Sustainable development

Defining sustainable development

But what does sustainable development mean? The term 'sustainable' is not open to much
dispute: it means 'enduring' and 'lasting' and 'to keep in being'. So, sustainable
development is development that lasts. Development could be narrowly defined in
traditional terms as real GNP per capita, or real consumption per capita. Alternatively, it
could be broadened to include other indicators of development such as education, health
and some measure of the 'quality of life,' including human freedom. One such exercise is
to be found in the United Nations Development Programme's 'Human Development
Index' (HDI) published every year in the Human Development Report.

'Development' is a value word - it refers to whatever it is that someone thinks is 'good' or

to a process that achieves this desirable goal of 'being developed'. Disputes about value
words are notoriously difficult to resolve: what A thinks is good is not necessarily what B
thinks is good. But a fairly non-contentious definition of development would be that it is
a process that raises the average level of wellbeing in the community being referred to.
One might want to supplement this by saying that development should also pay special
attention to the wellbeing of the most disadvantaged in society.

The merits of this definition are, first, that it accords with the intuitive idea that the
meaning of words is to be found through observation of common usage of those words,
and, second, it is consistent with, though not identical to, the most widely used definition
in the report that made the term so popular. That report is the World Commission on
Environment and Development's report in 1987 on north-south relations and the global
environmental problem - the 'Brundtland Commission' (WCED, 1987). There it is stated
that:

'Sustainable development is development that meets the needs of the present without
compromising the ability of future generations to meet their own needs. It contains within
it two key concepts:
• the concept of 'needs', in particular the essential needs of the world's poor, to
which overriding priority should be given, and
• the idea of limitations imposed by the state of technology and social organization
on the environment's ability to meet present and future needs' (WCED, 1987,
p.43).

Typically, only the first sentence of this definition is quoted, giving the impression that
sustainable development is about relationships between generations at different points in
time. The rest of the definition makes it clear that the WCED was just as concerned, if
not more so, about addressing the needs of the current poor.

To make progress, one can propose to define sustainable development as a path of

rising per capita wellbeing without, for the moment, worrying too much about what
it is that constitutes wellbeing. One reason for being fairly relaxed about meanings is
that defining sustainable development is not the same thing as searching for the necessary
and sufficient conditions for achieving it. Once we start to define the conditions, the
argument will be that those conditions are likely to be very similar, if not the same,
regardless of how development is defined. Much of the literature on sustainable
development confuses definitions with the conditions for achieving sustainable
development. Occasionally, there will be blurred edges. Many would cite political
freedom as a necessary characteristic of a 'developed' society, but it could equally well be
treated a s one of the conditions that have to be secured for sustainable development to
take place. The idea that a developed society is necessarily a politically free one is not, in
any event, obvious: one can imagine an autocratic society with high levels of wellbeing.
But because development is a value word it is always open to others to say that 'being
free' is part of what they mean by 'being developed'.

To fix ideas, then, Figure 1 shows three hypothetical development paths. Path A would
be described as 'sustainable' development, path B would be non-sustainable, but path C
would also be sustainable since per capita wellbeing does not decline. Note that the
wellbeing concept is defined in per capita terms: one would hardly define a society where
total wellbeing was rising but average wellbeing was falling as 'developing'. As we see
later, the use of per capita notions of wellbeing turns out to be very important.

A
Well being per capita

Time

Figure 1. Paths of Sustainable and non-Sustainable Development

Weak and Strong Sustainability

Form of Sustainability Requirement

Weak ∆K/∆t > 0 where
K = KM + KN + KH + KS
- requires that capital depreciation on
any form of capital must be at least
offset by capital appreciation on other
forms of capital. There must be
‘reinvestment of rents’. The proceeds of
capital depreciation must not be
consumed. Forms of capital are assumed
to be substitutable at the margin.
Strong – Environmental ∆K/∆t > 0 and
∆KN/∆t > 0
- requires the same rule as weak form
but in addition requires that the stock of
the environmental/natural capital stock
should also not decline. Hence
substitutability between natural capital
stock and man-made capital stock is
assumed to be zero.

Genuine savings and the measure of national income

Can we measure sustainability? One way of doing this is to look at the notion of 'genuine
savings'. Introduced first by Pearce and Atkinson, Sg refers to that level of saving in the
economy over and above the sum of all the capital deprecations in the economy.
Intuitively, is Sg > 0 any nation must be adding to its capital base. If Sg<0 then the nation
is running down its capital stock. As it happens, we cannot tell too much from the value
of Sg at any point in time - we are interested in the entire consumption path, not just one
point on its. What we can say is that if Sg is persistently negative things do not look good
for sustainability. If Sg is persistently positive, then there is a greater chance that the way
the economy is configured is sustainable. The 'right' ingredients for sustainability are
likely to be present.

