The Economics of Sustainability

Chapter 13

The Economics of Sustainability

Chapter Summary

In this chapter, three alternative conceptual approaches to sustainable development were discussed: the neoclassical or weak sustainability approach; the ecological or strong sustainability approach; and the safe minimum standard (SMS) approach.The elements these three approaches share in common are: (i) the tacit recognition of biophysical limits to economic growth, (ii) the requirement of non-declining capital stock (composed of natural and human-made capital), and (iii) the ‘implicit’ recognition of intergenerational equity.They differ, in large part, by the way natural capital and human-made capital are considered as either substitutes or compliments, and the degree and scope of attention given to intergenerational equity (caring).In an ideal world, the non-declining capital requirement is set at a level that would be adequate to ensure that, at a minimum, future generations will be left no worse off than current generations. This chapter also discusses the specific operational ‘rules’ applicable to each one of the three sustainability approaches, for example, the link of the SMS and the precautionary principle.These operational rules have important policy implications that are discussed in the chapter.

Review and Discussion Questions

What do you think about this so-called ‘new scarcity paradigm’?Do you think this new awareness constitutes a tacit acceptance by mainstream economists of the existence of biophysical limits? Explain.
The most recent wave of the environmental ‘sustainability’ movement is unlike the past movements of its kind in one important respect.This movement actually has an international dimension, that is, the awareness that environmental concerns that stand to threaten the ecological resilience and biotic diversity of the Earth cannot be solved by one nation or a selected group of countries. In this respect, the first formal admission of this idea was manifested by the first United Nations Conference on the Human Environment, held in Stockholm, Sweden, 1972.However, it took another decade of worsening trends in the human environment for the world community to commission a formal study on the subject of ‘sustainability’. This study started in 1982 by a United Nations agency, the World Commission on Environment and Development (WCED).This culminated five years later (1987) in the publication of the Brundtland Commission Report (named after the Chair of the Commission, GroBrundtland, then Norwegian Prime Minster), Our Common Future. In the short history of the sustainability movement, in many respects, this was a watershed year.

Using the above narrative as a background answer the following questions:

a)One outcome of the Brundtland Commission Report has been an attempt to formally define sustainable development (CD) in the following way: ‘development which meets the needs of the present without sacrificing the ability of the future to meet its needs.’What exactly does this definition of CD convey to you? Is it a workable definition, that is, can it be operationalized? Why or why not? [Hint: A careful reading of Section 13.2 may help you answer this question.]

b)Some consider the Brundland Commission Report as being the major catalyst for the much heralded Earth Summit held in Rio de Janeiro, Brazil, 1992. This was the first United Nations conference that attempted to combine the concerns of both the ‘environment’ and ‘development’ with underlying focus on sustainable development. This conference was also a call for actions that are formally summarized by a document known as ‘Agenda 21’—a non-binding action plan provided to world leaders(100 of them attended the conference) with regard to sustainable development.Given what you read in Chapters 9 and 10 (climate change and biodiversity loss), it appears the world leaders have done very little, if anything, to respond to the United Nations plea for serious actions with regard to CD? What do you think are the main stumbling blocks for this continued inaction?Speculate.

On the academic front, the development of ‘general’ rules of sustainability has basically evolved along the same lines as the debates for limits to growth— mainstream economics versus ecological (biophysical) economics. The neoclassical economics variation of sustainability is commonly referred to as ‘weak’ sustainability, and ‘strong’ sustainability is used to describe the ecological economics approach to sustainability.Answer the following questions based on your careful reading of Sections 3.3 and 3.4 (pp. 294–300):

(a)What specific sustainability requirement stipulation prompted the use of the adjectives ‘weak’ and ‘strong’ to differentiate between the economic and the ecological approach to sustainability?Be specific. [Hint: Think about an assumption and stipulation made about human-made vs. natural capital.]

(b)The weak sustainability is said to be framed under the Hicksian concept of income. What does this mean? Explain.Is this one of the factors that makes the weak sustainability appropriate to be included in the vernacular of mainstream economics? Explain.

(c)A variation of the weak sustainability that is commonly used in the development of specific sustainability criterion is the Hartwick-Solow sustainability rule.Describe this rule.(Hint: for intuitive understanding of this rule, a quick read of Exhibit 13.1 may help.)Do you think this rule can be effectively used to operationalize sustainability, that is, it is not just a theoretical toy?

(d)The strong sustainability, among others, requires the maintenance of a non-declining ‘critical natural capital (CNC)’.What constitutes critical natural capital?

(e)On page 298-99, four general sustainability rules are provided to show the efforts that are being made to operationalize some of the basic requirements of the strong sustainability approach.What is your take of these rules?Does it make you uncomfortable the fact that all four of them are expressed in term of biophysical dimension? Explain.

In Section 13.5 (pp. 301–2) of your textbook, a third sustainability approach known as ‘the safe minimum standard (SMS)’ is provided. What are the distinguishing features of this sustainability approach?Some scholars claim that the SMS is a special case of the mainstream economics approach.Others claim that it actually represents a hybrid between the neoclassical and the ecological economic approaches to sustainability. Which one of these two opposing camps of thought would you align with? Why? Explain.
One of the most prevalent features of environmental sustainability is the attempt to explicitly consider ‘intergenerational equity’. However, this consideration lies in the realm of ethics. If one accepts the belief that ‘ethical standards cannot be legislated’, then setting sustainable rules designed to protect the future generation would have no legal basis. Comment.