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Natural (Environmental) and Social Capital
Definition
Capital is traditionally defined as produced (manufactured) means of production. A more functional definition of capital is a fund or a stock (a fishery or forest, an oil well, or a set of machines in a factory) that yields a (sustainable or unsustainable) flow of valuable goods or services into the future. What is functionally important is the relation of a fund or a stock yielding a flow – whether the fund or stock is manufactured or natural, is in this view a distinction between kinds of capital and and not a defining characteristic of capital itself (Costanza and Daly, 1992:38)
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Types of capital
Based on the above definition Costanza and Daly distinguish three broad types of capital: natural, human and manufactured, ―which correspond roughly to the traditional economic factors of land, labour and capital
Natural capital are the natural ecosystems that yield a flow of valuable ecosystem goods or services into the future (Costanza, 2008) For example, a population of trees or fish provides a flow or annual yield of new trees or fish, a flow that can be sustainable year after year. The sustainable flow is natural income; it is the yield from natural capital. Natural capital may also provide services such as recycling waste materials, or water catchment and erosion control, which are also counted as natural income. Since the flow of services from ecosystems requires that they function as whole systems, the structure and diversity of the system is an important component in natural capital.
Costanza and Daly point out the distinction between natural capital and income and natural resources and find the following definition most appropriate ―natural capital and natural income are aggregates of natural resources in their separate stock and flow dimensions, and forming these aggregates requires some relative valuation of the different types of natural resource stocks and flows.‖ So ―capital and income have distinct evaluative connotations relative to the more physical connotations of the term ‗resources‘‖ (Costanza and Daly, 1992:38).
They differentiate two broad types of natural capital: (1) renewable or active natural capital, and (2) non-renewable or inactive natural capital (―Funds‖ and ―Stocks‖ in Georgescu-Roegen‘s terminology). Renewable natural capital is active and self-maintaining using solar energy (e.g. ecosystems). Ecosystems can be harvested to yield ecosystem goods (e.g. wood) but they also yield a flow of ecosystem services when left in place (e.g. erosion control, carbon capture, recreation). Non-renewable natural capital is more passive (e.g. fossil fuel and mineral deposits) and yields no service until extracted .
In addition to natural capital there is human-made capital. Here they distinguish between (1) manufactured capital such as factories, buildings, tools and other physical artefacts, and (2) human capital i.e. the stock of education, skills, culture, and knowledge stored in human beings. Agricultural seeds have been selected by humans for thousands of years, they require human knowledge to be used.
Manufactured, human and renewable natural capital decay at substantial rates and must be maintained and replenished continuously. The stock of non-renewable natural capital also decays but at a very slow pace so this can be ignored, however once it is extracted and used it is gone. Renewable natural capital produces both ecosystem goods and services, and renews itself using its own capital stock and solar energy. Excessive harvest of ecosystem goods can reduce renewable natural capital‘s ability to produce services and to maintain itself. Manufactured capital, renewable natural capital and non-renewable natural capital interact with human capital and economic demand to determine the level of marketed goods and service production. (Costanza and Daly, 1992).
Much of the discussion on Sustainability in ecological economics revolves around the issue of the limits to substitution between the different forms of capital. For instance, can manufactured capital be substituted for natural capital (can a larger fleet of fishing boats substitute for scarcity of tuna fish)?
Goodwin differentiates between five kinds of capital: financial, natural, produced, human, and social. All are stocks that have the capacity to produce flows of economically desirable outputs, their maintenance being ―essential for the sustainability of economic development‖ (Goodwin, 2007). Financial capital refers to system of ownership or control of physical capital. It facilitates economic production but is not itself productive. Natural capital is made up of the resources and ecosystem services of the natural world. Produced capital is made up of physical assets generated by applying human productive activities to natural capital and capable of providing a flow of goods or services. Human capital refers to the productive capacities of an individual, both inherited and acquired through education and training, while social capital, consists of a stock of trust, mutual understanding, shared values and socially held knowledge. However not all capital can be classified clearly into only one form. E.g., when people deliberately create stocks of new seeds through selective breeding, such seeds may be seen as partly natural and partly produced – and also as embodying human and social knowledge (Goodwin, 2007).
Elaborating on natural and social capital Goodwin states: ―It was from a largely homocentric point of view that economists first began to label stocks of clean water and air, as well as forests, fisheries, and the ever evolving systems that support them – and us – as natural capital. While the term was originally used only for those aspects of nature that humans were actually using – and especially the parts that they were depleting, such as fertile topsoil – growing awareness of the intricacy and delicate balance of the relationship between the natural environment and human economies is encouraging many to think of our total natural environment as precious natural capital‖ (Goodwin, 2007).
Social Capital Today
According to Goodwin (2007) in present-day industrialized economies, recognition of social capital by economists is fairly recent, and has been strengthened by ―the observation that variations in social capital across communities and societies can help to explain some of the differences in their economic development‖(Goodwin, 2007). Social capital now frequently refers to those characteristics of a society that encourage cooperation among groups of people (e.g., workers and managers) whose joint, interdependent efforts are needed to achieve a common goal such as efficient production. Studies suggest that strong norms of reciprocity lead people to trust and to help one another, and that dense networks of civic participation encourage people to engage in mutually beneficial efforts rather than seeking only to gain individual advantage at the possible expense of others. Social capital furthermore, resembles other forms of capital in that it generates a service that enhances the output obtainable from other inputs, without itself being used up in the process of production. (Goodwin, 2007). To understand the notion of social capital, we must refer to institutions.