Environment and Economy

Theodore Demopoulos
Agricultural Bank of Greece

Mrs. President, Your Excellency, Ladies and Gentlemen,
First of all, I would like to thank you for your kindness in inviting me to address this Symposium. I must also congratulate you, Mrs. President, for your initiative in bringing together distinguished people from Greece and Turkey to discuss international cooperation for the protection of our environment, i.e. for the survival of bios (life) on earth.

Economic development and environment .

The intensification of production processes, especially in the post-war period, has been based on accelerated extraction and processing of natural resources in short supply as well as on spatial concentration of economic activities. This has had a gradual deteriorative effect on the environment. type=”a”>

More specifically, intensifying production has meant:

  1. the decumulation of non-renewable natural resources such as coal, oil, natural gas, etc.
  2. the over-consumption of renewable resources, such as forests, soil, water, flora and fauna.
  3. the accumulation of previously useful things and substances (such as plastics, detergents and agrochemicals) which are not easily decomposed after they have been used and remain a non-treatable waste.
  4. the production of large quantities of other wastes, such as exhaust-gases, liquid and solid waste, residues, toxic wastes etc., which over-exceed the assimilative capacity of the natural environment.
  5. the concentration of large-scale infrastructure works (big harbours, motorways, airports etc.) which again mean concentrating activities with pollution effects on specific areas.

Apart from these lasting effects, we have witnessed shocking “environmental accidents” in the last decade. I should like to mention only the 1976 accident at Seveso in Italy, the 1979 accident at Three Mile Island in the United States, the 1984 fatal explosion at Bhopal in India, the 1986 “toxic cloud” over Mexico City and the 1986 Chernobyl disaster. These and other accidents have had several impacts on the environment and the human health, hundreds of kilometers away from where the incidents occurred, and have increased our awareness that the problems are universal and demand universal solutions.

We are coming closer and closed to a dangerous overturn of the ecosystem’s natural balance. Phenomena like the climatic changes such as global warming, drought and ozone depletion constitute crucial threats to our planet.

Over a long period of time, the increase of the average temperature of the planet was an issue under debate. Today, it is a fact. Some of the gases which are being emitted from industrial and agricultural activities, such as carbon dioxide, methane, nitrogen oxide and chloroflurocarbons, have a long life in the atmosphere, trapping part of the solar energy which the earth reflects as heat, thus producing the Greenhouse Effect. If the gas emissions continue at the same rate, by the year 2050, the average temperature of the earth’s surface is predicted to increase by between 1,5 C to 4,5 C and correspondingly, the sea-level will rise by between 30cm to 1.5m.

The rise of the sea-level will result in “producing” 50 million “environmental refugees” and if no drastic measures are enforced, whole islands will gradually disappear.

Thus, the developmental attitude in the last forty uears has had, as an irrevocable end-effect, the increase of entropy in the ecosystem. This is very alarming since our whole economic life feeds on low entropy is a fixed, irrevocably exhaustible and irreplaceable dowry of nature. In order to survive, we must, therefore, urgently revise our notions of economic progress and its cost. We should no longer be interested simply in speed, i.e. in the increase of output per unit of time, but rather, in minimising the true cost, i.e. in the increase of output per unit of increase of entropy in time. The increase of entropy is the real cost of economic progress and it must be minimised. Only this concept of productivity can become the basis of sustainable development. Otherwise, we will not be able to escape from the coming entropy watershed. Those of us who suffocate in big cities like Athens or Ankara or Los Angeles, are each day feeling that we are nearing a lethal entropy watershed!

Is there an escape from this? The answer is yes, if we are wise enough and concentrate on the following: firstly, we have to concentrate on development proper as distinguished from pure growth until now; i.e., we have to concentrate on the innovation of finer sieves for the sifting of low entropy so as to diminish the proportion of it that inevitably slips into waste. We have to renounce pure growth as such which merely means the expansion of the sifting process with outmoded and wasteful sieves. (Georgescu-Roegen: The Entropy Law and Economic Process p. 294). Secondly, we have to concentrate on production which is science and modern technology intensive. We know that in the production of utilities we ultimately need as inputs energy, natural resources and scientific knowledge. Of the three inputs, knowledge is the only factor which is not subject to the Entropy Law, the supreme governing principle of all economic activity. Knowledge is not degraded or depleted by being used. On the contrary, when it is used it is improved, sharpened and enriched! Therefore, to make economic progress really economical in the true sense of the term, i.e. anti-entropic, we must use in the production process more and more knowledge as a direct input and less and less of the other depletable factors. It is, perhaps, appropriate at this place, to say that Japan, which is extremely poor in natural resources and energy, owes its staggering successes to the production of light and small wares, embodying plenty of scientific knowledge and very little of other resources. Thirdly, we have to find humane ways to stop the rapid growth of our requirements. Otherwise, in order to satisfy the increased energy and food requirements, there will be need to expand cultivation to marginal lands while the already cultivated lands would have to be farmed more intensely. Costs of food, energy and clothing with thus rise.

