The Great Turnaround: How Natural Capital Entered the Economy


Ida Kubiszewski/Solutions
The Taktsang Palphug Monastery, also known as the Tiger's Nest, is perched on a cliff in the Paro District, Bhutan. More than 30 years ago, the King of Bhutan famously declared that “Gross National Happiness is more important than Gross National Product."

Editor’s Note: This article is part of a regular section in Solutions in which the author is challenged to envision a future society in which all the right changes have been made.

“What if the crisis of 2008 represents something much more fundamental than a deep recession? What if it’s telling us that the whole growth model we created over the last 50 years is simply unsustainable economically and ecologically and that 2008 was when we hit the wall—when Mother Nature and the market both said: ‘No more.'”—Thomas Friedman, The New York Times, March 7, 2009

It is 2055, and the world is heaving one huge sigh of relief as scientists announce that—for the first time since the Industrial Revolution—atmospheric greenhouse gas concentrations have finally stabilized. Massive emission reductions in the last four decades have at last staved off impending catastrophe for life on earth.

Credit for what is now called The Great Turnaround is being universally given to the new sustainability-based economic paradigm globally adopted at the historic Bhutan Woods conference of 2013, where it was agreed that the benefits of early preventive action to avoid the worst of the damage wrought by climate change far outweighed the short-term economic costs of such action.

By 2018 natural capital values had been fully and properly incorporated into national income accounting worldwide. Finally, politicians had the tools and evidence they needed to reverse the calamitous global warming and resource depletion trends that constituted the greatest challenges humankind has ever faced.

Now, in 2055, as we celebrate this remarkable victory, let us take a look back at that critical Turnaround period in human history, when natural capital and ecosystem service values were finally taken into account, when the world adopted a new economic paradigm based on proper national income and wealth accounting, and when our leaders began to chart a sane and sustainable path into the future.

Sadly, as too often happens, the impulse to change was precipitated by disaster, which began in 2008.

It was not that nature’s warnings were suddenly heeded. Indeed those warnings—of melting icecaps and receding glaciers, resource depletion, species extinction, and more—had become so familiar that they were barely news in 2008. Even the extraordinarily comprehensive UN Millennium Ecosystem Assessment, which was based on the best scientific evidence and demonstrated that two-thirds of the world’s ecosystem services were in serious decline, was barely a blip on the radar screen of policy makers.

No. What unraveled in 2008 with dramatic abruptness was the economic system itself. Major banks failed, iconic symbols of American prosperity like General Motors went bankrupt, the stock market collapsed, life savings disappeared, the ranks of the unemployed swelled, and 15 years of sustained economic growth suddenly morphed—seemingly overnight—into the worst economic downturn since the Great Depression.

But the real moment of truth came when Alan Greenspan, former head of the U.S. Federal Reserve and chief of all bankers, went before Congress to beat his breast, to confess that he’d been fatally wrong in his prescriptions for the economy, and that he, economic guru of gurus, had no inkling of the impending financial catastrophe. What proved bankrupt in 2008 was not only a failed economic paradigm but its most eminent theorists and practitioners and the accounting system that sent them the wrong messages.

And yet, as so often happens when things fall apart, those with the greatest stake mustered their troops for one last stand. With critically flawed accounts and progress measures and an armory correspondingly bereft of ideas, the defenders could only fight fire with fire, combating a collapse spurred by debt-fueled growth with yet more debt-fueled growth. It was a recipe for disaster.

Deeper Problems in 2011

Not only had President Obama’s proposed $1.5 trillion fiscal stimulus package of 2008–2009 predictably failed to stimulate, but the next recession of 2011–2012 (or was it a depression?) was ushered in with a 9 percent unemployment rate and a $1.8 trillion deficit in the United States. No more stimulus or bailouts now. The clarion call had changed from “stimulus” to “deficit reduction.”

There was social unrest, unsurprisingly. Even during the prior two decades of apparent prosperity, young people lost ground, saw their median incomes drop and their debt loads increase, and even voted less—a sure warning sign of growing alienation from the established order.

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United Nations Photo
A United Nations volunteer from India (right) works with a farmer in Bhutan. Bhutan has adopted a system of local, organic food production and tries to use sustainable energy as much as possible.

On the sidelines, analysts like George Monbiot noted that “climate breakdown, peak oil, and resource depletion will all dwarf the current financial crisis, in both financial and humanitarian terms.” In fact, the very measures taken in 2008 and 2009 to get the economy back to where it was—infinite growth on a finite planet—were a recipe for ecological disaster. And, wrote Monbiot in the Guardian, “When the world’s ecological debt comes due, no World Bank or IMF bailout package will save the day.” For the first time since the Industrial Revolution, it was clear that the next generation would not be better off than previous ones—economically, socially, or ecologically.

