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PART 6—
INFRASTRUCTURE FOR SUSTAINING BIODIVERSITY—SCIENCE.



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Page 335 PART 6— INFRASTRUCTURE FOR SUSTAINING BIODIVERSITY—SCIENCE.

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Page 337 Science and the Public Trust in a Full World: Function and Dysfunction in Science and the Biosphere George M. Woodwell Woods Hole Research Center, 13 Church Street, P.O. Box 296, Woods Hole, MA 02543 The ecological symptoms of unsustainability include shrinking forests, thinning soils, falling aquifers, collapsing fisheries, expanding deserts, and rising global temperatures. The economic symptoms include economic decline, falling incomes, rising unemployment, price instability and loss of investor confidence. The political and social symptoms include hunger and malnutrition, and, in extreme cases, mass starvation; environmental and economic refugees; social conflicts along ethnic, tribal, and religious lines; and riots and insurgencies. As stresses build on political systems, governments weaken, losing their capacity to govern and to provide basic services, such as police protection. At this point the nation-state disintegrates, replaced by a feudal social structure governed by local warlords as in Somalia, now a nation-state in name only. Lester R. Brown, 1995 The Transition from Empty to Full That grim prospect from Lester Brown summarizes lucidly the course of the current civilization in the eyes of pragmatic ecologists who deal daily with the dependence of the human undertaking on the long-sustained biotic functions of the earth. It has little to do with “biotic diversity” and much to do with the erosion of the capacity of the biotic systems of the earth to continue to support a vigorous, successful, and continuing civilization. The phenomenal technological and economic successes of the current moment mask the elementary fact of the

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Page 338 dependence of all life on a habitat of diminishing dimensions. It is the current diminution of the biosphere that is the subject of this forum and this paper. Herman Daly, the economic philosopher, has observed that the world has made a transition from “empty” to “full” and that the rules for success in management of human affairs have changed (Daly 1993). No longer are resources large in proportion to demands; the easy compromises available among competing interests in an empty world are of the past. The transition is recent, the product of the decades since 1960 as the human population has doubled once again and technology has offered an even more comprehensive capacity for turning the earth to human succor. The intensification of use of the whole earth comes to focus in a series of problems with biotic resources, although the immediate issues might appear to be energy, such as oil in the coastal zone, or the disposal of wastes, or the commitment of land to roads or to shopping malls or to industrial uses. The critical issue in each instance is a threat to one or more biotic resources, including food, human health, and the normally biotically controlled function of the biosphere. Science has a special role in defining what will work in a biophysical sense in this new world, in which intensification of use will continue but in which each use must be held within dimensions of resources that are in fact diminished by the current use. The sum of these local activities is the world as a whole, the biosphere. Suddenly, in recent decades, within this century, incremental local disruptions of normal biotic functions are accumulating as global disruptions. The transition presents a major political challenge to governmental systems that were developed when resources seemed globally abundant and opens a new realm for the definition of civil rights. In a democracy, we establish government to protect each from all and all from each. What are the dimensions of protection as challenges to the human habitat become more acute and effects of local actions accumulate as global disruptions or impoverishment? The issue of how the world works and how it can be kept working in the largest interest of the public becomes central. The question is biophysical first and only secondarily economic and political, but success in the evolution of all three realms is essential. Science in general and ecology in particular have responsibility in joining in the definition of human rights in this new world—rights to clean air, clean water, food that is free of poison, a wholesome habitat that is not drifting into biotic impoverishment, and a world that is not itself being steadily impoverished biotically. What is clean air? Clean water? A stable and healthful habitat? What are essential human rights in a full world? What is it that we form governments to do for us all? And who will define that task and hold governments to it? The Evidence that the Earth is Full is Global Biotic Instability The most powerful evidence of the transition to a world that is full, as opposed to empty, is the series of global transitions under way now. The most important are the warming of the earth and the progressive reductions in the capacity of the earth for supporting life: biotic impoverishment. The two are mutually

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Page 339 reinforcing. The accumulation of heat-trapping gases in the atmosphere is the cause of the warming. The accumulation is due in part to the destruction of forests. A rapid warming has the potential for speeding the destruction of forests and accelerating the warming (Houghton and others 1998; Woodwell 1995; Woodwell and others 1998). The two processes are also open-ended, actively developing, directly threatening to human welfare, and, at the moment, not addressed effectively by any government or society despite various agreements to act. We have squandered trillions of dollars in the second half of this century on the mere possibility that the mismanagement of international affairs might lead to a nuclear war that could reduce the earth to a cinder in a few hours. We are currently engaged in vicious arguments over whether it is worth any effort to deflect the global changes that are in fact bringing increments of global impoverishment that move the world toward the same end, only more slowly. The difficulty is in part that the increments of change are small to the point of being inconspicuous to ordinary people; they are obscure for the moment but have the potential intrinsic in exponential growth for emerging suddenly as overwhelming problems that might, at that moment, have surged beyond control. The difficulty is also that action requires a reduction in the use of fossil fuels, a step that is unpopular with politically powerful commercial interests around the world. The fact is that all interests, commercial and public, will suffer in a world afflicted by the chronic and rapid climatic disruptions already inevitable as a result of past accumulations of heat-trapping gases in the atmosphere. The changes entail cumulative and progressive increments of biotic impoverishment. Although the increments might be obscure minute by minute and are further obscured generation by generation as each generation starts with a baseline that is already eroded, the effects ultimately become conspicuous as erosion of the human habitat. The rate of the warming offers one criterion for appraising the global rate of disruption. The warming has proceeded at a global average over recent decades of 0.1–0.2°C per decade. It is expected to proceed at that rate or higher throughout at least the next century. It has proceeded and will continue to proceed at 2–3 times that average rate in the higher latitudes, according to both experience and the most widely accepted projections (Houghton and others 1996). While the global warming was about 0.5°C between 1895 and 1990, the average for Canada as a whole was about 1.0°C and, for the Mackenzie District of northwestern Canada, about 1.7°C (Gullet and Skinner 1992). We might inquire as to the historical rates over recent millennia to establish a basis for judgment of how the biosphere was functioning before massive intrusions by humans. Even during the glacial periods, the rates of temperature change globally appear to have been closer to 0.1°C per century than per decade. Such a rate is consistent with the time required for the regeneration of forests and fish populations that must establish themselves in new habitats and consistent with adjustments in migratory patterns of animals. The greatest hazard associated with the warming may be the systematic and rapid impoverishment of forests and tundra of higher latitudes of the Northern Hemisphere in response to the speed of the warming with the release of large

