Economist Dirk Schoenmaker wants to help solve our time’s most pressing issues. He works with ecologists and others and is prone to sacrificing economists’ most sacred cows: "The fundamental objective of economic thinking has to change."
Do you often feel like a lone voice crying in the wilderness of the financial world?
“I’m a stubborn scientist. We find ourselves at a societal tipping point and science has the power of ideas behind it, which means it can help precipitate that tip. It is clear for all to see that our current economy is so at odds with sustainability that things cannot continue this way. Our role is to change the underlying paradigm, because lasting solutions cannot be built on shaky ground.”
Do you mean a different paradigm to make the economy sustainable?
“Asking how to make the economy more sustainable is the wrong question. The right question is: How can the financial sector contribute to solving the climate crisis. The difference between the two questions is significant. Economists need to embrace the inescapable fact that our planet has boundaries. The fundamental objective of economic thinking has to change, shifting from financial gains to societal gains. Respecting the planet’s boundaries with respect to climate and biodiversity is a key prerequisite for this switch, which means stepping outside your comfort zone - which people in finance are often loath to do.”
How can we use the economy and the financial sector to get back within planetary limits?
“Climate and the environment should become goals in their own right. Regenerating the environment and halting biodiversity loss must be independent goals. Economists would simply calculate a carbon budget for Schiphol, link it to a carbon price, muddle about with clean aviation fuels and call it a day. But if you make ecology your guiding principle, the answer is clear: fewer flights. It’s a valid line of reasoning that would put the fear of god into the average economist.”
“The market will not give us what we need”
prof.dr. (Dirk) D Schoenmaker
Professor of Banking and Finance
How can we effect change in a market that still leans on fossil fuels and intensive agriculture?
“The market is designed to automatically pursue the highest financial returns, so the market will not give us what we need. Today's neoclassical market philosophy can be traced back to Bentham's utilitarianism: the greatest good for the greatest number. The logical end result is an economy that prioritises maximising financial gains without considering distribution or the environment. I argue for a return of John Rawles' philosophy of justice and fairness, which attributes unencroachable rights to all stakeholders. If society decides that the Paris climate targets are the new norm, companies would not be allowed to violate them, precisely because the rights of all stakeholders need to be considered. And that includes the rights of future generations.”
Specifically, what would this philosophy of justice look like?
“Companies forced to factor in the environmental impact of drilling for gas in the Wadden Sea will think twice before embarking on such a project. Now, companies heap on the pressure just to get permission to drill in vulnerable areas. In our current neoclassical model, loss of biodiversity is an externality. You mess around with some guarantees and invest a little money in biodiversity projects to offset the damage wrought by your business activities. But if you made biodiversity a sine qua non in your business strategy, you would never even apply for that permit, because doing so would necessarily harm nature. To truly advance the climate transition, that’s how you need to think, and I believe that scientists can make that happen.”
As a scientist yourself, how do you strive to advance the transition?
“Science can expedite the transition by having different institutions join forces and approach challenges from a multidisciplinary perspective. We need a different system, and, as an economist, I may not be fully equipped to view ecology as a goal in its own right. Developing a more thorough understanding of other parts of the problem, however, can help, which is why I work closely with Wageningen and Leiden’s Centre for Environmental Studies. You need multidisciplinary knowledge just as much as a multidisciplinary attitude. Ecologists do want to help economists find good solutions, provided that economists do not prioritise the economy over everything else. You have to identify ecology as an end in and of itself, or everything will go belly up.”
More stories like this? Read the LDE Whitepaper on climate and biodiversity (in Dutch)
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Dirk Schoenmaker is Professor of Banking and Finance at the Rotterdam School of Management (RSM) of Erasmus University Rotterdam. His research focusses on sustainability in the financial sector and European financial integration.
The collaboration between Leiden University, TU Delft, and Erasmus University Rotterdam is in the form of a strategic alliance. More about this alliance
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