About the social use value of the environmental goods

The social use value of the environmental goods integrates all the three aspects of the sustainability: economic (value), social equity (social use) and environmental (environmental goods).

To perform an economic analysis of an investment we need to estimate its economic value and the same applies to investments in the environmental field. The economic analysis refers to the community, from where it links with the social aspects, and differs from the financial analysis, which on the contrary pertains to the single private operator, who undertakes it.

The social use value (or societal value) of an environmental good refers to the appreciation that the community has of it in terms of its collective usefulness and usability. The estimation of the social use value involves also some factors that are not easily quantifiable in terms of economic efficiency, which cannot be defined in terms of profitability, are not directly expressible in money, and, as such, fall under the group of so-called “intangibles.

Before continuing the discussion, some brief and non exhaustive references of microeconomics are needed. The economic good (commodity) is a product or a service, which has characteristics of utility, usability and limited availability. It can be durable or nondurable, present or future.
The exchange value or market value is the most likely value, expressed in money, of a commodity traded in a market and is a historical datum related to the particular market.
The cost value is the sum of the market values of all the inputs needed for the production of the good. The production is the transformation of natural or material goods into economic assets of greater utility. The complementary value is the cost value plus the depreciation. The transformation value is the market value after the transformation, minus the cost of the works required for the transformation. The value of subrogation is the market value of another commodity with the same utility. For full details on the above definitions and about the estimation methodology, see the bibliography at the end of the text.

The value of the environmental goods arises when natural goods such as the water, the air, the soil, the land and the environment itself generally speaking turn into economic goods. They are no more unlimited resources and their availability becomes limited in quality or in quantity.
From the open economics of the cowboy we move to the closed economics of the spaceship earth.

In the old days, in conditions of deterioration of the natural environment or of the social structure, there was always the possibility of conquering new spaces more livable on the planet. Now, on our planet there are no more new territories to discover and to occupy or frontiers  to pass. The earth is no more a limitless expanse, but a finite sphere. Today, also the economics must look at the planet no more as an open system, but as a closed system, where everything takes place inside it; inputs (for instance energy and raw materials) come from inside and also the outputs (for instance waste and pollutants) remain inside. Consumerist mechanisms of production, which create unmanageable waste and are based on planned obsolescence, fatuous and unfounded needs, products of poor quality and misleading advertising, cannot guarantee a sustainable future, the survival and the preservation of the human species. A sustainable economics should not only satisfy the urgent needs of the market, but should always consider the needs of the future generations and ensure the transition from an anthropocentric to a biocentric vision. It is dated 1987 the definition of sustainable development, reported in the so-called Brundtland Report of the World Commission for Environment and Development: “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.

The clean, renewable energy, is today the new frontier of the global economic growth.
The gross domestic product GDP, a measure of the economic success of a country, in a modern economy should be divided into two aliquots, one coming from renewable energy and resources and the other one resulting, on the contrary, from non-renewable energy and resources.
The innovation in the environmental field projects towards the research of production processes and technologies of high energy efficiency, which reduce the negative externalities associated with the production of waste and with the pollution. Closed production cycles where the end of life of an old product coincides with the beginning of the life of the new product, and no more the linear ones should become increasingly the norm and not an exceptional example. From the economic point of view, a new appreciation of the profits coming from the production of durable goods would be needed, shifting the attention from the revenues of the mere sales of the consumer goods to the earnings connected instead with the services for the operation and the maintenance of the products themselves. The global sustainability has also become an essential requirement for financing many projects in the environmental field (see for instance, the Equator Principles).

In light of these competing interests, some considerations about possible methods of estimation of the social use value of the environmental goods follow.

The exchange value or market value (Vm) of a good is the most probable value, expressed in money, that a single operator would be willing to pay in a given market for that good. The social use value (Vsu) differs from it since it does not concern a single operator, but the appreciation of the entire community (economic value) for that same good. This difference (positive or negative) is the social surplus value of the good (ΔV = Vsu – Vm).

In the field of “intangibles” we have to consider the direct benefits to the community caused by the environmental goods and that cannot be expressed in terms of economic efficiency. Among them we can consider the benefits to the image of the place, to the civil and cultural development, to the creation and the sharing of the knowledge, to the transmission of  the historical memory to the future generations, to the health, meant as “a state of complete physical, mental and social well-being”, as defined by the World Health Organization. The ancient monumental trees, for instance, constitute a historical memory to be handed down to posterity. In the cloister of the Hospital of the Incurables in Naples, there is a specimen of camphor of the estimated age of about 500 years, a silent witness of the historical events of the city. In this case the social use value could be determined with the so-called “willingness to pay”, interviewing a selected and significant sample of potential users of the environmental good. The results of a similar survey would be anyway susceptible to subjective evaluations.