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Page 340 additional quantities of carbon dioxide and methane into the atmosphere (Woodwell and others 1995). Insurance against such an event—a disaster in any appraisal—would argue for intensive efforts now to stabilize, or even to reduce, the current burden of heat-trapping gases in the atmosphere. The effects go far beyond forests to involve virtually every use of land, including agriculture, aggravating well-known problems there by introducing continuous changes in patterns of precipitation and temperature globally. If there is doubt as to the details of the effects, examples of the extremes of impoverishment are abundant. Locally, they appear as the salinized playas of agricultural India that support no agriculture or higher plants or as land eroded to rock by the effects of the combination of intensive agriculture, intensive grazing, and erosion under monsoonal rains, a baking sun, and winds. Government experts in India a few years ago acknowledged that one-third of the land area had been removed from agriculture into impoverishment by those processes and other human uses. Such land has little or no value and is not normally incorporated into national statistics or economic appraisals, but the transition from forest through various forms of agriculture to impoverishment is probably the greatest current land-use transition (Houghton 1997). It is already affecting human food supplies, as summarized so brilliantly over recent decades by Lester Brown (1997). Irrigation from the earliest times, including the civilizations of the Tigris and Euphrates Rivers, has resulted in salinization and the destruction of agricultural productivity and contributed to the demise of successive waves of civilization (Fagan 1999). The process continues, and the effects are accumulating and are all too often irreversible. The Starting Point for a World that Works The causes of biotic impoverishment include virtually any chronic disturbance, from mechanical and physical to chemical and biotic (Woodwell 1990). The effects are similar in all instances. But the question of where to start the measurement of incremental change remains. It is one of the classical questions in ecology, similar to “What is undisturbed?” and “What is climax?” The analysis is useful, but a definitive answer is hardly necessary. Our interest is pragmatic, immediate: we might identify it as the “integrity of biotic function”, thereby setting forth a new goal, whose identification, measurement, and defense become major challenges to science. In so doing, we acknowledge that we know more about the conditions necessary to keep biotic functions substantially intact than we know about the functions themselves. And it is possible that we will know how to tell in a simple, comprehensive way the extent to which we are successful in protecting details of the human habitat. Most of all we need a simple, quantitative basis for appraising increments of impoverishment. Measurements of Impoverishment The most systematic approach to definition, where the degree of disturbance could be measured directly and objectively, has come from experimental studies

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Page 341 of systematic disturbance. One of the most revealing studies involved the effects of chronic exposure to ionizing radiation on a late successional oak-pine forest in central Long Island, New York (Woodwell and Houghton 1990). In that instance, perhaps surprisingly, a virtually perfect physiognomic gradient in size and structural complexity was produced in both the residual community and the successional community that developed later. The most sensitive species was the pine Pinus rigida, which was removed from the intact oak-pine forest at exposures that were low enough to have little or no effect on the oaks or other species. At slightly higher exposures, the oaks, with the exception of the scrub oak (Quercus ilicifolia), were eliminated. The scrub oak, a high shrub, was eliminated at slightly lower exposures than the shrub cover of Vacciniaceae. Within the shrubs, the taller-statured huckleberry (Vaccinium baccata) was more sensitive than the ground-hugging lowbush blueberry (V. pennsylvanicum). The pattern of greater resistance in low-growing, ground-hugging species persisted within the herbaceous plant community and extended to mosses, lichens, and soil fungi. The less the stature, the more resistant to disturbance. The response left certain mosses and lichens to the inner zones where the radiation exposures were higher and certain soil fungi to the innermost zone from which even the most resistant lichens were excluded. The gradient was spectacular and obvious, although there was no basis in earlier studies for the assumption that chronic exposure to ionizing radiation would produce anything approaching a systematic community-level response. The results, however, were startling in their similarity to familiar gradients of structure in vegetation produced by gradients of stress elsewhere, including chronic disturbance. The immediately obvious parallel was with the transition from forest to tundra, which is compressed on mountains in New England to a few thousand feet of elevation and involves some of the same species and most of the same genera. The same pattern of structural change emerged from later studies of gradients of pollution downwind of smelters (Woodwell and Houghton 1990). Again, the list of species emerges as the most informative data on the status of the community. If we use the experience gleaned from those gradients, we can establish a scale against which to test other transitions and on which to hang new data as they accumulate. I have pooled my own experience with the effects of ionizing radiation and other chronic disturbances, such as pollution from smelters, with F.H. Bormann's (1990) experience and observations of the effects of air pollution, including acid rain, to prepare a tabular scale showing the steps in impoverishment of forests (table 1). Bormann came to the conclusion that most of the forests of eastern North America are being affected now by air pollution in various forms and that the effects include not only a reduction in the growth of trees, but also an increase in mortality over large areas. These transitions are in the range of stages IIB, the open-canopy stage, and IIIA-3, the herb stage of treeless savanna, in the classification of damage outlined in table 1. There is little question that the death of red spruce (Picea rubens) on the western slopes of the Appalachians is due to acid rain and air pollution. Succession is under way (the second sorting), and the impoverishment has not yet progressed to the cryptogam or erosion stage, but

