Economics for Four-Year-Olds

My four-year-old daughter spent the afternoon at a local science museum the other day, exploring an exhibit on biodiversity. She returned home full of determination, found a pencil and paper, and composed a letter. Now she distributes copies to friends and strangers alike. The letter begins:

From Jenna to the world:
Please stop making all this pollution. It's making all the animals sick and die. The fish can't live if the coral can't live and the polar bears can't live if the fish can't live.

Approaching the problems of polar bears and coral reefs by writing a letter to the world makes sense if you think like a four-year-old. Surely, people would not knowingly live in ways that threaten polar bears or coral reefs. If people understood the consequences of their behavior, the world would change.

My grown-up mind wishes my daughter's theory worked. But I've tried it enough times myself to know that asking people to act for the good of the future is necessary but not sufficient.

So I've been trying to prepare my little girl for the possibility that her letter won't save the polar bears. We've begun to talk about how it is that people can know the polar bears are in danger and nevertheless feel unable to change course. "Sometimes," I tell her, "people don't do what would be best for something far away or far in the future because they feel trapped by something else more immediate, more close by."

This is a simple idea, but four-year-olds aren't the only ones to suggest that we can solve our environmental and social problems simply by calling on people to be more responsible to future generations. Listen to these words, from a speech delivered by President Bush in early March:

The whole design of free-market capitalism depends upon free people acting responsibly. Business people must answer not just to the demands of the market or self-interest, but to the demands of conscience. The bottom line of the balance sheet defines a business's goal, but not the sum of responsibilities of its leaders. Management should respect workers. A firm should be loyal to the community, mindful of the environment.

The president is right, of course, as far as he goes. We won't get anywhere if we don't expand the boundaries of what we feel responsible for. The trouble with this logic is that it neglects the possibility that short-term goals, dictated by the balance sheet, can conflict with our long-term responsibilities.

Put differently, Bush's speech invites the question of whether businesses struggling to survive in an age of consolidation can really factor in long-term environmental and social concerns while focusing on short-term profit. Too often, the answer is no. In our current economic system, reducing carbon emissions, restoring a wetland, or phasing out toxic chemicals leads to higher costs and lower profits. And making choices that lead to lower profits can mean risking your business or your job.

Appeals to conscience will be sufficient to solve our environmental and social problems only if people are willing and able to risk their very livelihoods to do the right thing for the long-term. Some people will rise to this challenge. But there must be more effective ways to create a livable world for our children than to call on everyone to become saints.

We could start by looking for ways to ease the conflict between the short-term goals of the bottom line and our long-term responsibility to the future. In last month's column, I wrote about the importance of price tags reflecting the true cost of the food we eat, so that consumers understand (and pay for) the relative social and environmental cost of, say, an organic banana versus a conventionally grown banana. That same logic can and should be extended to all other goods.

If all of the costs to society -- including the health-care expenses and environmental cleanup costs -- were reflected in the price of the products we purchase, then reducing pollution would boost the bottom line. If businesses were paid for stewarding our shared natural resources, then restoring a wetland could reap profits. In an economy that included all costs and values, people wouldn't have to struggle to resolve the conflict between short-term goals and long-term responsibilities. The most profitable, valuable businesses would be the best community citizens.

Being the most competitive, the most innovative, providing the most value to shareholders -- these are powerful motivators in our economic system. If we were to adjust the rules of doing business so that working for nature and for people was required for economic success, all of the energy and creativity currently channeled into the business world would also go into the service of future generations.