On Natural Capital
‘This is the best book in economics for a general reader since Adam Smith’s The Wealth of Nations.’ Paul R Ehrlich
The Value of the World Around Us
PARTHA DASGUPTA
On Natural Capital
On Natural Capital
The Value of the World Around Us
Partha Dasgu P ta
WITNESS BOOKS
UK | USA | Canada | Ireland | Australia India | New Zealand | South Africa
Witness Books is part of the Penguin Random House group of companies whose addresses can be found at global.penguinrandomhouse.com
Penguin Random House UK One Embassy Gardens, 8 Viaduct Gardens, London sw11 7bw
penguin.co.uk global.penguinrandomhouse.com
First published by Witness Books in 2025 1
Copyright © Partha Dasgupta 2025 Illustrations © Jack Smyth
The moral right of the author has been asserted.
Partha Dasgupta has asserted his right to be identified as the author of this Work in accordance with the Copyright, Designs and Patents Act 1988
Penguin Random House values and supports copyright. Copyright fuels creativity, encourages diverse voices, promotes freedom of expression and supports a vibrant culture. Thank you for purchasing an authorized edition of this book and for respecting intellectual property laws by not reproducing, scanning or distributing any part of it by any means without permission. You are supporting authors and enabling Penguin Random House to continue to publish books for everyone. No part of this book may be used or reproduced in any manner for the purpose of training artificial intelligence technologies or systems. In accordance with Article 4(3) of the DSM Directive 2019/790, Penguin Random House expressly reserves this work from the text and data mining exception.
Typeset in 12.6/17.2pt Dante MT Std by Six Red Marbles UK, Thetford, Norfolk Printed and bound in Great Britain by Clays Ltd, Elcograf S.p.A.
The authorised representative in the EEA is Penguin Random House Ireland, Morrison Chambers, 32 Nassau Street, Dublin D 02 yh68
A CIP catalogue record for this book is available from the British Library
Hardback ISBN 9781529144192
Trade Paperback ISBN 9781529144208
Penguin Random House is committed to a sustainable future for our business, our readers and our planet. This book is made from Forest Stewardship Council® certified paper.
To Carol
Violence may be committed against God
When we deny and curse him in our hearts
Or when we scorn Nature and her bounty
Dante, Inferno, Canto II, lines 46–48 (trans. Robert Hollander and Jean Hollander)
Preface
This book has grown out of a report I prepared in 2021 at the invitation of the UK ’s Chancellor of the Exchequer to write a review of the economics of biodiversity. Behind the invitation was no doubt the feeling, widely shared among the public, that something is not right with the character of economic development the world has experienced in recent decades. It has been rapid, but it has also been accompanied by continual degradation, even desecration, of the natural environment. Climate change is one global sign of that degradation, biodiversity loss is another.
Accepting the Chancellor’s invitation was easy, as I had been working for more than four decades round the idea of biodiversity, on themes across population numbers, our living standards and the environment. But I also knew what the Chancellor had asked for could not be a ‘review’, for there was no economics of biodiversity to review. One could find a substantial body of work in what is known as ‘environmental and resource economics’, but it hadn’t been put together to create something that could be called the economics of biodiversity. Among other things, population numbers were taken as given in the studies, so possible demographic pressures on the biosphere were not discussed. But even that limited literature was ignored in growth and development
economics, and in the economics of poverty. As taught and practised in academia, national treasuries and international organisations, received economics mentioned Nature only in asides. If she was to be found there, it would be as an acknowledgement of climate change – that too, as a mere add-on.