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Page 342 TABLE 1 Stages of improverishment of forests under stress Stages of Impoverishment Disturbance Effect on Structure Effect on Function 0: Intact forest None None None I: Stressed forest Low-intermittent Below threshold of detection May serve as sink for pollutant or as corrective influence for other disturbance IIA: Symptomatic stress (species) Chronic Effects on sensitive species conspicuous; selection of resistant genotypes Changes in chemistry of environment detectable in plants, soil, groundwater, streams IIB: Open-canopy stage Intensified chronic Sensitive species eliminated; effects on more resistant species obvious; first sorting conspicuous in thinning of tree canopy Pollution accumulating as chemical changes in environment; evapotranspiration affected; light reaches ground cover; warming of soil; photosynthesis and respiration affected; primary productivity reduced IIIA: Savanna stages of impoverishment A1: High shrubs A2: Low shrubs A3: Herb stage A4: Cryptogam stage Severe chronic First sorting is severe with loss of tree canopy, forest is treeless savanna with high shrubs surviving, patches reduced to low shrubs and ground cover; signs of second sorting as succession of hardy, small-bodied, rapid reproducers among plants and animals proceeds Energy budget clearly shifted to ground surface heating, evapotranspiration affected to point where groundwater increased; runoff increased; nutrient budgets affected and water quality declines with increases in nitrogen, organic matter, and silt IIIB: Erosion stage Long-continued severe chronic Landscape conspicuously dysfunctional: Haiti, Madagascar; no forests; no ground cover over much of land; erosion conspicuous Runoff is immediate through gullies and new channels; rivers filled with sediment; water flows massive, sudden, erratic, and not restricted to well-defined courses; slopes eroding; soil temperature vulnerable to extremes; agriculture tenuous Source: Modified from Bormann (1990).

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Page 343 continued chronic disturbance in those zones has the potential for producing these stages as well. Similar effects are now accumulating in the much more diverse mixed mesophytic forests of the Appalachian plateau to the west (Little 1995). The region would be described in the scale of table 1 as now in stage IIB, the open-canopy stage. Bormann (1990) also reported the results of research with special chambers designed to measure the growth of trees fed with ambient air and with air treated only by filtration through charcoal. The experiment was carried out in eastern New York in the Hudson Valley and showed that the filtering increased the growth ofpopulus saplings by 15–20%. The implication is that in rural New York in a region that probably has air similar to much of the rest of eastern North America, there is an air-caused inhibition of growth of around 15–20% that does not produce conspicuous symptoms of damage to leaves or other plant parts. The implications are profound: a 15–20% reduction in the amount of energy fixed by forests over very large areas. Similar studies of agricultural crops have shown similar inhibition of growth (Heck and others 1982). The reduction in total energy available to support life in this region is prodigious. By this criterion, the forests of eastern North America, presumably over large areas, are in the stages described in table 1 as I, stressed, and IIA, symptomatic stress. A somewhat different series of changes in Alaskan forests is being reported by Juday (1997) and Stevens (1997) in response to the warming of Alaska as permafrost melts and destroys roads and as insect pests of forest trees appear and linger in places heretofore protected by climate. The process has long been expected and can only be amplified as the warming proceeds (Univ. of Alaska 1983). One of the greatest natural tragedies of the century occurred in the tropical moist forests of the Amazon Basin and Kalimantan, the southern two-thirds of the island of Borneo, in 1997–1998. Both regions suffered from an unprecedented drought as a result of the strongest El Niño yet experienced. The El Niño involves a warming of the surface waters of the central and eastern Pacific and global climatic changes that include the severe droughts in the normally moist regions of the southwest Pacific and central South America. Both regions have forests that are being heavily cut, opening the forests to further drying and susceptibility to fires. Both regions are also being settled by governmental programs that open the land to those displaced from industrialized agriculture elsewhere or from overpopulated urban areas. Sources of ignition are abundant, and thousands of acres burned in 1997–1998, covering both regions with smoke so dense that breathing was difficult and airports were closed for days to weeks at a time. A major airplane crash and a collision of ships were attributed to the smoke from Kalimantan, which was dense from Celebes to Singapore. The effect was the substantial destruction of the forests in both places, well within the range of stage IIIA, the savanna stage, in our scale, probably reaching IIIA3, the herb stage of treeless savanna, in extensive areas. Coastal marine waters are subject to similar impoverishment, although the changes are less conspicuous.

