Sustainable Development

Definitional Issues

With the emphasis on looking at human beings in a larger system increasing within academia, one question that arose was whether mankind’s consumption of the Earth’s resources was endangering the possibilities open to future generations (Arrow et al, 2004). This question is the basis of the development of the concept of ‘Sustainable Development.’ The concept has been gaining importance since the 1980s, and became a political buzzword with the United Nations’ 1992 Rio Conference on the Environment.

One of the first and best-known definitions of Sustainable Development is that given by the Brundtland Commission in its World report – Our Common Future (World Commission on Environment and Development, 1987) – which states that Sustainable Development is “development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs.” (as quoted in Hanley et al, 2006) Yet another definition is that given by Geir Asheim in a World Bank publication in 1994: Sustainable Development is “a requirement to our generation to manage the resource base such that the average quality of life we ensure ourselves can potentially be shared by all future generations.” (ibid) These definitions seem to imply the necessity for equity across generations, rather than just within.

While the above gives us an idea of what Sustainable Development is, it doesn’t tell us why we need to worry about future generations. On this count, there are two lines of reasoning. One takes a utilitarian approach, with social welfare encompassing the discounted sum of well-being of all people in society over time. The other is a Kantian approach – that future generations have a moral right to a level of well-being no less than ours.

The next aspect of Sustainable Development is what defines a sustainable development path. Here, again, there are two views. The first is the Outcomes approach where the criterion is that the utility (well-being) of a representative agent in any period be non-declining. The second is the Resources approach, where the focus is on maintaining the means (resources) which are available to society to generate well-being or consumption. This includes all forms of capital – physical, human, natural and social.

The Resources approach also brings us to a central debate within the field – whether these different forms of capital can substitute each other, and if so, to what extent? In other words, can a reduction in natural capital be substituted with an increase in levels of physical or human capital? Stemming from this debate, are two schools of thought within sustainability studies – one that maintains that the different forms of capital are substitutable and the other that maintains that they are not. Sustainability measures and discussions which focus on the former are categorized under Weak Sustainability and those under the latter are Strong Sustainability.

Weak Sustainability, Strong Sustainability, Carrying Capacity

It is economists of the Neo-Classical bent who primarily prescribe the weak sustainability rules. Weak Sustainability requires that the real value of all kinds of capital stock be non-declining. Thus, implicit in this is that the different forms of capital are substitutable, and that as long as losses in natural capital stock can be offset by gains in physical or human capital, development can still be sustainable. Part of this derives from a paper by John Hartwick in 1977, where he showed that, as long as the total stock of capital did not decline over time, non-declining consumption was possible.

However, this view is not without its critics. What Weak Sustainability does not consider is that individuals may derive utility directly from the environment, without viewing it as an input to production; that this would hold only in a closed economy, once trade starts, resource poor countries will need to invest more than richer countries to maintain sustainability; and that this view is not consistent with ecological sustainability, “defined to be the property of ecosystems to maintain their functioning in the presence of external shocks”. (Haley et al, 2006)

Strong Sustainability, on the other hand, is an Ecological Economics view. Here, the different forms of capital are not substitutable and therefore some part of the stock of Natural Capital has to be prevented from declining. This could be either the existing level, or the level consistent with maintaining some critical level (Kn) of natural capital, or some level in between these two. The reason for this is that not all natural resources are substitutable, some are also essential for human survival, and finally, natural systems are often inclined to have hysteresis and tipping points where stocks lost cannot be re-gained.

To ensure strong sustainability, Daly (1990) prescribed certain operational principles for strong sustainability: Renewable resources such as fish, forests and game should be harvested at levels no greater that the population rate of growth; degradable pollutants should be discharged at rates no greater than the ecosystem’s assimilative capacity; cumulative pollutants should be at discharges close to zero. For non-renewable resources, he suggests that the receipts from extraction be divided into an income and investment stream, with the investment stream invested in renewable substitutes and only the income stream being available for consumption.

Another concept that is prominent within ecological economics is that of system resilience, which refers to the ability of the main processes within an ecosystem to remain functional in the presence of exogenous shocks. Maintaining resilience would include maintain biodiversity and since it maintains system functioning over time, it can be viewed as a Sustainable Development strategy.

As we move away from staunch economics views, incorporating more ecological concepts, we come to yet another concept from Ecology – that of Carrying Capacity, which is “a measure of the amount of renewable resources in the environment in units of the number of organisms these resources can support.” (Daily and Ehrlich, 1992) Thus, being a function of characteristics of both, the area and the organism, a larger or richer area, other things constant, will have a higher carrying capacity. Thus, this concept also indicates to us that technological achievements cannot make biophysical carrying capacity infinite.