Why has environmental and resource economics ignored possibly vital factors driving economic change, such as population numbers, and why has the wider body of economic thinking ignored environmental and resource economics? Research in economics, like I imagine in other scientific disciplines, mostly involves working on problems others are also currently working on. Each publication is an incremental step on what has come before. Moreover, we economists work with models of those features of the world we want to study in detail, keeping all else in the background. Models are thus parables, even caricatures; some say they are like toys. But that is their point, for experience shows that toy models, if constructed with judgement and skill, are illuminating (by which I mean they have explanatory power and are open to empirical testing). Large numerical models as those in use by national treasuries, central banks and international organisations are, of course, necessary for making forecasts and charting options for policy; but here I am talking of models designed to offer insights into the workings of our economies and identifying the scope of policies to improve things. The harder task, and there have been successful attempts from time to time, is to put these tiny models together like pieces of embroidery in what becomes a tapestry, to give us an overarching conceptual framework that ties together a
class of seemingly unconnected phenomena. Mostly, though, we economists construct and analyse those tiny models, check whether they add to our understanding and return to construct further toy models, in an iterative process, without necessarily an overarching view, which is to say, at any moment, advances in economics are hugely dependent on what has been accomplished in the recent past. A shift in the agenda of research, even when the evidence calls for it, is often near impossible to bring about. Entities, such as Nature, that have been absent in journal articles and textbooks over the years, remain absent. Economic historians call this ‘path dependence’.
If the biosphere (I am using ‘biosphere’ as a more scientific version of Nature) had been included when models of longrun economic development and, by extension, the economics of poverty were being constructed in the 1950s and ’60s, the dominant mode of economic thinking today would have been very different, and I would not be writing this preface now. There are four interconnected reasons it wasn’t.
First, ecology in the way it has developed in recent decades was in its infancy, and few ecologists searched for signs of strains at a planetary scale. That they didn’t is the second reason, which is that in the immediate post-war years the global economy was not large enough to have stretched the biosphere’s outer limits.
The two were aided by a third reason, which is that Western economies had for a long while outsourced their ‘biodiversity needs’ to poor, tropical countries. If a supply source of a primary product dried up at one place, there would be another place to go to, or there would be scope to
develop substitutes domestically, perhaps using a set of different primary products from another foreign source. Degradation of local ecosystems in the tropics had been alarming even then, and many rural communities in the tropics experienced biodiversity loss, but official economic thinking – even official thinking on poverty and development – saw Nature as infinite in scope and capacity.
The fourth reason is that the post-war world has enjoyed unprecedented success in raising the standard of living. Today’s economic landscape would have been wholly unrecognisable in 1950. The global economy has grown more than 15-fold; per capita income has increased by a multiple of five to nearly 20,000 international dollars a year; and absolute poverty has declined from encompassing around 60 per cent of the world’s population to under 10 per cent. All this despite the global population having increased from 2.5 billion to more than 8.1 billion. As economic commentators in recent years have repeatedly observed, humanity has never had it so good.
This extraordinary achievement was made possible by the accumulation of ‘produced capital’ (the term used to describe the physical, tangible assets such as roads, ports, buildings and machines), ‘human capital’ (intangible assets such as health, education, aptitude) and ideas (science and technology). The accumulation process transformed entire landscapes into agricultural fields as far as the eye can see and built gleaming metropolises across the globe. That success has influenced the framing of economic problems and the search for ways to spread the good fortune everywhere to those who have been left behind.
But our global success has come with an increasingly impoverished biosphere, caused by mining, quarrying and land-use changes, and the pollution that goes with them. One sign of that impoverishment has been the extinction of species, currently at 100 to 1,000 times the average extinction rates in the previous several million years. Another sign has been a decline in the biosphere’s ability to meet our demands for its goods and services sustainably. The character of the global economy can be pictured on a coin: one side displaying skyscrapers, plantations, agricultural fields, animal farms and highways in all parts of the world; the other side depicting shrunken lakes, an increasingly erratic climate, dead oceanic zones, desiccated forests, bleached coral reefs and infertile watersheds.
If that other side is absent from received economics, it is because today’s decision makers, in both private and public institutions, are yesterday’s students. The mutual influence of academic economics and decision making in the world at large and the depth of their combined imprint on the public’s imagination are hard to overestimate. If biodiversity is absent from official economic reckoning today – leading economics journals rarely publish articles on natural capital – it is because Nature has been absent from economics all along.