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Page 344 The Public Interest in a Full World: Human Rights Require Definition by Science Recognition that the continuation of current trends in human use of the earth is leading to progressive biotic impoverishment raises basic questions of the role of governments and the recognition and protection of human rights. Again, a focus on the biophysical aspects helps to clarify the social, economic, and political objectives. If the biophysical objective becomes the protection of biotic functions in maintaining the global and local environment, we should have little difficulty in defining the qualities of air, water, and land required to protect those functions. The biota will run itself and perform the functions without human guidance, but the conditions under which the biota can run itself without chronic disruption and systemic impoverishment must be defined and maintained. Success requires that the public recognize an overwhelming human interest in the protection of the biosphere as the only human habitat. The challenges to science are large: What does it take to keep the biosphere functioning with substantial stability decade by decade when human populations are increasing and human effectiveness in capturing resources for human use increases daily? How much forest does it take to defend the public's interests in a stable and wholesome landscape, in a stable global carbon budget, in water flows that support the diversity of resources that have evolved over time in each region, and in water quality that is also consistent with stability of the landscape? Such questions challenge virtually all conventional approaches to the environment and to economics and government, but they are scientific and technical issues first and political and economic issues only secondarily. They are, however, the focus of increasing interest in basic human rights in a democracy, as outlined in detail recently for forests by Ann Hooker (1994) in a discussion of the public's interests in forests. The answers will address the need for defining how land and water are to be used in this world of intensified demands. Answers will involve zoning of land and water in a pattern already becoming clear as attempts are made to preserve coastal fisheries in the United States. The establishment of the system of “marine sanctuaries” ringing the nation offers one of the most progressive steps in acknowledging the absolute need for defining the steps required to keep biotic resources functioning and available in the long term. The program is embryonic and only feebly supported by the public and by government, but it is an essential step that requires intensive scientific support now to determine what will work in restoring the coastal zone. Much is known, but much remains to be learned, especially at the regional level in determining how to provide for both the protection of the zone and its use in the production of indigenous fisheries. A similar challenge exists on the land starting from both the bottom and the top. The global challenge is conspicuous as climatic disruption at the moment. But the global challenge is also in restoration of normalcy in the global cycles of carbon, nitrogen, and sulfur, for example. The local challenge might be conspicuous in the need for restoring whole landscapes in Haiti; India; West Africa; Madagascar; Sudbury, Ontario; and Krasnoyarsk, Siberia. But it, too, is global in that

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Page 345 Figure 1 Continuum of biotic impoverishment as appraised by systemic reduction in primary productivity. Assumption is made that continuum is linear. It might deviate from linearity in many circumstances where structure of vegetation changes discontinuously under chronic disturbance. no corner of the earth is unaffected by human disruptions that are having biotic consequences and causing increments of erosion measurable on the scalar system of table 1, shown graphically in figure 1. The stage is set for a rejuvenation of science in definition and defense of the broad public interest in the preservation of a habitable earth. It should come not through an endangered species act or an emphasis on an inchoate interest in biodiversity, but through emphasis on the preservation of the biotic functions locally that keep the water clean, the air clean, and the landscape intact. References Bormann FH. 1990. Air pollution and temperate forests: creeping degradation. In: Woodwell GM (ed). The earth in transition: patterns and processes of biotic impoverishment. New York NY: Cambridge Univ Pr. p 25–44. Brown LR. 1995. Nature's limits. In: State of the world 1995. Washington DC: The Worldwatch Inst. p 14. Brown LR. 1997. The agricultural link: how environmental deterioration could disrupt economic progress. Worldwatch Paper No 136 (August): 73.

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Page 400 in Kyoto in December 1997 to create a framework to trade carbon-emission credits among industrial nations. Knowledge markets and environmental markets are different from traditional markets in that they trade what I call privately produced public goods rather than private goods. Private goods—such as apples and machines—are chosen by each trader independently from each other and are “rival” in consumption. Not so with knowledge (Shulman 1999) and environmental goods: the carbon concentration in the planet's atmosphere is the same for all, and knowledge can be shared without losing it. Trading knowledge and environmental “rights to use” could lead to the most important markets of the future. The trading rights to use knowledge and environmental resources are key trends in the world economy; these trends lead the transformation that I call the knowledge revolution™ (Chichilnisky 1997a,b,c, 1998; Shulman 1999). Focusing on those new markets, I analyze here the introduction of new institutions and the policies that can lead the transformation of industrial society into a sustainable knowledge-based society. I propose the creation of a new type of economic organization, which involves markets that trade a mixture of private and public goods to reach efficiency. The new markets require new regimes of property rights that are proposed here (Chichilnisky 1997a,b,c, 1998). They carry the seed of a human-oriented society that by its own functioning encourages the creation and diffusion of knowledge and a sustainable and equitable better use of the world's natural resources. Ecology and the Knowledge Revolution A major challenge is to find practical paths for sustainable development. This requires reorienting consumption patterns and the use of natural resources in ways that improve the quality of human life while living within the carrying capacity of supporting ecosystems. It will require building economic systems in which the basic needs of people are satisfied across the world, while protecting resources and ecosystems so as not to deprive the people of the future from satisfying their own needs. That is the definition of sustainability adopted by the Brundtland report, and it is anchored in the concept of development based on the satisfaction of “basic needs,” a concept that was introduced and developed empirically in Chichilnisky 1997a, b. Sustainable development has also been explored in Caring for the Earth, a joint publication of The World Conservation Union, UN Environment Programme and the World Wildlife Fund. It requires building a future in which humans live in harmony with nature. We are far from that goal; indeed, in many ways, the world economy is moving in the opposite direction. Just as the environmental problems generated by industrial society are becoming a threat to human welfare, industrial society is in the process of transforming itself. The rapid pace of the change has led me to call it a revolution. The change is centered in the use of knowledge, so I call it the knowledge revolution. What characterizes this revolution? The question is best answered in a historical context, by contrasting the current situation with the agricultural and the industrial revolutions, two landmarks

