, while improving the standard of living of virtually every one of those ever more numerous people. And humanity, far from destroying nature, lives in partnership with it, enriching nature’s bounty with its own intelligence. This is no less true of the forestry and forest products sector than of any other. Because the possibility exists of having a commercial interest in trees, there are far more trees in the world than would otherwise be the case. It is because trees are useful and have a multitude of values to people that our economic system provides so many of them. The only endangered species in the world are ones in which it is difficult or impossible to have a commercial interest.
But the reach of the incentive system I have described is imperfect, and it is primarily where we move outside the pale of the normal system of ownership and economic incentives that we encounter the greatest dangers of environmental damage and unsustainable economic activity. That means that the laudable energy and enthusiasm of an environmental movement based on reason would celebrate responsible business owners as one of the most powerful forces for sustainable human and environmental progress. They would also begin to understand that putting more and more decision making in the hands of governments, outside the rules of normal economic behaviour, promotes the kind of short termism that they need to oppose in the name of environmental quality.