The Chancellor’s invitation therefore offered me an opportunity to prepare a report that puts together the ideas found in environmental and resource economics, and expand it to the larger concern, perhaps the largest there is for social scientists: how we should read our place in the world as we go about our daily lives. Biodiversity, of which we are ourselves a part, would then appear seamlessly in the
study because it is an integral part of Nature. No doubt preparing such a report was a tall order, but my Treasury team, drawn from government departments and non-government organisations, told me they expected nothing less.
As I had been working closely for some years with ecologists, I wanted to build my report on two disciplines: ecology and economics. They have in any case much to say to each other, starting with a shared prefix ‘eco’, whose root is the Greek oikos, meaning house or habitat. But ‘house’ or ‘habitat’ could refer to a household, community, district, nation, region or even the whole world. Which is why it was clear to me that the report would have a wide reach.
However, differences in the way people and their communities fashion lives tell us that they do not experience degradation of Nature in the same way. Food, drinkable water, clothing, warmth, a roof over one’s head, clean air, a sense of belonging, participating with others in one’s community and a reason for hope are no doubt universal needs, but the emphasis people place on the goods and services Nature supplies differs widely. To farmers in sub-Saharan Africa, the most important concern could be declining sources of water and increasing variability in rainfall in the foreground of global climate change. To indigenous populations in Amazonia it may be eviction not just from their physical home, but from their spiritual home too. To inhabitants of shanty towns everywhere, the worry may be the infections they are exposed to from open sewers. To the suburban household in the UK , it may be the absence of bees and butterflies in the garden. To residents of megacities, it could be the poisonous air they breathe. To the
multinational company, it may be the worry about supply chains, as disruptions to the biosphere make old sources of primary products unreliable and investments generally more risky. To governments in some places, it may be the call by citizens, even children, to stem global climate change. And to people everywhere today, it may be the ways in which those varied experiences combine and give rise to environmental problems that affect us all, not least the COVID -19 pandemic and other emerging infectious diseases, of which land-use change and species exploitation are major drivers.
That is why the final report I submitted in February 2021 to the UK Treasury, The Economics of Biodiversity: The Dasgupta Review (henceforth, Review ) was 601 pages long, and why the text was interspersed with boxes, annexes and starred chapters containing analysis conducted in the language of mathematics.*
I was therefore delighted when Witness Books, a part of Penguin Random House, asked me to prepare a book for the general reader that captures the ideas from the Review. As a lifelong academic, my audience has invariably been fellow academics, and so it took me a while to imagine who my reader is. But while preparing drafts of the early chapters, I gravitated to the person for whom this book is now meant:
I imagine her to be someone not so much interested in the Review as in wanting to know how to structure her thinking about problems that worry her. She is a concerned
* The Review, with added material, has now been published by Cambridge University Press. See Dasgupta (2024).
citizen. She wants to understand how it can be that even with the best of intentions individual choices can (and do) lead to outcomes that are worse for everyone than they could have been. She is dissatisfied with the answer she hears often; that it has all to do with ‘externalities’ – the unaccounted consequences for others of one’s actions – because she feels that giving a label to a phenomenon should be the conclusion of an explanation, not its beginning.
My reader doesn’t necessarily know mathematics but does not want me to avoid technicalities when needed. Being told that human activities are now so extensive as to have given rise to an ecological overreach, she asks not only why that has happened, but also how we can tell. She is dissatisfied with having to read repeatedly in the progressive media that gross domestic product (GDP ) is an inadequate measure of economic performance; she wants to know what should replace it and why. Nor does she want to be told that any such index will be hard to estimate, whereas GDP figures can be relied upon; for she believes estimates that are vaguely right are a lot better than those that are precisely wrong. My reader is eager for all this because she is convinced that without an appreciation of the place of the human economy in Nature, which is another way saying our place in Nature, environmental concerns will remain reserved for Sundays, and that on weekdays we will continue to be guided by an economics that is bereft of Nature. My reader is someone willing to work hard with me.
My understanding of our place in Nature has grown in the years since the Review was submitted to the UK Treasury in 2021. So, it took me a while to decide how to write a book
that conveys the overarching ideas in the Review but builds entirely on the central empirical finding of recent years on the character of the global economy, which is that the demands we today make for Nature’s goods and services far exceed her ability to supply them on a sustainable basis. The difference between the two is a measure of the human ecological overreach.