A possible assessment of the social surplus value ΔV of the environmental good could come from the discounting of the annual expenditure S, discounted at the rate r of the social return, for its preservation, maintenance, vigilance, protection and promotion.

ΔV  = S / r      ;
Vsu = Vm + S / r       .

In this calculation the rate of return on a public and social investment (rate of the cost of social opportunity) will be necessarily less than the financial rate of return on a private investment.

Another method of estimation is the “shadow price”, Ps, or money of account. The shadow price is the price that reflects the social value of a good or of a service of which there is no market.
It can be calculated using one of the following modes:

  • Applying the actual prices that occurred in other markets to benefit of the same goods and services;
  • Calculating the external effects with reference to the market prices;
  • Estimating the shadow price with a political decision, consistent with the defined objective.

In the first case, not always the Italian environmental goods are comparable to those of other countries; you can consider, for instance, the archaeological and natural underwater parks of Baia and of the Gaiola, the caves of Naples underground or the Fontanelle Cemetery.

In the second case, external effects, only the increases of the income from tourism are easily assessable.

An estimate of the social surplus value of the environmental goods, in terms of economic efficiency, could be obtained discounting at a reasonable rate of social return the net increase  in the income, national or local, coming from the aliquot of the total annual tourist flow induced by them. They are now very popular the environmental tourism and that one linked to the natural locations of the movie sets.
Conversely, it is hard to estimate the increase in social welfare achieved with the use of  the natural good.
An assessment of the increase in the pursued level of education could take into account the value of the courses offered on the environmental goods and in the environmental goods themselves, books, publications and documentaries, seminars and conferences, theater performances and concerts organized in forests, coastal dunes, or in underground caves.
Many are the courses and the cultural activities for instance on issues such as speleology, rock climbing, trekking, mountaineering, scuba diving, botany, evolution of species, biology, geology, biodiversity, astronomy, photography and the like.

They could also be evaluated and taken into account the avoided environmental damages, and thus the costs saved, with the preservation and the protection of the environmental resources, such as the economic damage to a part of a coast no more swimming because of the pollution caused by the discharge of untreated waste water.

In the third case, a political decision, the social use value would come directly from the importance that the community, through the political class that democratically represents it, assigns to the estate of the environmental goods. If, for instance, among the political objectives there is the improvement of the quality of life, then the fruition and the protection of the environmental goods will be an appropriate means for pursuing it and the environmental good will have for the community a use value, or economic value, greater than its exchange or market value.

The social use value of the environmental goods is closely related to the global sustainability, as defined since 2009 in the business plan of the PMI® Project Management Global Sustainability Community of Practice: “The global sustainability is the attainment of enduring economic, social, and environmental well-being of all elements of society”.

Paola Morgese, PMP
Civil Hydraulic Engineer
M.S. Sanitary and Environmental Engineering
http://it.linkedin.com/in/ingpaolamorgese/en

References
Kenneth E. Boulding, The economics of the coming spaceship earth, 1966.
Michael Braungart, William McDonough, Cradle to cradle: remaking the way we make things, North Point Press, 2002
Clemente Esposito, Il Cimitero delle Fontanelle, Napoli, 2007.
Graziano Ferrari, Raffaella Lamagna, Grotte costiere flegree, 2008.
Carlo Forte, Valore di scambio e valore d’uso sociale dei beni culturali immobiliari, Napoli, 1977.
IFC (International Finance Corporation) – Equator Principles – Standard 2006
LIPU, Gli alberi secolari in Campania, testimoni viventi della storia, 2009.
Guglielmo Melisurgo, Napoli sotterranea, 1997.
Joseph Nyangon, Rebalancing the economics of greening, blog post at the past website of the PMI® Global Sustainability Community of Practice, 2011.
Marcello Orefice, Estimo, UTET, 1984.

Article published in the bimonthly magazine “Notiziario dell’Ordine degli Ingegneri della Provincia di Napoli” (Society of Engineers of Naples, Italy), N. 2, 2012.

 

 

Advertisements

Author: progettisostenibili Paola Morgese

Ingegnere, project manager, autrice. Convogliatrice di sostenibilità nelle aziende e nella vita. Engineer, project manager, author. Conveyer of sustainability in business and life

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s