Net worth: The writer argues that we must recognise the real economy has ecological ingredients, such as the sea, which are fast running out. Photo: Tim Sherman-Chase
In the global debate over sustainability, the concept of “negative externalities” — the divergence between private returns and social costs — remains a theoretical footnote in many economic models.
The importance of accounting more appropriately for these costs is critical to reversing the fact that humanity has overstepped six of our nine planetary boundaries. Externalities are not a theoretical construct; they’re a daily, lived reality for millions of people and ecosystems.
Environmental externalities, especially, are not marginal nuisances. They are among the most serious structural blind spots of modern capitalism. If we continue to tolerate them, we will not only misprice the future but we’ll probably burn the ecological house down.
The urgent task of economic reform, then, is not merely one of climate policy or conservation strategy, but of redefining the architecture of value itself.
This needs to start with how we design our systems of national and corporate accounts. Unless we begin to cost negative ecological externalities properly, rather than treating them as invisible inputs, we will continue encouraging the depletion of the very biophysical systems upon which all economic life depends.
The GDP problem
Gross domestic product was never intended to serve as a holistic measure of national well-being, yet it has become the default yardstick for economic success around the world.
GDP is the final value of all goods and services produced in a country in any given year.
It rises when more goods and services are produced and exchanged, but it is agnostic as to whether this exchange is socially beneficial (broad-based) or ecologically destructive.
Chasing GDP growth has become a mantra for too many states, as if growth can be endless and quality employment somehow necessarily follows (which it does not, hence the term “jobless growth”).
Deforestation, overfishing, wetland clearance and mineral extraction in biodiversity hotspots increase GDP. The resulting ecological degradation is not subtracted. Indeed, repairing the damages — cleaning up oil spills or rebuilding after climate disasters — often adds to the GDP tally.
This dynamic creates a dangerous systemic illusion — that the economy is growing, when in fact it is eroding its own foundations.
Rethinking capital
In 1994, ecological economist Herman Daly warned that modern economies were depleting natural capital under the guise of income.
He identified four key principles to reframe economic accounting; the first of which was a direct challenge to the prevailing GDP logic: “Do not count the consumption of natural capital as income.”
In other words, when we extract finite resources such as fossil fuels, topsoil or biodiversity, we are drawing down a stock. If we count that as a flow of income, we distort the economic signal.
No business would remain solvent for long if it sold off its capital assets and booked them as profits. Yet, that is exactly what we do at the level of national accounting.
Daly’s second recommendation followed naturally: “Shift the tax base from income and labour to resource throughput.”
By taxing the extraction and pollution of natural systems, we shift incentives towards efficiency and preservation. In doing so, we help internalise environmental costs that are otherwise invisibly borne by society, especially by the poor, future generations and nonhuman life.
More recently, the Dasgupta Review on the Economics of Biodiversity (2021) reaffirmed the need to integrate nature into national accounting systems. Economist Partha Dasgupta frames biodiversity as a form of natural capital, the source of critical ecosystem services such as climate regulation, pollination and nutrient cycling.
Daly’s critique of the Dasgupta Review would probably have been that nature cannot be reduced to a form of capital like land, labour or technology because it is the very biophysical foundation of all economic activity. Trees, for instance, are not assets in a portfolio; they are carbon sinks, rainmakers and habitat for pollinators. Their value is not fungible.
The idea that natural and produced capital are substitutable is an illusion. Cultivated ecosystems, as Daly put it, usually require a reduction in biodiversity relative to natural capital proper.
This recognition demands a more radical shift than Dasgupta’s review ultimately recommends — the construction of accounting systems that treat nature, not just as something to be more appropriately priced, but as something to be preserved beyond price.
Gambling animal
Why, then, do our institutions persist in promoting short-term economic growth at the expense of long-term ecological stability?
Part of the answer lies in our own neurobiology.
In a groundbreaking book, The Gambling Animal, Don Ross and Glenn Harrison argue that humans evolved in environments of high uncertainty and low information. In such contexts, decision-making favoured short-term reward over long-term risk management.
This evolutionary legacy, usefully adaptive in the past, has become maladaptive in the Anthropocene.
Ross and Harrison show that, in environments with delayed feedback and high complexity, such as ecosystems and climate systems, humans are prone to persistent dopamine reward-chasing. Much like gamblers, we continue betting on outcomes we do not fully understand, let alone have control over.
This helps to explain why societies tolerate high ecological risk: approving dams in biodiversity hotspots, over-exploiting fisheries or subsidising fossil fuels. The decision-making structures reflect myopic incentives instead of long-term optimisation.
Their insight has important implications for policy. Merely adjusting prices — for example, through carbon taxes or biodiversity offsets — might be insufficient unless framed in ways that counteract our innate temporal biases.
This means embedding long-term costs into immediate decision contexts, and regulating ecological harm not just through marginal disincentives, but via structural prohibitions.
Ecological safeguarding
If the destruction of nature is profitable, nature will be destroyed. The only way to reverse this dynamic is to shift incentives toward ecological safeguarding, by:
• Reforming national accounts to properly reflect the depreciation of natural systems;
• Taxing ecological degradation and rewarding preservation;
• Ending perverse subsidies that promote extraction and pollution;
• Replacing GDP with multidimensional indicators (such as multidimensional poverty or a planetary boundary-informed “wellness” score) that reflect ecological health; and
• Imposing strong constraints on high-risk activities, such as mining in critical biodiversity areas or clearing wetlands for agriculture.
These are not radical suggestions. They are reasoned responses to a system whose internal logic has become decoupled from ecological reality.
The challenge of ecological accounting is not only economic or behavioural; it is also ethical.
Future generations cannot represent themselves in present markets. They do not vote and they do not sue. But they will inherit the consequences of our choices.
The discounting of future benefits, common in cost-benefit analysis, renders their interests invisible. This is neither neutral nor inevitable. It is a choice embedded in our models, and one we can change.
Pollution, biodiversity loss and climate change are forms of intergenerational theft.
They externalise the costs of present consumption onto future lives. If we are to be more than gambling animals, we must recognise that the real economy has ecological ingredients. And those are running out.
A final accounting
To govern effectively in the Anthropocene, we must design economic systems that align with ecological reality.
This begins by costing what we currently ignore: the loss of forests, the collapse of fisheries, the degradation of soils, the extinction of species.
We cannot afford to continue mispricing the future.
Redesigning our accounting systems is not a technocratic exercise. It is the most foundational reform we can make to ensure that economies become tools for life, not engines of depletion.
We would do well to correct that error while we still have something left to count.
Ross Harvey is the director of research and programmes at Good Governance Africa.