Issues around Indicators and Assessment of Sustainability

A second set of issues that have emerged in sustainability studies, besides the above of ‘imagining’ or defining sustainability, are that of measuring whether we are sustainable or not. This implies the development of indicators to judge the sustainability of current consumption patterns and resource use. As is obvious, weak and strong sustainability rules demand different indicators, and the debate over definitions of sustainability has inevitably spilled over to the development of indicators for sustainability.

One of the first approaches in this regard, as also the most commonly used, is that of Green GDP, or incorporating environmental inputs in the National Income Accounts of a society. This approach puts a value to environmental inputs which are not priced by market processes (ecosystem services, for instance) and adds them to the value of final goods and services produced within an economy. It also subtracts the depreciation in the stock of natural resources (alternatively, natural capital Kn) from the National Income, to arrive at the level of GDP after accounting for degradation in environmental resources and including the value of unpriced environmental benefits.

A similar approach is to construct the indicator of ‘Genuine Savings’, which assumes the Weak Sustainability criterion that forms of capital are substitutable, and hence compares the investment in the stock of  capital in an economy with the depreciation in all forms of capital. If the Genuine Savings indicator is negative, then one can say that the investment in capital is less than the depreciation of capital, and hence the economy is unsustainable. Subject to data availability, one can also use the Genuine Savings indicator to compare economies over time and with each other – economies with higher Genuine Savings will be more sustainable than the others.

Since Genuine Savings and Green National Income Accounting are indicators of weak sustainability, they have to bear the same set of criticisms as the latter. On the other hand, the creation of indicators for strong sustainability rules as well as the assessments of sustainability have been fraught with difficulties, with the task having proved to be much more difficult than what was earlier thought.

The development of the ecological footprint, however, has helped create an indicator which can be easily understood by people and which can be calculated for individuals as well as economies. The Ecological Footprint, in this approach, is defined as the resource consumption and waste assimilation requirements of a given individual, population or economy in terms of the corresponding land area. Ecological Footprint, being an intuitive concept, has been challenged to be unscientific, and it has been questioned whether all the forms of resource consumption can be turned into a corresponding figure for land-use.

A slightly different approach is the ‘distance to goal’ approach – this approach estimates the adjustment required in the Net National Product to account for the cost of reaching environmental goals – in other words, the amount of spending (or loss in consumption) which a society may have to bear in order to reach certain environmental goals. Based on the specific environmental goal to be achieved, different ‘distance to goal’ approaches can be constructed.

Arrow et. al. (2004) evaluated consumption levels according to two criteria – the discounted present value of the utility stream (using the maximize present value criterion) and the maintenance or improvement of intertemporal social welfare (the sustainability criterion) for a large number of developed and developing countries. Their findings, though revealing, were also somewhat scary. According to the authors, “Several nations are failing to meet a sustainability criterion: their investments in human and manufactured capital are not sufficient to offset the depletion of natural capital” and the “investment problem seems most acute in some of the poorest countries of the world”.

While the uninitiated observer may, at first glance, come to the conclusion that the divide between the strong and the weak sustainability definitions is too large to be bridged, a closer look at the literature reveals that there is increasingly an understanding between the two sides, and the answer seems to lie somewhere in between – some forms of natural capital are substitutable, while others are clearly not. Accordingly, the attention has shifted to find out which forms of natural capital are substitutable (and to what extent) as well the development of hybrid assessments of sustainability – notable among these is Arrow et al (2004) and World Bank (1997).

References:

  1. Hanley, N., J. Shogren, and B. White. Chap. 1 in Environmental Economics in Theory and Practice, Palgrave, London: 2007
  2. Costanza, Robert and Patten, Bernard, C. Defining and Predicting Sustainability. Ecological Economics 15 (1995) 193-196
  3. Daily, Gretchen C. and Ehrlich, Paul R. Population, Sustainability and Earth’s Carrying Capacity. BioScience, Vol. 42, No. 10, pp 761-771
  4. Expanding the Measure of Wealth: Indicators of Environmentally Sustainable Development. World Bank: 1997.
  5. Tietenberg, Thomas. Chapter 5 in Environmental Economics and Policy.
  6. Arrow, Kenneth; Dasgupta, Partha; Goulder, Lawrence; Ehrlich, Paul; Heal, Geoffrey; Levin, Simon; Mäler, Karl-Göran; Schneider, Stephan; Starrett, David; Walker, Brian. Are We Consuming Too Much? The Journal of Economic Perspectives, Vol. 18, No. 3., pp. 147-172.
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