As a result of this forests will shrink, many animal and plant species will be endangered and large areas, especially in xerothermic zones, will be desertified. Finally, we have to change our consumption patterns and reduce the needs in affluent societies. Every increase of needs tends to increase our dependence on fixed outside forces over which we cannot have control and therefore increases our existential fear. Only by a reduction of needs in the affluent countries can we promote a genuine reduction in those tensions which ultimately cause strife and war. (Jeremy Rifkin, Entropy p. 206). Before going over to discuss the technical and economic prerequisites for the application of the new approach, I want to emphasize and drive home the thesis that the meager stock of the earth’s resources (low entropy) constitutes the crucial scarcity. Starting from this brutal fact, we can easily understand that the speedier decumulation of this dowry in the form of low entropy (due to faster population growth and speedier economic growth with outmoded technology), the faster we are literally running out of time. If S is the fixed stock of dowry, r is the average rate at which this dowry of low entropy may be decumulated and the corresponding duration of human species, then S=rxt or t=S/r. The higher is r, with fixed S, the shorter is our time that can sustain life on earth (Georgescu-Roegen. op cit. p.304).

Prerequisites for the application of the new approach .

The application of the new approach to development requires the existence of appropriate technical and economic means.

The technical aspects include the invention of new alternative technologies, “friendly” towards the environment; i.e. materials and energy saving, minimizing waste and the need for its treatment, technology for cheap recycling of materials, biologically-minded cultivation methods, determination of environmental quality indices and systems of monitoring environmental quality.

In parallel, the international community must establish incentives and provide the institutional framework for the diffusion and application of the above technologies.

The economic aspects have to do with several thorny issues for analysts who try to estimate environmental costs. Firstly, we have to estimate the cost to future generations, which are deprived of the resources we use up today for our well-being and which are either not yet born or have no voting rights. We have here a problem of inter-generational equity. The American philosopher Rawls (“A Theory of Justice”) has tried to establish behavioral norms of inter-generational equity. He proposes, quite reasonably, I think, that the present generation, which consumes part of the fixed dowry of low entropy in the form of useful energy and natural resources for its own well-being, must bequeath to the future generation as much production potential as it itself would have liked to inherit from the previous generation.

Secondly, we have the well-known difficulties of traditional cost-benefit analysis, that derive from inadequate methods of measurement, the inapplicability of the exclusion principle and the absence of perfect capital markets; specifically, in a cost-benefit calculus we must: identify and measure in physical units the side effects of economic activities; evaluate i.e. attach value units (weights) to these effects so as to estimate the real costs of growth; determine the appropriate discounting factors (rates of interest) that truly reflect the time preference of individuals in order to make the effects comparable at the present time.

A third problem relates to who is to bear the burden of environmental cost. As Coase showed long ago, (“The Problem of Social Cost” in Journal of Law and Economics) this is a purely equity problem, because, from the efficiency point of view, it is immaterial who bears the external costs that must be added to ordinary production costs to secure the efficient allocation of resources. A fourth problem stems from the inclusion of
environmental cost in production cost; if the added social costs of environmental degradation are included in the prices of the products of the country of origin, while other countries don’t care about these costs, then the international competitiveness is distorted to the detriment of the environmentally-minded country. Therefore, the only sure way to protect the environment, by including the costs of its “decumulation” into the ordinary production costs, is to do it through international cooperation and on the basis of internationally acknowledged and binding norms.


For several decades, banks, including the commercial banks, were guided by Central Authorities and sheltered from competition because it was thought that a possible failure and bankruptcy of a bank would mean great losses of deposits with wider repercussions. Governments effectively directed the resources of the banks to desirable investment, characterized by high social priorities.
Now the whole framework is changing; with the ongoing deregulation and liberalization of banks, they are exposed to severe competition with each other and with other financial intermediaries.
In these competitive conditions, without subsidised interest rates for socially desirable purposes, it is difficult to see how banks, left alone in the pursuit of their own competitive interest, will be able to take environmental considerations in account.
Especially the new type of emerging Universal Bank, thought of as a Supermarket of financial services, applying strict commercial criteria and left alone in the pursuit of its interests, cannot be expected to be moved by environmental considerations.
Only if prices of products that are traded on the market are, as a rule, applying to all producers, overcharged by environmental fees and levies, will it be possible for banks, during the evaluation of activities for credit support, to apply banking criteria and at the same time promote the environmental interests of society.
In order, therefore, to enable the banks to take account of environmental costs in the evaluation of investment projects, we must again establish a unified system for the estimation of these costs and stipulate their universal inclusion in the market prices of products.