So now, at last, in 2011–2012, with the global economy in free fall and governments themselves deeply indebted and teetering on bankruptcy, the world was searching for a genuine cure. And, at last, leaders were ready to listen. In the midst of the 2008–2009 emergency rescue packages—approved with stunning rapidity by an almost global consensus—that openness to a sane path forward did not exist. But in 2011–2012, the world was ready at last to explore other solutions.

But where to look? Theory was not enough now. The world needed a real example of what could work, a country somewhere that was not spiraling downward into depression and fear, a country whose people lived prosperously, with satisfaction, and in harmony with nature, and who were—dare we say it—happy.

A Beacon of Light

In 2012 a little Himalayan country was blessed with relative insignificance, just remote enough not to be entirely hooked to the materialist bandwagon and small enough, with a population of less than a million, to put the new paradigm into action. It was a country with a strong spiritual tradition and an ancient culture of respect for all living beings, with strong communities and social bonds, with its old-growth forests still intact, with half the country under complete environmental protection, and with a policy to grow all of its food organically. It was a country that had vowed to remain a net carbon sink in perpetuity and whose king had famously declared three decades earlier that “Gross National Happiness is more important than Gross National Product.”

And yet, remarkable and rare as those qualities were, they drew only marginal interest from a frightened world spiraling into insecurity, conflict, and disarray. No, what changed in 2012 was that once secure and reliable global food and energy supply lines were suddenly cut as fearful leaders worldwide threw up protective barriers and citizens hoarded diminishing supplies.

So what really began to garner increasing global attention was that the economy of this little land of Bhutan was thriving on its own resources, that it had no food shortages and was feeding its people, that it exuded a palpable quality of peace and security, seemingly immune from the chaos surrounding it. And while the world shuddered and “hunkered down” in “fear,” “panic,” “gloom,” “despair,” and “resignation,” gripped by unfolding “threat” and “disaster” (all actual phrases culled from a single day’s London newspaper in 2008), the leaders of Bhutan spoke in calm and measured tones and its people smiled warmly.

How could this be? And could this remote little country really have something practical and useful to offer the world? Might even the formerly rich and powerful, who arrogantly held sway over the globe for so long with impunity, learn something from this seemingly insignificant nation?

Fortunately for the world, the leaders and people of Bhutan did not remain smugly secure in their little cocoon of well-being. In this globalized world, bound together by television, Internet, and trade, they were not so remote as to be unaware and unaffected by the unfolding pain and suffering all around them, and their hearts ached at what they saw.

The New Bretton Woods

Kindly, in the winter of 2013, the prime minister of Bhutan called and hosted a global gathering on a “new Bretton Woods” to build a consensus on a new, sane, global economic paradigm based on scientific and expert knowledge of the world, with new measures of progress and new global institutions to manage and regulate the system.

The Bretton Woods system of 1944, he noted, enshrined GDP as the global measure of progress and prosperity and created the World Bank and the International Monetary Fund (IMF) to manage a system predicated on limitless growth. This system was constructed before the world had any awareness that its natural resources were finite and before even the most brilliant scientists were aware that human activity could change the climate of the planet Earth. “And,” the prime minister added somberly, “that system was based on untenable, self-defeating economic premises.”

In the presence of some of the world’s most renowned economists, the prime minister’s 2013 opening conference address was broadcast live worldwide. His simple words galvanized the world, sparked a ray of hope, and marked a new beginning. Very straightforwardly, he humbly described what Bhutan was doing:

“Our economy,” he said, “is not based on economic activity fueled by endless desire, but on what our people genuinely need in order to achieve decent living standards and to fulfill their human potential. We’re not interested in producing more stuff. Actually, we already have enough in aggregate. In fact, we have plenty! What we care about is how to distribute that wealth fairly to ensure no one is deprived.

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Gill Fickling/UN Photo
Farmers thresh their rice harvest in a field near Punakha, Bhutan. Bhutan is currently striving for food self-sufficiency.

“And so,” he added, “when this new global depression hit and our markets dried up and our economy shrank, our first concern was to make sure no one got unduly hurt. Our full-cost national accounts, which account fully and properly for the value of our natural, human, and social capital, show that unemployment produces huge illness, crime, addiction, and other costs. And so, we haven’t laid off anyone! Instead we’ve redistributed our work so all our people now work shorter hours. And they like it! They’ve got more time with family and friends and more time to contemplate, picnic, volunteer, and enjoy themselves.