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Page 401 in social evolution. Neither of the two previous revolutions is complete. Across the world, we find today preagricultural societies populated by nomadic hunters and gatherers, and most of the developing world is still working its way through the industrial revolution. Nevertheless, in many societies, knowledge is becoming a leading indicator of change. Knowledge means the ability to choose wisely what to produce and how to produce it. That ability is becoming the most important input of production and the most important determinant of wealth and economic progress. It resides mostly in human brains rather than in physical entities, such as machines or land. It is worth pointing out that the important input is knowledge rather than information. That difference distinguishes between the computer industry, which is based on information technology, from other sectors—such as telecommunication, biotechnology, and financial sectors—that involve knowledge other than computers. Knowledge is key to sustainability. Indeed, the value of biodiversity resides mostly in its knowledge content, according to such ecologists as EO Wilson and Tom Lovejoy. In a nutshell, knowledge is the content, and information is the medium. The content (knowledge) is driving change, and this change is facilitated by the medium (information). Information technology is the fuel for knowledge sectors because it performs the important role of allowing the human brain to expand its limits in the production, organization, and communication of knowledge. The most important input of production today is not information technology itself; it is knowledge (Chichilnisky 1997a,b,c, 1998; Shulman 1999). Characterizing the Knowledge Revolution We may characterize the knowledge revolution as a period of rapid transition at the end of which knowledge itself becomes the most important input of production, the most important factor of economic progress and wealth. For example, the knowledge content of biodiversity becomes a key input for improving public health and human welfare, and, as pointed out above, it is identified as a crucial source of the economic value of biodiversity. In contrast the most important actual inputs of production in prior revolutions were land (in the agricultural revolution) and machines (in the industrial revolution), inputs that became better used because of new knowledge. (“Capital,” in the sense of economic value, shows the same trend: it was associated mostly with land holdings in the agricultural society, with machinery in the industrial society, and with ideas in the knowledge society.) Knowledge differs fundamentally from land and machines in that it is not rival in consumption, so the knowledge revolution is based on a radically different type of input of production. Property rights to inputs of production matter a great deal: for example, property rights to industrial capital determine the difference between socialism and capitalism and have led to global strife in most of this century. Property rights to knowledge are now becoming equally important (Shulman 1999). The knowledge revolution is already taking place. One indication of that is that the value of corporations in the stock exchanges of the world is increasingly measured according to their knowledge assets—such as discoveries, patents, brand

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Page 402 names, and innovative products—rather than their capital base or physical assets. Knowledge-related assets (such as patents) are increasingly regarded as the most important source of economic progress in a corporation and of its value. At the level of the economy as a whole, knowledge of mathematics and science has become a good predictor of national economic progress across the world. In this period of change, the United States leads the pack (Chichilinsky 1997a). Today, more Americans make semiconductors than construction machinery. The telecommunication industry in the United States and Canada employs more people than the automobile and automobile-parts industries combined. The US health and medical “industry” has become larger than its defense industry and larger than its oil refining, aircraft, automobiles, automobile-parts, logging, steel, and shipping industries put together. More Americans work in biotechnology than in the machine-tools industry. Most US jobs in the last 20 years were generated in smaller, knowledge-intensive firms driven by risk capital. One-third of US growth is accounted for by the knowledge sectors; thus, knowledge is an increasingly important determinant of economic progress. The knowledge sectors of the US economy already grow about twice as fast as the rest of the economy and therefore account for most of the dynamics of economic growth (Chichilinsky 1997a). That is despite the fact that current systems of accounting undervalue the contributions of electronics, which are extraordinarily productive and therefore offer rapidly lowering costs for their products. In a nutshell, knowledge products in the United States are rapidly becoming the most important input of production, source of value, and economic progress. Development of knowledge sectors is slower in Europe than in the United States because Europe's financial markets and property-rights systems are not as flexible, well developed, and regulated and this inhibits the creation, development, and commercialization of knowledge through new risk venture corporations. Knowledge sectors have lower consumption of resources and less ecological impact than the rest, so they could decrease environmental damage once they become dominant in the economy (Chichilinsky 1997a). That is partly because of our new knowledge about the environmental consequences (costs) of our economic behavior. The question is whether the pace and scope of this process of change will foster a sustainable society on a time scale that matters. It is important to encourage and accelerate the transition in the right direction. The economic transformation depends on, among other things, the evolution of the new markets for knowledge and for environmental assets. These require special analysis because, as already mentioned, knowledge and environmental assets are privately produced public goods and lead to new types of markets with new challenges and new opportunities for action. A Service Economy It is important to differentiate the knowledge revolution from the so-called service economy, which used to be thought of as the latest stage of the industrial society. A service economy is characterized by the production of services more than goods, and it is similar to a knowledge economy in that knowledge sectors

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Page 403 often involve services (such as finance). The inevitable concern about the service economy is that it could lead mostly to service-oriented labor, such as the labor used in the food services or in bank processing, which requires little skill and achieves lower wages. Services now make up the largest part of advanced industrial economies, but the analogy ends there. A difference between the service economy and the knowledge society is that in the latter the typical worker is highly skilled and generally well paid. Furthermore, workers' knowledge resides mostly in their own brains and life experiences rather than in the machines that complement labor. Therefore, the knowledge economy could result, with proper institutions, in a society that is more human-oriented than the industrial or the service society. Such a society would involve more human connection and therefore would have different values, being more sensitive to others' needs and the effects of our actions on them. Knowledge as a Privately Produced Public Good As knowledge itself becomes the most important input to production, economic behavior changes because knowledge is a special type of good. It is called a public good by economists, not because it is produced by governments, but because, as already pointed out, it is not “rival” in consumption. This means that we can share knowledge without losing it; this is a physical property of knowledge, not an economic property, and it is independent of the organization of society. However, the economic rules governing the use of knowledge—for example, whether patents can be used to restrict its use—can have a major impact on human welfare and organization. Knowledge is also different from conventional public goods of the type that economists have studied for many years, such as law and order or defense, which are supplied by governments in a centralized fashion. What is unique about knowledge among public goods is that it is typically supplied by private individuals who are its creators. At the level of production, therefore, knowledge is like any other private good: expensive to produce, and produced from private rival resources (human time) that often cannot be used simultaneously for other purposes. Producing knowledge requires economic incentives similar to those for producing any other private good. A Vision of the Knowledge Society Following the knowledge revolution, a new society could well develop that is centered in human creativity and diversity and that uses information technology rather than fossil fuels to power economic growth. The vision is a human-centered society that is innovative with respect to knowledge and at the same time conservative in its use of natural resources. The consumption of resources might not be as voracious as that in the industrial society and could be better distributed across societies and across the globe. The knowledge society might achieve economic progress that is harmonious with nature. That vision is only a possibility at present. Without developing the right

