Sustainable Development Chapter 5 PDF

5 SUSTAINABLE DEVELOPMENT What is sustainable development? Whoa! Aren’t we getting ahead of ourselves a bit? We should start with development, and once we’re clear on that, we can go on to sustainable development. However, it can’t hurt to make just a few observations before getting underway. Fir...

5 SUSTAINABLE DEVELOPMENT What is sustainable development? Whoa! Aren’t we getting ahead of ourselves a bit? We should start with development, and once we’re clear on that, we can go on to sustainable development. However, it can’t hurt to make just a few observations before getting underway. First and foremost, many people seem to presume that sustain- ability and sustainable development are interchangeable. If you’ve been reading this book from cover to cover, you know that we do not agree, but if you’ve skipped directly to ­chapter 5, you may need a little coaching. We’ve answered the question “What is sustainability?” as follows: sustainability is a measure of whether (or to what extent) a practice or process can continue. Development is a process, so it is meaningful to ask whether and under what conditions it can continue. That is how we will (eventually) get around to answering this question. Second, as we’ve hinted all along, much of the impetus for studying sustainability arose during the 1970s and 1980s when economists began to admit that economic expansion (or growth) was (or soon would be) constrained by indus- trial pollution and depletion of natural resources. The strong correlation between economic growth and the most common ways of measuring development meant these constraints were 100 Sustainability a challenge to the goal of economic development. Strategies for achieving development goals without violating these limits came to be characterized as sustainable development. This way of thinking was especially influential among policy- makers who were thinking about economic development on a global scale. To make sense of this influence and understand how it shapes thinking on sustainability, we must dive into the way policymakers think about development. We may dive more deeply than some readers want to follow, but getting a better handle on this domain of economics will be helpful for others. This focus on economic development does not explain why sustainable development came to be identified with sustaina- bility itself. Maybe some people believe that promotion of ec- onomic development is so important that they just never get around to asking what sustainability could mean in connection with other activities (and practices, institutions, or systems of interaction). Alternately, some people may think that activities like running a business, producing food, governing a city or region, constructing and maintaining built infrastructure, or supplying people with energy, transportation, or health serv- ices can all be lumped together under some comprehensive idea. Maybe development is that idea. Although all this may sound abstract, these disparate activities cohere into a system of sorts. If you can make sense of that, then you can use the system concepts we discussed in previous chapters to judge whether and to what extent this conglomeration of practices and processes can continue to function and reproduce itself over time. With that thought, let’s go back to the basic question. What is development? As a simple word or concept, development is defined in ways that vary according to context. Here are some common syn- onyms for development: evolution, growth, maturation, ex- pansion, enlargement, spread, progress. Many people think of  Sustainable Development 101 development as something done by people in real estate—​the business of buying, selling, and improving plots of land or houses or commercial buildings. Here, a developer purchases land or buildings and then invests more money in infrastruc- ture (e.g., roads or a sewer system), in building structures (e.g., homes or shopping centers), or in repairing and renovating existing buildings. The developer hopes to sell or rent the property at a profit. Although this focus on real estate can be misleading, it is not a bad place to start. The broader notion of development that is relevant to sustainability is indeed a process where investments or expenditures are made with the goal of achieving an increase in the overall value of an asset, though it is usually understood to apply to society as a whole, rather than to the profit-​seeking activity of an individual or a firm. We take some pains here to make this idea clear. If we stick with the case of real estate for a moment, it is easy to get a handle on making investments that will in- crease the value of, say, a run-​down house by more than the amount a developer puts into it. Television shows about “flip- ping” houses illustrate it quite well. The developer buys a house that nobody wants for $100,000, spends $30,000 to fix the plumbing, paint the walls, and replace the carpets, and then voila, she can sell the house for $200,000 (multiply these amounts by ten if you live in California). However, for getting to the idea of development that matters for sustainability, in addition to thinking about society as a whole, it is important to go beyond dollars and cents. The kinds of improvements that matter for development are improvements in the quality of life, rather than profit. Here it is important to see the difference between an im- provement that comes about through investment and one that comes about just by spending more of the resources you have on hand. Consider this scenario. You are troubled by the curb appeal of your home. Your landscaping leaves much to be desired. One option to improve things is to visit a garden center in the spring, buy lots of colorful annual flowers, 102 Sustainability and strategically plant them to make your front yard more attractive. Suppose this will cost you two hundred dollars. A second option also involves a visit to the garden center in the spring, but instead of buying annual flowers, you invest in shrubs and perennial flowers (the kind that will bloom every year—​so long as you care for them). This requires an investment of five hundred dollars. In either case, you make an expenditure, and you are happy with your landscaping ei- ther way. The first option is just consumption, though; you’ve spent money to make yourself happier. The second option in- creases your capacity to experience happiness on an ongoing basis. You will enjoy your landscaping the next year, and the year after that. Two points are important in this discussion of develop- ment. One is that the growth, expansion, or enlargement we are associating with development is not an increase in hap- piness, though some economists might say that it is. The ec- onomic theory of development