Banks Admit What Economists Can't See

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This article was carried on wire services late last week. See if you can spot what's missing.

SINGAPORE - Banks must protect the environment or risk losing money, officials said Thursday.

Bankers and government officials attending a U.N.-sponsored conference on finance and the environment told Reuters that pollution was quickly becoming one of the biggest risks facing companies and the institutions that lend them money.

Pressure to consider the environment was rising rapidly in Europe and the United States and would soon be a major factor in Asia and the rest of the developing world, they said.

"Why do banks need to think about the environment? Because, No. 1, they want to be paid back," said Dennis Zvinakis, field director for the United States Asia Environmental Partnership agency in the Philippines.

"It may affect our bottom line," agreed Heinrich Hugenschmidt, head of environmental management services at the Union Bank of Switzerland in Zurich. "The environmental problems of our clients may become our financial problems."

"We distinguish three main environmental risks: liability risks, business risks -- if our clients are affected by environmental issues, so are we -- and reputation risks."

One of the biggest risks from pollution was its potential impact on the security of loans, said Charles Crowe, legal adviser to HSBC Holdings.

"A large proportion of loans are secured on land. If the customer that has given you that security carries out a polluting activity on that land, your security is worth nothing," he said.

Officials said shareholders and governments were increasingly insisting that firms which damaged the world around them were penalized or even had their operations shut down.

Copyright © 1997 Reuters

So, did you notice what's missing from this article? It does not mention the opinions of economists! This is because "neoclassical" economic thought does not admit that natural resources exist and have characteristics different from man-made capital. Of course, any eight-year-old can understand that natural resources are fixed in supply, while man-made capital has no fixed supply; that natural resources are necessary to life, while man-made capital is useful but not absolutely essential; that natural resources are a necessary ingredient in the production of goods and services, while man-made capital is useful but again not absolutely essential; that natural resources are not a product of human exertion, while man-made capital is.

So, it seems that the average eight-year-old can grasp the world economic reality better than the average neoclassical economist. Until neoclassical economists give up their crumbling "natural resources are just like capital" religion, their opinions will simply not be relevant in articles about environmental ecnonomics.

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