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Page 404 institutions and incentives, it might never be realized, and a historical opportunity would be lost; we need institutions to bridge the gap between a grim present and a bright and positive future. The rest of this paper addresses this issue. The Paradox of Knowledge To produce new knowledge, creators need economic incentives. This could involve restricting the use of knowledge by others. Patents on new discoveries work in this fashion: by restricting others' use of knowledge. That creates a problem: any restriction in the sharing of knowledge is inefficient because knowledge can be shared at no cost and its sharing can make others better off. However, without some restrictions there might be no incentive to create new knowledge. I call this the paradox of knowledge; resolving this is at the heart of the success of the knowledge society, of its ability to bring human development for many and not only a wealthy few. A New Property-Rights Regime New regimes for property rights are needed to deal simultaneously with the need to share the use of knowledge for efficiency, and the need to preserve private incentives for production (Shulman 1999). I propose complementing patents with a system of compulsory and negotiable licenses that are traded competitively in the market along with all other goods in the economy, and which are offered in prederential terms to lower income groups. In this new scheme, the right to use knowledge is unrestricted, and by law everyone should have access to it. However, users must pay the creator each time they use the knowledge. Trading of the licenses competitively in markets ensures that the creators of knowledge are compensated for their labor in a way that reflects the demand for their products and therefore their usefulness for society. Furthermore, the prices paid for the use of licenses are uniform and determined by competitive markets. This new regime differs fundamentally from the current system of patents in that, in principle, patents can restrict the use of knowledge—licenses related to patents can be negotiated, but they do not have to be. Today owners of patents are legally entitled not to negotiate licenses, and thus in effect to create a monopoly during the patents' life (Shulman 1999). Furthermore, even if they are traded, there is no requirement that the market for patents be competitive. By contrast, no restriction in the use of knowledge is allowed in the system I propose (Chichilnisky 1997a,b,c, 1998). However, a key issue is the distribution, use, and applicability of the property rights for licenses. It is clear that a system of licenses on knowledge products (such as operating systems for software, biological information, and how-to-do-it systems) could preserve or even worsen today's uneven distribution of wealth in the economy, because the knowledge economy has a built-in incentive for the creation of monopolies. Indeed, any knowledge-based corporation is a “natural monopoly,” that is, the cost of duplicating knowledge products (such as software) is very small, so the larger the firm, the lower its costs. That is an extreme case of “increasing returns

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Page 405 to scale,” wherein larger firms have an advantage over their smaller competitors and can deter entry by newer and smaller competitors. Such natural monopolies are characteristic of the knowledge society. How to avoid their effects in concentrating welfare in the hands of a very few? The system of property rights proposed here takes into account those possibilities. It establishes how the distribution of licenses in competitive markets is crucial in achieving efficient solutions. It shows that markets in knowledge operate differently from the standard markets because knowledge is a privately produced public good. The solution proposed here is a distribution of property rights through licenses that is negatively correlated with the property rights of private goods. How will such a system of property rights become accepted? There is a parallel with the introduction of laws to ensure fair trade, to which natural monopolies have offered much resistance, but which were eventually adopted by society as a whole (Shulman 1999). There are substantial economic incentives for corporations to accept fair trading and the system of property rights that I propose, although it is clear that more economic thinking and business education are needed before acceptance becomes widespread. Producers that benefit from increasing returns to scale could benefit from a system of licenses in which the lower-income segments of the population are given proportionately more rights to use knowledge than the rest. This would expand the market for their products and thus favor them. Consider as an example the case of subsidized worker-training schemes. Because knowledge is so important for the productivity of society as a whole and produces positive “externalities” on all producers, there is an incentive to develop a skilled pool of workers. Corporations know that skilled workers are essential to the success of knowledge industries. To reach an efficient market solution, namely one that cannot be improved so as to make everyone better off, lower-income traders (individuals or nations) should be assigned a larger endowment of property rights in the use of knowledge (Chichilnisky 1997a,b,c, 1998). In practice, a larger amount of licenses to use knowledge are assigned to such lower-income countries or groups. The regime that I propose is new but realistic. Similar systems are already in place in most industrial societies within educational systems. For example, school subsidies offer lower-income groups preferential prices in educational services. The US federal government auctions off the use of airwaves in such a way that members of minority groups and women are given substantial discounts (in some cases, of 40%) when they participate in those auctions. In the United States, Microsoft has introduced licensing regimens for some of its products that benefit disproportionately the lower-income groups. More examples of this nature can be found in Shulman (1999), who also advocates compulsory licenses without however offering an economic analysis of distributional issues or efficiency. Licenses: We Make it, We Take it Back The system of property rights proposed here, although unique in its economic formulation, is reminiscent of a development that is already taking place in the

