National Environmental Accounting: Bridging the Gap between Ecology and Economy. Joy E. Hecht. RFF Press, Washington, DC, 2005. 240 pp., illus. $60.00 (ISBN 1891853937 cloth).
Academics and the general public have long recognized the shortcomings of the gross domestic product (GDP) as a measure of a country's well-being. GDP's exclusive focus on goods and services bought and sold through market transactions has resulted in an aggregate measure of economic activity that can be faulted on several levels (Revkin 2005), with many critics noting its failure to account for natural resource depletion, nonmarket amenity values, and the social costs of pollution. These critics have also questioned the treatment of defensive expenditures designed to offset environmental degradation as increments to GDP. Such limitations have resulted in an unusual coalition of environmentalists, ecologists, economists, and accountants who advocate “green” accounts, or modifications to traditional national income accounting procedures that address the aforementioned shortcomings. Although these diverse groups agree that current procedures are deeply flawed, they disagree—sometimes stridently—on how to reform them. The result is a vibrant, but often confusing, literature on green accounts that is limited to a small community of academics and government accountants.
Joy Hecht's National Environmental Accounting attempts to ameliorate this confusion and bring a much larger audience into the discussion. On the basis of her extensive field experience working on the environmental dimensions of national income accounting throughout the world, she assembles an integrated assessment of how government statistical agencies can incorporate different aspects of the environment into national accounts. Her focus is almost exclusively on national environmental accounting procedures that either have been previously adopted or are proposed in the UN Statistical Commission's 2003 revised system of economic and environmental accounts. Relative to other reform proposals, these approaches are best described as incremental, in that they preserve the traditional national income accounting structure and incorporate the environment largely through separate satellite accounts that measure natural resource depletion and pollution-induced environmental degradation in either physical or monetary units.
National Environmental Accounting has two major strengths. First, Hecht focuses on what has been done—and on what can be done, short of a radical reorientation—within the existing national income accounting framework to incorporate the environment. Although her opening and final chapters describe the plethora of proposed alternative ecological and economic approaches to integrating the environment into national income accounts, she does not digress into a lengthy description and comparative study. Instead she focuses on the incremental changes that are being adopted by national income accountants and on their relative strengths and weaknesses. The choice here of depth over breadth is shrewd—it allows her to meticulously explain current approaches to amending the existing national income accounting framework to better incorporate the environment and use specific country case studies as illustrations.
The book's other major strength is the breadth of the audience for which it is written. By no means is this book intended for only academics and government accountants with extensive experience in the area. On the contrary, a careful study of Hecht's book will give readers with just a rudimentary understanding of accounting, economics, and ecology a sense of existing practice and the major issues in national environmental accounting. Indeed, the book reads like an introductory textbook on the topic, minus the end-of-chapter review questions and problem sets.
My sense is that some readers will take away from National Environmental Accounting a general dissatisfaction with the incremental approaches to creating green accounts that Hecht seems to at least implicitly favor. Environmentalists and ecologists, for example, might find it disconcerting that the lion's share of the adjustments involve natural resource depletion and not ecological services. Economists, by contrast, might be disappointed by the absence of a unifying framework that distills the accounts down to a single monetary measure. Underlying both of these critiques is the belief that national accounts should measure human welfare, not income or production. But to professional accountants who dominate the government statistical agencies that construct these aggregate measures, a summary statistic of human welfare is too vague and subjective to be a meaningful objective for an index published by the government.
I generally concur with this assessment out of a belief that politicians will manipulate subjectivity in government statistics for their personal gain or for that of their party. However, I am by no means suggesting that experimental human welfare indices such as genuine savings, and the genuine progress indicators that several academics and policy analysts have proposed (Harris and Fraser 2002), are not valuable complements to government statistics employing the national environmental accounting procedures that Hecht describes. Such academic research is absolutely essential for green accounts to mature. Rather, there should be a clear delineation of responsibilities, with government statistical agencies publishing the more incremental statistics that build on existing accounting procedures, and academics and policy analysts publishing the more subjective (and politically controversial) statistics that aim to measure human welfare.