would characterize this as an increase in welfare. Of course, the person who flips a house for a $70,000 profit is probably happier for doing that too. In both cases, an economist would say that there has been an increase in welfare. However, it is important that the improvement or enlargement concerns quality of life—​that’s what an economist means by associating welfare and happiness. The second point to notice is the difference between consumption and invest- ment. Consumption is any expenditure where the benefit—​the happiness or welfare—​that you achieve is roughly correlated with what you give up to get it. Investments are expenditures that increase the capacity or capability for production or con- tinuous generation of welfare. Development occurs when the capacity for continuous generation of welfare is enhanced. Investment is closely associated with the economic concept of capital, so there are two concepts that are crucial to under- standing development: welfare and capital. Development is an increase in welfare and capital, but these two notions must be properly understood.  Sustainable Development 103 What is welfare? To begin with, we are not talking about a payment or check that someone receives from the government because they are unemployed, indigent, or injured. Welfare is a general con- cept that has long been used by social theorists to indicate how well a person or group is faring in life. It is a composite of other familiar ideas. One is health: disease, disability, and physical distress are detriments to one’s welfare, while vi- tality, vigor, and physical ability are enhancements. Welfare is also associated with contentment, happiness, satisfaction, and other components of one’s mental outlook. More broadly, a person’s welfare is greater if they have meaningful choices and some degree of control over how their lives (and the lives of people they care about) go. A sense of belonging to a com- munity or affinity group is a component of welfare, while al- ienation, loneliness, or isolation are generally detrimental to a person’s welfare. There is, in fact, room for an entire book called “Welfare: What Everyone Needs to Know,” but you are reading a different book, so we will cut this short. When we define development as growth in general welfare, it means an increase in the total amount of happiness, satisfaction, or well-​ being of all persons in a given group. Who gets included in said group? In theory, everyone. There are serious arguments that “the general welfare” even includes animals. For practical purposes, estimates of welfare are usually made for popula- tions of people who are residents in a given political entity such as a country, a region, a state, or a city. As an idea, devel- opment means improvement or expansion of welfare among a group. However, there are important details. Improvement or expansion of group welfare means that total welfare can im- prove even when some people are made worse off. If more people are being made happy or healthy or have expanding opportunities even while a smaller number of people are seeing a decline in their welfare, you still have development. What is more, approaches to measuring an increase in welfare 104 Sustainability are also open to dispute (as our readers will soon see). Wealth and poverty refer to the general state of an individual’s wel- fare or to the aggregate welfare of some population or group. Quantifying all this is a complicated business, but increasing total welfare through increasing stocks of capital is what motivates the theory of sustainable development. Some in- equality in the distribution of wealth may be inevitable or even desirable, but extreme inequalities are associated with numerous social and moral issues. You can find answers to more of your questions about the distribution of wealth and poverty in the book Inequality: What Everyone Needs to Know®, by James Galbraith. What is capital? We introduced the idea of capital in connection with an in- vestment that increases the capacity for producing welfare. More generally, any resource, material good, input, or factor that contributes to a production process while not being con- sumed or used up in the course of that process is classified as capital. This is the core idea of capital in classical and ne- oclassical economic theory. Capital has been redefined and re-​conceptualized in other contexts to suit a wide variety of explanatory and persuasive purposes, but we are sticking to this definition of capital because it is used in explaining sus- tainable development. You can understand the concept of capital by thinking about the production of some ordinary physical goods: a bi- cycle, a carton of orange juice, or a cell phone, for example. Physical resources (metal, oranges, oil for making plastic) go into these things, and these physical resources are going to be consumed or transformed in some way as you make the bi- cycle, juice, or phone. The labor time of the people who make them is consumed in the course of production. But the factory where these are made or the knowledge and skill of the people who make them are not used up. They are still around to make  Sustainable Development 105 more. These elements that are not consumed or transformed in the process of production are called capital. Although capital endures in the process of manufacturing goods like bicycles, orange juice, or cell phones, it can none- theless be understood as a stock that increases or decreases. (Note: if you skipped ahead, we covered stocks and flows in ­chapter 3.) How can anyone make sense of capital increasing or decreasing? This is simple in concept. If you build a more efficient factory or improve the skills of those making the bi- cycles, you increase capital. Obviously, the amount of consum- able resources used is going to increase as you produce more goods (each bicycle you make is going to require a certain amount of metal, plastic, rubber, and whatnot). But investing in better machines or increasing the skills of workers could mean that you are able to increase the number of bicycles pro- duced without a proportional increase in the materials used. How does capital decrease? Economists use the word depre- ciation. Sticking with bicycle factories, you might notice that they deteriorate over time. The factories and skills for making something can also become obsolete. Consider a traditional blacksmith or wheelwright shop, equipped with capital (e.g., tools and skills) for making bicycles that someone might have seen at the shop of Wilbur and Orville Wright in Dayton, Ohio, around 1900. The tools and skills endure, but with changes in technology like assembly lines and interchangeable parts, they become obsolete. In fact, the whole bicycle shop becomes ob- solete when people stop buying bicycles because