“Maybe most importantly,” said the prime minister, “our full-cost national accounts show us clearly that our economy is only as healthy as the natural resources that sustain our life on earth and that we need to power our economy. If we destroy our soils, forests, water, and other natural wealth, which provide hugely valuable services to our people, our economy and our people will die. And so, we’ve created an economy in full harmony with nature.

“One key feature of that economy is that it’s basically local in scale. We grow enough food to feed ourselves, and it’s healthy and nutritious because we grow nearly all of it organically. We can provide all our basic energy and necessities domestically from renewable sources, and we’re proud to be a true ‘zero waste’ society. Most of our people walk to work, and we provide free public transport and van pools for those who need a ride. And so, we didn’t hurt when food supply and energy lines were cut. Our economy is healthy and self-reliant.”

The Big Leap

And then the prime minister of Bhutan made a big leap. Carefully gauging his audience, feeling them come around to his side, and deeply wanting to calm the palpable global panic and uncertainty, the leader of this little country now dared to offer advice to a desperate world.

“You have nothing to fear,” he said. “Even in the midst of this great depression, you have plenty of resources and you are already producing enough to feed and supply everyone in this world. You don’t have to grow. In fact, we can actually welcome this global economic slowdown as a tremendous opportunity, a chance to give nature a rest, to consume less energy and fewer resources, to emit less greenhouse gas, to reduce stress, to have more free time, to become more secure and self-reliant, and to improve the quality of our lives.

“Our full-cost national accounts very clearly show that the global economy had grown too large and that we were already globally consuming resources at a rate too fast to allow them to regenerate. In fact, shrinking the global economy creatively is essential for human survival on the planet.

“And this is good news from a human point of view. Our measures of progress clearly show that producing and consuming more stuff doesn’t make people happier. On the contrary, when they overwork to buy more stuff and pay the bills, they mostly get more stressed. Renowned economist John Helliwell at University of British Columbia showed that the strongest correlate of happiness is not income but strong social bonds. So, working, producing, and consuming less is not only good for nature but gives us more time to enjoy each other’s company.”

The prime minister concluded, “Together, let’s use these next two weeks to create a healthy new global economic system based on caring for nature and for each other. We’ll need new measures of progress that count the value of all our wealth—natural, social, human, and economic. And we’ll need global regulatory mechanisms to replace the institutions like the IMF and World Bank that have failed us so badly—systems of fair trade, of rewards and incentives for sustainable behaviors, of penalties for pollution and resource degradation, and of protection and support for the world’s most vulnerable peoples.

“And those new measures and systems will protect us from the kind of fear, despair, and crisis that is now roiling the world. Because we use a net rather than a gross accounting system, our new measures will properly assess the costs of production and provide early warning signals that allow timely remedial action. For instance, if our natural capital accounts show a decline in fish stocks, we’ll take preventive action before the resource collapses.

“Indeed, we in Bhutan were not at all surprised by the present global economic slowdown because, unlike GDP that counts only gross income, production, and consumption, our net accounting mechanisms showed that debt was growing globally at a much faster rate than income. Sooner or later, as the subprime mortgage crisis that precipitated the present global collapse showed, it was obvious debtors would default on their payments. And when governments went deeply into debt to try to fuel more growth, our accounts clearly predicted the present disaster of national defaults.

“We, as human beings, are smarter than that, and we can do better—much better—in creating a secure, sustainable, harmonious, peaceful, and happy economy and society. Let’s take this shaky moment in human history as a tremendous opportunity to forge a sane path forward together.”

And so it was that in 2013, an historic meeting officially dismantled the 1944 Bretton Woods consensus, which had ruled the world for nearly 70 years, and replaced it with what became known in the history books as the Bhutan Accord. This accord paved the way for our present 2055 victory in finally stemming the tide of climate change and formed the basis for a good human society based on sufficiency, equity, sustainability, and dignity.

Author’s Note

This article reflects options open to both Bhutan and the world and—while it builds on present plans and policies that make those options possible—does not claim to reflect actual current realities in either Bhutan or the world at large. To give one example: While it is the official policy of the Bhutanese government to become 100 percent organic in food production and to increase food self-sufficiency, neither objective has yet been achieved, though the article implies they have been. Thus, all views, opinions, statements, and errors in the article are the sole responsibility of the author and have not been vetted in any way by any official of the Government of Bhutan. Nevertheless, the author believes that the foundation of what is described here does exist in practice and that the scenario outlined can be achieved.