World Bank: Development and Environmental Protection

The World Bank seems to be the exception to what was said above about banks. Relying mainly on the contributions of member countries, and on its first-class credit worthiness, the World Bank shows a highly commendable behavior in the protection of the environment.
In 1987, Mr. Conable, the Bank’s President, announced a number of incentives aiming at eliminating hunger and promoting environmental protection through the World Bank. He also announced the establishment of an Environmental Protection Department, in order to support the Bank in its work efforts with regard to policy making and environmental research planning as well as to devise strategic plans, to undertake research on environmental issues and to provide the necessary policies for including environmental criteria in its financing activities. At the same time, four regional technical departments were established in order to control the effects of investment projects, financed by the Bank, on the environment and to develop means for improving resource management.
The World Bank provided the necessary capital and other resources to governments to enable them to:

– assess the risk involved in the development of ecologically sensitive regions

– reduce the rate of desertification in the region south of Sahara in Africa

– study the effects of deforestation in the tropics

– improve the environment around the Mediterranean Sea.

The World Bank supports and supervises a research project concerning the emissions of “Greenhouse Gases”. In September 1989, in cooperation with Japan, the World Bank started a $5 million program on Environmental Assistance. Recently, the Bank’s President announced that there is a significant increase in financial support of programs related to Environment, Population, Energy and Forests and that the World Bank has completely included environmental parameters and criteria in developmental planning procedures. For the following three year period the Bank has scheduled to spend 1.3 billion dollars in promoting environmental programs.

The role of the Agricultural Bank of Greece (ABG) in Environmental Protection .

I will conclude my address to you, ladies and gentlemen, by telling you briefly what ABG has been doing for environmental protection.
The ABG has established two offices working exclusively on environmental protection. One is concerned with activities in the primary sector (established in 1989), while the other is concerned with the secondary sector (established in 1982). They are primarily engaged in consulting rather than research work.
The main activities and responsibilities of the two offices are to:

– examine/evaluate agricultural projects (fisheries, poultry and animal farms, food industries, small enterprises etc.) regarding the fulfillment of environmental protection requirements related to National and Community legislation.

– evaluate the effectiveness of the proposed systems for waste processing before financing the projects.

– consult investors on how to deal with specific problems.

– organize training seminars for people engaged in project appraisal in order to train them in new developments and modern methods of environmental protection.

– cooperate with other relevant governmental bodies on environmental matters (Ministry of Agriculture, Ministry of Public Works, Ministry of Health, etc.)

ABG also finances the organization of conferences related to economic development and environmental protection.
Finally, in 1989, ABG opened a special savings account for “Environmental Protection and the Restoration of the Ecosystem” and deposited 52 million drachmas in its effort to attract and secure the necessary funds for applied research on the implementation of specific measures for the restoration of ecosystems.
I should like to mention the production and distribution of posters by our Bank on the subject of ecological balance and the need for a rational management of nature.
The Agricultural Bank of Greece, ladies and gentlemen, is guided by Xenophon’s saying: “Nature, being a goddess, to those who handle her with care and respect, returns plenty of goods”.


1. Georgescu-Roegen “The Entropy Law and Economic Process”
2. Rifkin, Jeremy “Entropy”
3. Rawls “A Theory of Justice”
4. Coase “The Problem of Social Cost, in the Journal of Law and Economics”



Theodore Demopoulos graduated from the Department of Political Science and Economics of the Law School of Athens University. He studied economics, mathematics and statistics at the University of Stockholm and completed post-graduate studies in economics at the same University. He taught economics from 1970-1980 at the University of Stockholm, Royal Polytechnic School of Stockholm and the Institute of Communications. In 1981, he was appointed special economic advisor to the Alternate Minister of National Economy. As representative of Greece, he served as the President of the high-level committees of the OECD and EEC for the North-South talks. In 1983, he coordinated a team of economists in connection with the formulation of the budget and was responsible for the five-year economic and social development plan for the Ministry of the National Economy. He directed the International Institute of Post-Graduate Agricultural Studies (Mediterranean Agronomic Institute) in Chania under the aegis of the OECD and the Council of Europe, and was appointed governor of the Agricultural Bank of Greece. As Professor at the Bank of Greece Center of Advanced Studies, he organized and taught a series of seminars on specialized subjects in economics and has published a significant number of articles and studies.