The first half of the book draws on ecology to explain what the overreach means, and it concludes with the single formula I have been obliged to introduce, as it identifies the determinants of the two sides of the gap between ‘demand’ and ‘sustainable supply’. The latter half of the book uses economics to uncover the factors that explain how those determinants relate to one another over time and what options humanity has for closing the gap.
There are several ways in which this book could have been structured. The one I have followed tries all the while to convey the subject’s beauty and intellectual dazzle. Moreover, I have steered away from styles of exposition where the current understanding of a subject is presented as a seamless, completed whole. I have frequently paused to offer alternative explanations of a phenomenon and shown that they should be rejected either because they are shallow or, worse, because they are wrong.
I have deliberately framed the body of the book to read Nature in anthropocentric terms, that is, in terms of her value to us, that is, to humans. This includes not just the instrumental value to us of her goods and services, but also the intrinsic value we see in her. Nevertheless, the viewpoint misses something of supreme importance; for there can be
a temptation to read intrinsic value as the worth we only attribute to places of beauty, and that is self-indulgence. So, in the final chapter I discuss whether Nature has a worth that is external to us. The book concludes with a discussion of what loss we suffer when our actions increase the risk of human extinction.
The absence of Nature from mainstream economic thinking points to a paradox. Economic commentators rightly demand that public policies should be evidence-based and know that the evidence that is collected would be of no use if it were built on a misleading conception of the human condition; for faulty models produce spurious evidence. But they should also know that systems of thought that do not acknowledge humanity’s embeddedness in Nature when used to project present and future possibilities can be misleading. The findings of ecologists and Earth scientists have demonstrated that such systems of thought can mislead so hugely that policies based on them not only endanger future generations, but also damage the lives of the world’s contemporary poor. The enormously large and influential literature on growth and development economics and the economics of poverty remains impoverished on this count. It reads as an elaborate exercise in collective solipsism. This book is an attempt to redress this.
Partha Dasgupta, St John’s College, Cambridge
c ha P ter 1
Nature Is an Asset
In tropical and sub-tropical regions, there are shallow coastal estuaries and neighbouring mudflats inhabited by salttolerant evergreen trees and shrubs, known collectively as mangroves. Propping themselves above the water level with stilt-like structures called prop roots, mangroves adjacent to the coastline accommodate the daily rise and fall of tides. The barks of prop roots store salt, and as the muddy soil is low in oxygen, they have evolved also to absorb oxygen directly from the air. On mudflats a bit further inland, mangroves develop root- like structures that stick up out of the soil for breathing. Mangrove leaves photosynthesise, conserve water and regulate toxic salts.
Like storm walls, mangroves are barriers against cyclones and storms, and a buffer against floods. They prevent saltwater from entering inland during storm surges and help to regenerate life in coastal waters by exporting nutrients and waste products. The silence you experience as you paddle your boat in a mangrove swamp, while avoiding the tangled, gnarled trees of the forest, is like visiting a primeval world of darkness interspersed by the occasional sunbeam entering through small openings in a dense canopy. That
A mangrove forest in the Sundarbans, near the Bay of Bengal (Getty Images)
silence is not stillness, though, for it cloaks the habits and activities of numerous species of fish, birds, insects, worms, molluscs, amphibians, crustaceans, reptiles, even big cats, that make the place their home. Bacteria and fungi contribute to the forest’s rhythms by decomposing its residues and the material that enters it from inland.
The eerie feeling of being able to sense Nature’s workings in the raw puts to rest the idea that serene beauty resides only in tidiness. We have grown to see beauty in an ordered Nature, neat and organised, as in the artist’s landscape. But rotting leaves and decaying barks floating in the muddy waters of a mangrove forest make us aware of the rhythms of Nature. What we previously saw as ugly in her underbelly now appears both serene and beautiful.
