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Creating an Honest Market That Tells the Ecological Truth

Enron, Tyco, WorldCom. These company names have become very familiar because they all used accounting tricks that masked the truth about the true state of the companies' financial health. In the end, disaster befell each of them.

What if the entire planet was being run that way? Gulp. Unfortunately, to a large extent, it is. And it puts us all in peril—peril way, way worse than the danger Martha Stewart's photo of lester brown cell mate would face if she criticized Martha's hand-carved carrot shiv.

Today's Eco-Logical is Part 1 of a two-part series by Lester Brown, president of the Earth Policy Institute. His latest book is Plan B 4.0:  Mobilizing to Save Civilization.

~    ~    ~

Creating an Honest Market, pt 1   by Lester R. Brown

Environmental Cost Accounting and Ecological Truth

The key to restructuring the economy is the creation of an honest market, one that tells the ecological truth. The market is an incredible institution.... It allocates scarce resources with an efficiency that no central planning body can match. It easily balances supply and demand and it sets prices that readily reflect both scarcity and abundance. The market does, however, have three fundamental weaknesses:

  • It does not incorporate the indirect costs of providing goods or services into prices,
  • it does not value nature's services properly, and
  • it does not respect the sustainable-yield thresholds of natural systems such as fisheries, forests, rangelands, and aquifers.

Throughout most of recorded history, the indirect costs of economic activity, the sustainable yields of natural systems, or the value of nature's services were of little concern because the scale of human activity was so small relative to the size of the earth that they were rarely an issue. But with the sevenfold expansion in the world economy over the last half-century, the failure to address these market shortcomings and the irrational economic distortions they create will eventually lead to economic decline.

As the global economy has expanded and as technology has evolved, the indirect costs of some products picture of gas pump have become far larger than the price assigned to them by the market. The price of a gallon of gasoline, for instance, includes the cost of production but not the expense of treating respiratory illnesses from breathing polluted air or the repair bill from acid rain damage. Nor does it cover the cost of rising global temperature: ice melting, more destructive storms, damage to agricultural productivity, or the relocation of millions of refugees forced from their homes by sea level rise. As the market is now organized, the motorist burning the gasoline does not bear these costs.

Faulty Accounting Systems and Global Impact

Something is wrong. If we have learned anything over the last few years, it is that accounting systems that do not tell the truth can be costly. Faulty corporate accounting systems picture of enron logo with red slash circle that overstate income or leave costs off the books have driven some of the world's largest corporations into bankruptcy, costing millions of people their lifetime savings, retirement incomes, and jobs.

Unfortunately, we also have a faulty economic accounting system at the global level, but with potentially far more serious consequences. Economic prosperity is achieved in part by running up ecological deficits—costs that do not show up on the books, but costs that someone will eventually pay. Some of the record economic prosperity of recent decades has come from consuming the earth's productive assets—its forests, rangelands, fisheries, soils, and aquifers—and from destabilizing its climate.

Once we calculate all the costs of a product or service, we can incorporate them picture of scales into market prices by restructuring taxes (without raising them overall). If we can get the market to tell the truth, then we can avoid being blindsided by faulty accounting systems that lead to bankruptcy. As Øystein Dahle, former Vice President of Exxon for Norway and the North Sea, has pointed out: "Socialism collapsed because it did not allow the market to tell the economic truth. Capitalism may collapse because it does not allow the market to tell the ecological truth."

 End Part 1 of 2

Other parts in this series:  1  |  2

Lester Brown is founder and president of Earth Policy Institute. He has been described by the Washington Post as "one of the world's most influential thinkers" and as "the guru of the global environmental movement" by The Telegraph of Calcutta. His most recent book is Plan B 4.0:  Mobilizing to Save Civilization.  

~    ~    ~

So, we've been sailing along on a wave of general prosperity, but the wave will eventually break. How do we change things so the wave breaks gently rather than crashing on the shore? Mr. Brown will cover that in part 2 of this article, in the next Eco-Logical.

Publish date: 18-MAY-2004

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Plan B 2.0

Rescuing a Planet Under Stress and a Civilization in Trouble

by Lester R. Brown


Doctors generally impress us with their knowledge of how the human body works. Similarly impressive is Lester Brown's broad knowledge of how the earth's systems work and the ills they are suffering today. Falling water tables, soil erosion, and advancing deserts threaten our agricultural lands; drinking water shortages afflict much of the world's people and threaten to affect many more in the years to come; the peaking of global oil supplies threatens the world's economy; the collapse of many of the planet's fisheries threatens one of the world's best protein sources; and global warming threatens just about everything.

Brown does not just wave his arms in the air and throw around assertions of environmental disaster—he provides the numbers to back up his claim that serious problems are at hand, and does so in a way that is easy to read and never dry or boring. Brown also spends a significant portion of the book outlining the actions necessary to reverse the unsustainable, disaster-bound course we are presently on.

We don't get much information on such subjects from the news presented to us by mainstream corporate media, and the topics don't get much play on the political stage, either. That will change, Brown points out—action on these issues cannot be delayed forever; there are deadlines that must be met for the corrective actions to have the desired effect. Right now we are behind the curve for success.

There are a few proposed solutions in Plan B 2.0—for instance, a mass conversion away from cars and back to bicycles—that will seem preposterous to most of us in the US. Of course, peak oil may make the notion seem much more reasonable in the future. And though we at Grinning Planet also worry about soil erosion and recognize the advantages that genetically modified herbicide-tolerant crops have in that regard, we would have liked to see a discussion of the potential downsides of GMOs along with the mention of their benefits.

But these are minor quibbles. Plan B 2.0 is an enormous achievement, a comprehensive guide to what's going wrong with earth's life support systems. It is a must-read for anyone who wants to understand what we face and who wants to be part of the effort to get going on solutions before nature takes care of the problems for us in a most unfavorable manner.

To purchase this book, visit the
Earth Policy Institute website

book cover for Plan B 2.0, Lester R. Brown, 1/5/2006

To purchase this book, visit the
Earth Policy Institute website


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"In the long term, economic sustainability depends on ecological sustainability."

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