“SIX CAPITALS”, AND SAVING THE PLANET

six capitalsAfter reading Jane Gleeson-White’s SIX CAPITALS: The revolution capitalism has to have – or can accountants save the planet?, I was unfortunately forced to conclude, no, accountants will be unable to save the planet.

If we take the author’s chronicled approaches being tortuously undertaken by many well-meaning individuals, bodies, and companies in an effort to adopt an accounting model that might integrate ‘the six capitals’ (financial capital, manufactured capital, intellectual capital, human capital, social and relationship capital and, especially natural capital), we take an unnecessarily intricate and confusing path that offers no real hope of putting an end to the current pillage and devastation of our natural resources.

Gleeson-White has an obviously deep concern about the damage people and companies are wreaking upon our natural environment. She acknowledges economist Raj Patel was onto something with the real cost of a Big Mac being $200 if we are to account for its attendant carbon footprint, water usage, soil degradation and health care costs.

But the fundamentals of accounting for nature have eluded her.

The first step is to realise that every privately-owned block of land, whether a massive rural farm or tiny urban block, yields an income flow which is every bit as real as the flow of oil from a newly-established rig. This unearned income reflects the block’s inherent attributes, its size, shape and topography, in addition to the value added by all of its externalities, that is, as affected by such things as surrounding population, roads, highways, public transport, schools, hospitals, cultural and shopping facilities and nearby natural features. All of these will add in some measure to the annual income of each and every block. It is unnecessary to value public lands, including national parks and recreation reserves additionally because, although they are important, they all add some immeasurable measure of value to each parcel of land. Almost perfectly, land values capture all of these externalities or “spill-overs”. (Unfortunately, land prices are also currently capturing much of the benefits of production and innovation, but that’s another story altogether.)

Real estate valuers are aware of the rental value of land, but are not forthcoming about the rather obvious ethical matters that arise from it. Accountants and lawyers seem ignorant of the income flow from land, and economists go to great lengths to under-assess it – to about one-twentieth of its true value.

What did individuals do to create alienated land and its externalities? Nothing. The land is natural, it was always there, and the entire surrounding infrastructure was created by the community as a whole.

As this community-generated income is not captured for the revenue of the community, except in small amounts at local and state government level, individuals and companies will naturally aspire to achieve more and more of it. This is the real meaning of rent-seeking and, in not distinguishing between earned incomes and unearned rents, this is also where accounting and economics fail us.

The failure to pay the rent of our natural resources for government revenue gives the green light for “investors” and companies to continue ruthlessly to plunder them, directing themselves into our hinterlands and public lands for the sake of “jobs”. Our tax and accounting regimes give all the wrong signals if we are to save economies and preserve our natural heritage.

Anyone who would remedy how accounting mistreats our land, minerals, forests, spectrum and fisheries must first understand the extent of the rents that flow from them and that these, being unearned incomes, are owed back to the public purse.

Not to address this fundamental point leads to the current great confusion in accounting, finance, economics and politics.

Sorry, Jane, Six Capitals misses an opportunity. Paying a charge–a rent–for our ongoing use and abuse of nature is the only way to respect, save and preserve it.