There are more than 80 species of mangroves, spread
over some 100 countries. Mangrove forests cover only a thousandth of Earth’s land surface, but they store in their branches, roots and sediment up to ten times the quantity of carbon per hectare in temperate forests. Only marshlands and seagrasses have comparable ability to sequester carbon. People live in and around mangrove forest areas, shaping and reshaping them. More than 7 million people inhabit the Sundarbans (literally, ‘beautiful forests’), which are a cluster of islands in the Bay of Bengal. The world’s largest mangrove area, the Sundarbans (in Bengali, the name of the entity is in the singular, and pronounced as in ‘Shundorbon’) lie at the confluence of the Ganges, Brahmaputra and Meghna rivers as they flow into the bay. Partly in Bangladesh, partly in India, a portion of the region is a UNESCO World Heritage Site. Today the area is made up of mangrove forests, waterways and forest clearings. People survive there by using mangrove wood as building material, collecting honey and pharmaceuticals, and harvesting fibres to thatch homes. They make a living by fishing, cultivating rice in paddy fields as subsistence farmers, working in aquaculture at the edges of the area, selling artefacts from material collected from the forest (wood, barks, shells, stones), and serving as boatmen in a growing tourist industry. Spirits – Bonbibi (the mistress of the forest) and Ghazibaba (Warrior) – guard the forest and protect inhabitants against storms and cyclones. It is said Bonbibi protects them against snakes and crocodiles as well. In their beauty and functionality, their natural rhythms and economic value, mangrove forests are microcosms of the biosphere, the part of Earth that is occupied by living organisms. Studying them, like studying other living systems,
offers us a glimpse of Nature’s workings. We need to have a glimpse of those workings here, for otherwise we would not appreciate why Nature is a capital asset, indeed, why she is our most precious asset. As we are embedded in Nature, we would then also come to appreciate that she is both a means and ends in our lives.
Nature’s Rhythms
Movement is a pervasive feature of Nature: the wind blows, rivers flow, birds and insects fly, animals travel, fish swim, the oceans circulate, and even snails leave a trail. Without that movement, we would not exist, let alone thrive as we have. Less visible are the changes that take place when plants die and are converted into soil by the actions of organisms – bacteria and fungi – that also live and die.
Living systems make use of non-living material and transform them. Water, carbon and nitrogen cycles, familiar from our school geography classes, are expressions of that. One manifestation of this is when winds blow parallel to coastlines, pushing surface water offshore. Water, rich in nitrogen and phosphorus compounds, then rises from the ocean deep and fertilises surface water, encouraging the growth of microscopic algae, which are food for fish, marine mammals and seabirds.
Nature’s rhythms such as the seasons influence the regeneration patterns of the living world. The annual regeneration of deciduous forests is an example, as are seasonal changes in wildflower meadows. The daily tides
shape the character of marshes, coastal fisheries, bird populations and their regeneration patterns. Regeneration can also appear as successions, where the mix of species and their habitat in an area change over time owing to a shock or disturbance, such as a volcanic eruption, a bush fire, a flood or the outbreak of a disease. Such disturbances are almost always unexpected. But what we regard to have been a shock could have been a tipping-point phenomenon of a changing factor influencing the living system, as in the sudden growth of algae in a freshwater lake brought about by phosphorus run- off from neighbouring farms. On the other hand, the cause could itself be cyclical, such as a succession of ice ages, which lead forests to alternate inhabiting and then receding from temperate regions. The time frame matters. A population could also display a regular beat, perhaps lying dormant over long stretches of time, even if over short intervals it behaves chaotically. The occasional, unpredictable outburst of locusts is a well- known example. But the population in time crashes as it faces barriers to further expansion.
Nature’s beats differ vastly in their length. Bacteria can survive for an hour or more on surfaces, frogs live for ten to twelve years, mangrove trees for a hundred years, oak trees for as long as a thousand years, mushrooms live from between one and two days up to many years, and there are networks of fungi species that live up to a hundred or thousand years. The rhythms of even weakly connected oscillating objects can synchronise, such as linked pendula, singing crickets, and so on. Moreover, birth and death cycles can get locked in a population to form unique patterns.
