TOWARDS THE NEW UNDERSTANDING OF SUSTAINABLE DEVELOPMENT

Igor A. Makarov

Lecturer, NationalResearchUniversity– Higher School of Economics

Moscow, Russia

Igor A. Makarov is a Lecturer of Environmental Economics and Politics at the NationalResearchUniversity – Higher School of Economics (Moscow, Russia) and a researcher at the Center for Comprehensive European and International Studies at the same university. The areas of his professional interest include international climate change economics and policy, international economics of water and food scarcity. He is the author of various articles on the economic aspects of climate change, food and water scarcity and their impacts on Russian economy in leading Russian academic journals.

I. INTRODUCTION

Sustainable development is one of the major concepts in conventional environmental economics and pretends to become the major principle of environmentalism as a whole. Nevertheless the conventional sustainable development concept is unable to respond to current environmental crises. Some new ideas concerning the content of sustainable development studies are necessary to make the concept relevant to current environmental and resource challenges.

The short introduction of this paper is followed by the second sectionwhich reveals the main drawbacks of conventional approaches to sustainable development. The third section examines the concept of critical capital which is the most successful attempt so far to make conventional theory more robust. The fourth section proposes the new approach to sustainable development based on the recognition of institutions’ roles in coping with environmental problems. The last section provides some conclusions.

II. CONVENTIONAL APPROACHES TO SUSTAINABLE DEVELOPMENT

Though sustainability is one of the vaguest categories in conventional environmental and natural resource economics it is often considered to be one of the aims of economic development and one of the guiding principles of any long-term economic strategy. According to the classical definition given by the World Commission on Environment and Development sustainable development is that one which “implies meeting the needs of the present without compromising the ability of future generations to meet their own needs”(1). This extremely broad definition can have various interpretations and despite its moral attractiveness has nearly no practical importance.

There are two conventional approaches to the interpretation of this definition, which were named ‘strong’ and ‘weak’ sustainability.

The example of strong sustainability is given in the guiding principle proposed by UNESCO “Each generation should leave water, air, and soil resources as pure and unpolluted as when it came on earth... Each generation should leave undiminished all the species of animals it found existing on earth” (2). In other words, the‘strong’ sustainability concept supposes that within the life of one generation the amount of natural capital should not be decreased. Natural capital is defined as the stocks of ecosystems which are capable to generate the flow of services in the future (3). According to the strong sustainability concept natural capital shouldn’t be substituted by any other form of capital, so the decline of natural capital shouldn’t be offset by the increase of physical one. Substitution across different types of natural capital (e.g. across oil and natural gas) may however be possible.

Strong sustainability can be measured by means of an “ecological footprint” which is defined as “the corresponding area of productive land and aquatic ecosystems needed to produce the resources used and assimilate the wastes produced by a defined population at a specified material standard of living, wherever on earth that land may be located” (4). Compared with existing Earth biocapacity, an ecological footprint is a simple measure to identify whether the demand for environmental goods and services exceeds their supply. Analysis of data (5, 6) shows that it does exceed.

Though the concept of strong sustainability and especially the footprint approach are of great academic interest they don’t bear scrutiny as a relevant indicator of sustainability.Any consumption of non-renewable resources even if it is necessary for human development conflicts with this concept, as it results in the decline of the amount of natural resources at the disposal of future generations.

In response to the critics of this kind the concept of ‘weak’ sustainability has appeared. It supposes the possibility of substitution across major forms of capital. The proponents of ‘weak’ sustainability approach argue that substitution of the part of natural capital is not only inevitable but even reasonable from the perspective of human development. Economic development is considered to be sustainable if there is no decline inthe possibility of capital to generate flows of service. The aim of sustainable development is the increase (at least non-diminution) of total welfare which is comprised of natural, physical and human capital (2). The decline of natural capital may hence be offset by the increase of physical or human capital.

The World Bank uses the concept of ‘weak’ sustainability while proposing the genuine net savings indicator involves the measures of positive and negative investments in physical (net saving), human (education expenditures) and natural (depletion of natural resources and pollution damage) capital (7).

World Bank statistics show that about 30 countries in the world developed unsustainably and the others succeeded in reaching ‘weak’ sustainability. It is at variance with the intuitive assumption according to which the current intensity of environment degradation and natural resources depletion are unlikely to be associated with sustainable development. Kenneth Boulding greatly illustrated this conflict of conventional economics and common sense in 1966: “Anyone who believes in exponential growth that can go on forever in a finite world is either mad or an economist” (8).

One of the most remarkable examples of irrelevance of the conventional ‘weak’ sustainability concept is the ‘Nauru tragedy’. Nauru government depleted the huge stocks of phosphates – the main natural treasure of the island – substituting them with physical and human capital that resulted in one of the highest living standards in the world (9). Thus economic development of Nauru remained sustainable for at least a decade until the natural capital became absolutely depleted and ceased to generate flows of benefits.

These contradictions put a great challenge to the concept of sustainable development. W.Beckerman states: “Strong’ sustainability, overriding all other considerations, is morally unacceptable as well as totally impractical; and ‘weak’ sustainability, in which compensation is made for resources consumed, offers nothing beyond traditional economic welfare maximization” (10). The concept of sustainable development doesn’t meet the requirements of the postindustrial world which faces the severe environmental crisis. Though it pretends to be the guiding principle of development it can’t provide any stimuli to turn economy to the green direction. Green economics which should become the ideological and instrumental base of future development needs something new.