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Page 406 corporate world, a development that is also connected with environmental issues that have a public-good aspect: the disposal of materials involved in heavy industrial products, such as vehicles and electronic equipment. Leasing vehicles and electronic equipment, a thriving business, hardly existed 20 years ago. One of the largest packaging companies in the world, Sonoco Products Co., started taking its used products off customers' hands after CEO Charles Coker made a pledge in 1990: “We make it, we take it back.” The policy has already been adopted by the car industry in Germany, where, because of environmental concerns, car manufacturers are responsible for disposing of vehicles that customers return at the end of their useful life. Another example is in the floor-covering industry: Ray Anderson, CEO of Atlanta-based Interface, the largest maker of commercial carpeting, has set up as a goal to create zero waste while making a healthy profit, and the company takes back its products when they have been used to recycle them. What all of these examples have in common is that they perceive the businesses' mission to be the sale of services, not products. For example, selling viewing services rather than television sets, selling transportation services rather than vehicles, and selling the comfort and visual services that carpets provide rather than the carpets themselves. Licensing gives the producers an incentive to minimize waste and environmental damage—for example, the waste produced by wrapping or by defunct car bodies—because they will be responsible for them. The businesspeople see licensing services as the way to the future, particularly when consumers must pay for the disposal of industrial waste. Implicit in the new system of property rights is the idea of licensing the use of services rather than owning the products that deliver the services. The analogy with licensing is therefore clear. Knowledge, as we saw above, has much in common with environmental assets: it is a privately produced public good. Knowledge products have been licensed for many years, although case by case and without securing the competitiveness of the market for licenses and the distribution of property rights that would ensure efficient outcomes. In this sense, the new developments in industry reported here move in the same direction as the system of property rights involving licenses. The new system of property rights that is proposed here can be thought of as an improvement in, an institutionalization of, and an economic formalization of licensing and leasing systems that have recently emerged in advanced industrial economies. A Property-Rights Regime for Biodiversity The Convention on Biodiversity faces a controversial issue with respect to property rights to the knowledge contained in biodiversity samples obtained from developing nations. The pharmaceutical industry faces difficult ethical and business issues on how to involve and compensate developing countries and how to price newly discovered drugs on which much R&D money has been spent but that should be available as widely as possible (such as newly found AIDS medication). The regime suggested above can deal with those issues because it ensures the

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Page 407 widest possible use of knowledge while providing compensation for the discoverer and developer. In essence, patents would be replaced by long-lived compulsory licenses on the use of the implicit knowledge that would be traded in competitive markets. This regime would expand maximally the use of the products without depriving the creator of due rewards. Initial fixed costs could be recovered from higher-income groups through the appropriate use of initial allocations that favor low-income groups. Human Impacts of Property Rights to Knowledge. The rules that govern the use of knowledge in society are important because they can lead to threats to as well as opportunities for human development. These rules have an effect both directly and through changes in the patterns of consumption of goods and services. They can determine the impact of human societies on the environment and on inequalities across the world economy. The way we use and distribute knowledge casts a very long shadow on human societies. A historical comparison helps to explain the process. In agricultural societies, the way humans organized the ownership of land, which was the most important input to production, led to such social systems as feudalism. Ownership of land had a major impact on human welfare and on economic progress. Similarly, in industrial societies, the way humans organize the use of capital, the most important input of production, led to different social systems, such as socialism and capitalism. Indeed, those two systems are defined by their rules on ownership of capital: In socialism, ownership is in the hands of the governments or other public institutions; and in capitalism, capital is in private hands. Property rights to capital have mattered a great deal and have even led to global strife in most of this century. Because capital is the most important input of production in industrial society, it is clear that property rights to capital had an enormous impact on the organization of society, on economic progress, and on people's welfare. Similarly, in the knowledge society, the way humans organize the use of knowledge, its most important input to production, will determine human welfare and economic progress across the world. Human institutions that regulate the use of knowledge, such as through property rights and markets for knowledge, will become increasingly important. As we saw, knowledge is a different type of commodity from land or capital: it is a privately produced public good. Markets with public goods—and other economic institutions, such as property rights to public goods—are still open to definition and require much economic analysis. Markets themselves will operate differently in the knowledge economy because the nature of the goods traded will be different. There will be new challenges and new opportunities for economic thinking and organization.

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Page 408 The Economic Impact of Knowledge-Intensive vs. Resource-Intensive Growth To focus our thoughts, it is useful to distinguish between two patterns of economic growth, two extreme cases between which is a spectrum of possibilities: economic development that is knowledge-intensive and economic development that is resource-intensive. The former means achieving more human welfare with less material input; the latter means achieving more production through more material use. These two categories were introduced in Chichilnisky (1995a, 1994b). There are excellent historical examples of the two patterns of development and of the differences they induce in economic growth. East Asian nations approximate the knowledge-intensive paradigm, whereas Latin American and African countries fit well the pattern of resource-intensive growth. On the whole, knowledge-intensive development strategies succeeded, and resource-intensive development patterns did not. I studied the historical patterns, focusing on East Asian nations that are now called the Asian Tigers (including Japan, Korea, and Taiwan) and later those called the Small Tigers (such as Singapore, Philippines, Hong Kong, and Malaysia) Chichilnisky (1997a). Those nations focused on exports of technology-intensive products, such as consumer electronics and technologically advanced vehicles, and overturned the traditional economic theory of “comparative advantages.” In contrast, Latin America and Africa followed a traditional resource-intensive pattern of development and lost ground. The most dynamic sectors in the world economy today are not resource-intensive; they are knowledge-intensive, such as software and hardware, biotechnology, communication, and financial markets (Chichilnisky 1994b, 1995a, 1997a,b,c, 1998). These sectors are relatively friendly to the environment. They use fewer resources and emit relatively little CO2. Knowledge sectors are the high-growth sectors in most industrialized countries. Some of the most dynamic developing countries are making a swift transition from traditional societies to knowledge-intensive societies. Mexico produces computer chips, India is rapidly becoming an important exporter of software, and Barbados has unveiled a plan to become an information society within a generation (Fidler 1995). Those policies are an extension of the strategies adopted earlier by Hong Kong, the Republic of Korea, Singapore, and Taiwan, which have achieved extraordinary success over the last 20 years by relying not on resource exports, but on knowledge-intensive products, such as consumer electronics. One lesson of history is clear: not to rely on resource exports as the foundation of economic development. Africa and Latin America must update their economic focus. Indeed, the whole world must shift away from resource-intensive economic processes and products. If they do, smaller quantities of minerals and other environmental resources will be extracted, and their prices will rise. That is as it should be because today's low resource prices are a symptom of overproduction and inevitably lead to overconsumption. Not surprisingly, from an environmental perspective one arrives at exactly the same answer: higher resource prices are needed to curtail consumption. Producers will sell less, but at higher prices. That is not to say that everyone will gain in