There are species of cicada that emerge synchronically every 17 years but live as adults for only 3–4 weeks.
Physical processes have their beat and rhythm too. Microclimates follow daily weather patterns; the global climate follows an annual cycle; water in the deep oceans takes 500 years to make a complete journey round Earth; the contribution of the planet’s eccentricities as it rotates on its axis and revolves round the Sun together set a figure of 100,000 years or more for ice ages; and so on. And there are models devised by Earth scientists that project the formation and breakup of super continents over the course of 200–400 million years. Most of the factors affecting Nature’s constituent parts are unknown. We are thus drawn into identifying what seem to us to be dominant ones and then discerning cycles.
Regeneration of its living parts is how the biosphere regulates itself. Mostly, though, the processes driving regeneration are invisible to the naked eye and silent to the human ear. We do not see or hear the activities of fungal masses as they reconstruct soil and enable plants to live, without which life as we know it would not exist. And we can neither see nor hear the processes in the oceans that are constantly decomposing dead organisms and burying the carbon in their bed.
Ecosystems
The biosphere is spatially so varied that it is necessary to study its parts separately, then their connections, then back to the parts to gain a more informed picture of them – and
so on, in a never-ending search for deeper understanding. A schema that has proved to be fruitful is to think of the biosphere as a tapestry of ecological systems, or ‘ecosystems’; a complex of living organisms (plants, animals, fungi and microorganisms) and their non- living environment in a particular location that together combine to control such natural processes as energy flow and material recycling. They are shaped by the multitude of Nature’s beats and rhythms and in turn shape them.
The looseness in the definition of ecosystems is deliberate: what we regard to be an ecosystem depends on the point of our enquiry. Mangrove forests are ecosystems, as are watersheds, wetlands, marshes, deserts and coral reefs. Agricultural land, plantations, animal farms, freshwater lakes, rainforests, coastal fisheries, estuaries, the atmosphere and the oceans are also ecosystems. But so are the individual life forms in them. The garden pond is an ecosystem, as are the plants and amphibians that thrive in it. Thus, ecosystems can be ‘nested’, in that they can be whole while simultaneously being part of something larger.
Nor are ecosystems tightly knit entities; they often overlap and can blend into one another. The Okavango River comes down from the hills of Angola and waters grasslands in northern Zimbabwe. As the river loses its energy, grass gives way to shrubs. And then, as the Okavango sinks into the ground, shrubs give way to the pebbly desert of the Kalahari. But there are ecosystems that have strong interactions among their own constituents and weak interactions across their boundaries, as in the visible breaks between the oases and deserts of Egypt. The boundaries accentuate
differences in material composition, distribution of organisms, soil types, depth of a body of water, and so on.
Ecosystems differ in their spatial reach (the Amazon rainforest is an ecosystem, as is the collection of micro-organisms occupying the gut of an animal, or even a droplet of water) and in their rhythmic time (hours for bacterial colonies, decades for boreal forests). Some ecosystems cover regions (the Mekong River basin), some are volcanic islands (Micronesia), others involve clusters of towns (micro-watersheds in the Ethiopian highlands) or are confined to a village (ponds in Bangladesh).
That Nature’s rhythms are embedded in the functioning of ecosystems is vividly illustrated in lake fisheries. The canonical or archetypal version of a lake fishery imagines a deterministic world in which the lake ecosystem supplies a constant flow of nutrients and living material, which supports a dominant fish population. Over their lifetime adult fish produce eggs and in due course die. Meanwhile, those eggs that survived and became adults produce eggs and in due course also die, and the cycle goes on.
In the absence of predators, the fishery’s regeneration rate in any period – fisheries economists call it the ‘yield’ – is the difference between the number of births and the number of deaths. Should the rate in any period be positive, the stock in the next period would be bigger than the current stock; if it were negative, the stock in the next period would be smaller. It is a feature of the ecosystem that if the stock were below a critical size – ecologists call it a ‘threshold’ (the point L in Fig. 1.1) – the population would not be viable. The number of deaths would be greater than the number