III. CRITICAL CAPITAL

The drawbacks of ‘strong’ sustainability are caused by non-substitutability of different forms of capital while the drawbacks of ‘weak’ sustainability, on the contrary, result from the lack of constraints on substitutability across them. Ways out of the trap can consist in the concept of critical natural capital – the part of natural capital which has vitally important functions and can’t be substituted by any other forms of capital or even other types of natural capital (11).

Critical capital concept seems to be intuitively very attractive. It is senseless for human civilization to decrease emissions of greenhouse gases to zero, as well as it is unjustifiably costly to eliminate any water pollution or land degradation (though ‘strong’ sustainability requires it). At the same time development according to traditional ‘weak’ sustainability concept is also unacceptable as it leads to the depletion of critical capital. Critical capital is the intermediate one that allows substitutability across different forms of capital but defines some part of capital which in no circumstances can be substituted.

Adding the critical capital concept into sustainability studies doesn’t however completely eliminate its various contradictions.

Firstly, it is not clear what components should be involvedin critical capital. Should it include only those types of natural capital which are necessary for survival of humanity; or those which are sufficient for the restoration of natural capital in initial form and volume; or should any other limits be established? Finally, how to measure the volume and specify the forms of capital considered to be critical?

Secondly, critical capital is measured in total values and fails to take into account distributional aspects. It is easy to imagine that critical capital is provided but a large part of the population has no access to it. This is the story of contemporary water scarcity – fresh water supply exceeds demand, nevertheless the uneven distribution of water resources leads to severe water stress in some regions.

Thirdly, the conventional sustainable development concept proceeds from the prerequisite that the larger amounts of physical, human and natural capital generation possessed the better it is able to respond to challenges it faces, including natural resource and environmental ones.This prerequisites is however not always relevant. As E.Ostrom concluded in her comprehensive analysis of local commons the general welfare of the country (i.e. the amounts of physical, human and natural capital its citizens possess) has no direct influence on the ability of local groups to create robust institutions for ensuringthe sustainable development of local resource systems (12). Either there is no statistically significant correlation found between the welfare of a country and the state of its environment. For example the top ten greenest countries according to the Environmental Performance Index developed by YaleUniversityinclude such relatively poor countries as Costa-Rica, Cuba and Columbia (13). So, maybe the level of welfare of the country matters but it definitely doesn’t play the key role. There should be something else that matters more, and this “something” should be involved in the concept of sustainable development.

IV. RETHINKING SUSTAINABLE DEVELOPMENT

Nearly all environmental problems can be interpreted as different types of G. Hardin’s “tragedy of the commons” (14). Their solving depends on the society’s ability to respond to social dilemmas which appear in situations of conflict between individual and common interests. This ability is determined to a great extent by the state of formal and informal institutions.They form institutional capital –the fourth dimension equal to physical, human and natural capital that should be added to the conventional concept of sustainable development.

Institutional capital is important for responding to environmental challenges for several reasons.

Firstly, better institutions result in lower transaction costs which have significant importance while solving social dilemmas. Institution of trust plays the principal role here. F. Fukuyama compares the deficit of trust with the additional tax imposed on transactions (15). Trust is especially important on the local level, where actors stay in direct contact, but on anational level it also matters contributing to the formation of civil society which has a positive impact on solving environmental problems. In international relations trust has been ignored by the mainstream realist paradigm of international relations theory, but nowadays it attracts the growing attention of both officials and academics (16). Cooperation which is considered to be necessary to respond to global challenges is impossible without trust while the conventional sustainable development concept doesn’t take it into consideration.

Secondly, robust institutions decrease the vulnerability of society to environmental challenges. It can be illustrated by an argument proposed by A.Sen that democratic countries never face hunger (17). Formal state institutions based on the priority of state of law and civil society can better defend more vulnerable parts of its population.

Thirdly, transparency and the free distribution of information on environmental problems allows them to combat them more efficiently. Civil society is able to unite the whole society in green initiatives. “Green” becomes up-to-date, and this green fashion is quickly distributed by market mechanism. In 2007 “green” became the most trademarked term in the USA (18). Firms engage with their competitors in a real green race for consumers, try to “overgreen” one another (18), minimizing the ecological footprint of the production. Consumers simultaneously become more economical in consuming resources. Economic benefits encourage the ecological culture and the latter provides new economic benefits. Such positive feedbacks are not provided by physical or human capital but are provided by institutional capital.

Substitution of the part of physical, human of natural capital by institutional capital is reasonable as it will increase the welfare of future generation. Decrease in three major forms of capital can be offset by the increase of social goodwill (macro-level analogue of goodwill of a firm) – intangible asset, reflecting the role of institutions in overall welfare. Such offsets fully correspond to sustainable development goals. It is necessary to add some indicators of social goodwill (for example, World Government Indicator (19) and Trust Index (20)) in value terms to the methodology of the genuine net savings calculation and to develop a new index of sustainability, involving the physical, human, natural and institutional dimensions.

V. CONCLUSION

This paper provides the idea of rethinking the conventional sustainable development concept. Both ‘strong’ and ‘weak’ sustainability approaches are irrelevant to the changes taking place within the interrelations between economy-society and environment. Introducing critical capital concept can contribute to eliminate some drawbacks of ‘strong’ sustainabilitybut can’t significantly improve the ‘weak’ one. Most of the drawbacks of conventional ‘weak’ sustainability are caused by ignoring institutional capital as one of dimensions of sustainable development. However it is institutional capital that ensures the ability of society to respond to global environmental challenges. It is an underestimated treasure which should be kept and expanded. The first steps should be done within the academic sphere.

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