We can now write out an expression for 'sustainable national income'. We assert that
sustainable NNP = GNP minus depreciation on man-made capital, minus depreciation on
exhaustible resources, plus some (debatable) addition for technological change.
Intuitively, then, we obtain the full expression as follows.

gNNP = GNP – ρKM – k(KN )+ a(KH) + T(?)

where k(KN) is depreciation on KN, and a(KH ) is the appreciation on human capital.
Notice that human capital appreciates because we can identify KH with a stock of
knowledge and this stock will tend to grow through time. This will not be true if
knowledge is destroyed, as it sometimes is, for example, with the loss of indigenous
knowledge through war, displacement of ethnic peoples, failure to maintain traditional
knowledge such as crafts, and so on.

We can decompose k(KN) as follows:

k(KN) = (PNR - cNR)(H-G) + (PNE - cNE)(QNE) + PP(E-D)

The bracketed expression (PNR - cNR) is the price of a renewable resource minus the
marginal cost of harvesting that resource. PNR - cNR is the resource rental on the
renewable resource and is the equivalent of the shadow price of natural resources. (H-G)
is the harvest rate minus the natural growth rate of the renewable resource. If H>G then
the renewable resource is being used unsustainably (the stock is depleting) and this
'excess' harvest, valued at the resource rental, will be debited to NNP.

In the same way, the next expression (PNE - cNE)(QNE) provides the same treatment for an
exhaustible resource. Each unit of the resource extracted (Q) is valued at price minus
marginal cost. We have omitted discoveries. Discoveries should be added as an increment
to wealth (i.e. investment) but that discoveries should be valued at the difference between
the marginal and average costs of exploration. Finally, PP(E-D) introduces pollution. PP is
the 'price' of pollution which is measured by the marginal willingness to pay to avoid
pollution (the marginal damage), E is emissions and D is the natural decay rate of
pollution in its receiving environment. For many pollutants, D will be zero if the pollutant
has no counterpart 'degrader' population (something that helps convert the pollutant into a
harmless substance or a nutrient). We can finally add the value of the environment as an
amenity plus the value of its 'services', call it wA.

Putting all this together:

gNNP* = GNP –ρKM + a(KH) -(PNR - cNR)(H-G) - (PNE - cNE)(QNE) - PP(E-D)+ wA + T

This is the full expression for modified net national product. Genuine savings is then the
whole of expression minus consumption. Note that we have omitted any mention of
social capital. Social capital fits in to the model just like any other capital asset. It has a
value, given by what people are willing to pay to conserve the social fabric. It has a
growth rate, determined by what we invest in expanding social capital and cultural and
social factors, and it has a decay rate, measured perhaps by indicators like crime rates,
family breakdown and so on. As yet, however, no obvious way of measuring KS exists
such that we could put it into a set of modified national accounts.

Population change and sustainable development

The last piece of the sustainable development 'jigsaw' is population change. Since it most
obviously is not constant, rising rapidly in many countries and even falling in regions like
Western Europe, we need to account for population change.

If wealth declines, it follows that the present value of utility or wellbeing also declines,
hence the development path is unsustainable because wealth is being 'eaten into'.
Additions to wealth can be formally identified with genuine savings since, recall, genuine
savings were defined to be all 'true' NNP that is not consumed. Hence continued positive
genuine savings is our criterion for determining whether wealth is increasing and hence
whether the development path is sustainable.

Now re-express these statements in per capita terms. If population is growing faster than
total wealth we have declining wealth per capita. Since wellbeing is determined at the
individual level by per capita wealth, sustainability means that we must have sustained
genuine savings per capita. This is formally equivalent to saying that increments in
wealth per capita must be increasing. It follows that we can write:

dk/dt =d/dt(K/N) = (K/N)*[{(dK/dt)/K} – n]

Here, dk/dt is the growth of capital per head, K is now all capital (not just KM), N is
population, and n is the rate of population growth. Note that dK/dt is genuine savings, the
net addition to wealth.

It is immediately obvious that, whatever the size of wealth per capita (K/N), the last
bracketed expression could easily become negative. It is obviously negative if the rate of
population growth, n, exceeds the rate at which per capita genuine savings increases as a
proportion of per capita wealth. Population growth can be seen to be a potential threat to
sustainable development.