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Page 409 the process. If the world's demand for petroleum drops, most petroleum producers will lose unless they have diversified into other products that involve less use of resources and higher value. Most international oil companies are investigating this strategy. Indeed, British Petroleum and Shell are already following such policies. Monsanto is doing the same within the chemical industry. The main point is that nations do not develop on the basis of resource exports. At the end of the day, development can make all better off. The trend is inevitable, and the sooner one makes the transition to the knowledge revolution, the better. The data and a conceptual understanding of how markets operate lead to the same conclusion. Economic development cannot mean, as in the industrial society, doing more with more. It means achieving more progress with less use of resources. People-Centered Development: Opportunities and Threats The knowledge revolution could develop in different ways, depending on how our institutions and policies unfold. As already explained, knowledge has the capacity to amplify current discrepancies in wealth because knowledge sectors can lead to natural monopolies such as those due to the adoption of operating systems (Microsoft's Windows is a case in point) or other standards. Knowledge sectors could amplify the differences in wealth between the North and the South. If that occurs, the low prices of resources from developing countries will persist, because they result in part from the necessity to export at low prices in a difficult international market climate. It has been shown that with current institutions of property rights, anything that leads to more poverty will lead to increased resource exports from developing countries (Chichilnisky 1994a). However, knowledge sectors will flourish in nations that have skilled labor. Several developing nations are or soon could be in that position; examples are the Caribbean area and Southeast Asia and many areas in Latin America (Harris 1994). The main issues here are • abandonment of the resource-intensive development patterns that those nations have followed for the last 50 years, with the support and encouragement of the Bretton Woods institutions, such as the World Bank and the International Monetary Fund; and • establishment of the institutions (property rights and financial markets) that could lead them to overcome the mirage of resources as a “comparative advantage,” help avoid the heavy stages of industrialization, and move directly (“leapfrog”) to the knowledge society. Heavy accumulation of capital (financial or physical) is not needed for most knowledge sectors. Indeed, most new technologies were developed in small firms within the United States (the proverbial “garages” in Silicon Valley), and software production in developing nations is labor-intensive and requires relatively little

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Page 410 capital. Bangalore, a typical example, became in 10 years one of the world's most active exporters of software; it now exports US$2 billion worth per year. What is needed is good managerial ability and highly skilled labor of the type that does not require expensive machinery or heavy capital investment in plants. References Brundtland GH. 1987. The UN world commission on environment and development. Oxford UK: Oxford Univ Pr. Chichilnisky G. 1993a. The abatement of CO2 emission in industrial and developing countries. OECD/IEA conferences on the economics of climate change, published in OECD: The Economics of Climate Change (ed. Jones T), Paris France, June 1993, p 159–170. Chichilnisky G. 1994a. North-South trade and the global environment. American Economic Review, Bol. 84, NO. 4, Sept 1994, p 427–434. Chichilnisky G.1994b. Trade regimes and GATT: resource intensive vs. knowledge intensive growth. Economic Systems merged with Journal of International Comparative Economics, special issue on globalization of the world economy, CIDEI conference, Rome Italy, 1994, 20, 1996, p 147–181. Chichilnisky G. 1995a. Strategies for trade liberalization in the Americas, in Trade Liberalization in the Americas. Interamerican Development Bank (IDB) and United Nations Commission for Latin America and the Caribbean (ECLAC), Washington DC. Chichilnisky G. 1995b. Global environmental markets: the case of an international bank for environmental settlements. Proceedings of the Third Annual World Bank Conference of Effective Financing for Environmentally Sustainable Development. World Bank, Washington DC. Oct 6 1995. Chichilnisky G. 1996. Environment and global finance: the case for an international bank for environmental settlements. UNESCO-UNDP paper No. 10, Office of Development Studies (ODS) UNDP, New York, NY, 10017, Sept 1996. Chichilnisky G. 1995–1996. The economic value of the earth's resources. Invited perspective article, Trends in Ecology and Evolution (TREE), 1995–1996, p 135–140. Chichilnisky G. 1996b. The greening of Bretton Woods. Financial Times, section on economics and the environment. 10 January 1996, p 8. Chichilnisky G. 1997a. The knowledge revolution: its impact on consumption patterns and resource use. Human Development Report, United Nations Development Program (UNDP) New York, NY, November 1997. Chichilnisky G. 1997b. Updating property rights for the knowledge revolution. John D and Catherine McArthur Lecture, Program on Multilateralism, Institute for International Studies, Univ of California, Berkeley. Nov 3, 1997. Chichilnisky, G. 1997c. The knowledge revolution. New Economy. London: The Dreydon Pr. p 107–11. Chichilnisky, G. 1998. The knowledge revolution. J Int Trade Eco Devel 7(1):39–54. Fidler S. 1995. An information age society is booming. Financial Times, 26 April 1995. Harris DJ. 1994. Determinants of aggregate export performance of Caribbean countries: a comparative analysis of Trinidad & Tobago. Department of Economics, Stanford Univ, Sept 1994. Shulman S. 1999. We need new ways to own and share knowledge. The Chronicle of Higher Education, Feb 19, 1999, p A64. World Development Report. 1992. Development and the environment. Oxford UK: Oxford Univ Pr. WRI, UNEP, UNDP [World Resources Institute, United Nations Environment Program, United Nations Development Program]. 1995. A guide to the global environment. Oxford UK: Oxford Univ Pr.