they can buy inexpensive automobiles. This bicycle versus car example il- lustrates that when economists talk about a growth or decline in capital, they are imagining a quantity that is measured in reference to an economy-​wide system of exchange. This is also a point that will become important below. However, let’s not forget that when we talk about devel- opment, we’re not talking about making bicycles, cartons of orange juice, or cell phones. We are talking about the welfare (i.e., the happiness, satisfaction, health, or well-​being) that 106 Sustainability is produced when people have bicycles, orange juice, or cell phones. As long as people are out there spending hard-​earned money to buy bicycles, orange juice, and cell phones, it is rea- sonable to think they are doing so because it generates some kind of satisfaction for them or makes some improvement in the quality of their lives. So as we move from production ec- onomics to welfare economics, we tweak the notion of capital a bit: now we are talking about the economy-​wide capacity of society to produce welfare. But many points carry over. Notice that our examples of capital for producing these goods include both physical infrastructure (factories and tech- nology) and intangibles like skill. This will be an important point to pick up on later. Generalizing from the bicycle pro- duction example, where we lumped together all the various ways one might invest in capital to produce more of them, we can lump together all the ways in which capital investments can increase all productive activities in society to make more of the things that people want. The take-​home point so far is that if you want to encourage development (an increase in general welfare), a key means of doing this is to encourage the growth of capital. If we string these ideas together, one criterion for the sus- tainability of development would be whether (or to what extent) capital can continue to grow. If we think of capital and welfare as stocks, there will be feedback from the cap- ital stock to the inflow of welfare. That is, as capital grows, it stimulates the flow that causes an increase in welfare. Stock and flow systems thinking allows us to describe develop- ment as a system that is sustainable as long as the capital stock is increasing but is threatened or unsustainable if in- flows to and outflows from the capital stock are vulnerable to shocks, oscillation, or collapse. This way of thinking allows us to understand the sustainability of an economic system much like ecologists understand the sustainability of ecosys- tems. Of course, we haven’t said what drives growth in the capital stock or what could threaten its flows. That is what  Sustainable Development 107 the rest of this chapter is about, and to get there we need a few more economic concepts. What limits the sustainability of development? There is a naïve answer and a more sophisticated answer. The naïve answer is not wrong, and we will give it now, saving the more sophisticated answer for when we have considered a few more questions about the theory of economic development applied on the global scale. In short, making bicycles, orange juice, or cell phones requires (in addition to labor and cap- ital) all the stuff, the metals and other materials, that goes into them, along with the energy needed to move the stuff around and power any equipment you are using. Manufacturers make more and more of these things as the population grows and consumption increases. But the earth is finite. People can’t go on making bicycles, orange juice, and cell phones forever, because sooner or later human beings will run out of the re- sources they need to make them—​metals, fertilizers, and oil, for example. On top of that, we’ve learned that making bicycles, orange juice, and cell phones produces some stuff nobody wants: var- ious forms of pollution that damage health and degrade the planet. If people keep on producing that pollution, they won’t have breathable air or drinkable water. These harmful outputs from production processes can at least theoretically accumulate to the point that our planet is no longer habitable. Running out of materials and the accumulation of pollution together place a limit on the number of things people can make. If having those things is important for welfare, one can infer that limits on our productive capacity limit the potential for increasing welfare. Since increasing welfare is what development is all about, it stands to reason that there are limits on how long this process of development can continue. This is all correct, and this idea of “running out of stuff” may in fact be precisely the way that many people actually do 108 Sustainability understand sustainability. But economists have argued that as people do start to run out of the materials that go into bicycles, orange juice, and cell phones, the prices of those products will go up. And as the prices go up, people find different ways to spend their money. Are they just as happy or satisfied as if they had acquired bicycles, orange juice, or cell phones? That’s a question we’re not prepared to answer, but so long as they are spending their money on something, the economy will con- tinue to hum along. People will have jobs, and the machinery and skills needed to make those other things can continue to accumulate. So there is a sense in which running out of the stuff manufacturers need to make bicycles, orange juice, or cell phones doesn’t necessarily threaten development so long as society (that is, producers and consumers alike) isn’t depleting capital; it just drives us toward a different pattern of consump- tion. Are the economists who make this argument right? Or are they just blowing smoke? Thinking back to ­chapter 4, how do pollution and resource depletion affect capital stocks? In order to answer these questions, you need to understand how econo- mists measure economic growth. You also need to recognize that concerns about natural capital stocks, which we will dis- cuss later, add additional layers of complexity to the problem. These complexities get us to a more sophisticated answer. What is economic growth? Economic growth is the increase in an economy’s capacity to produce goods and services. The assumption that access to more goods and services improves welfare is fundamental in economics, and since economists cannot measure welfare directly, they measure the production of goods and services. Welfare can go up or down for any given individual as their health, happiness, contentment, or capability increases and de- creases, but most of us would have a really hard time making a numerical estimate of our own welfare at any given moment. Making an estimate of the total welfare for everyone would be  Sustainable Development 109 even harder. (It is, in fact, mathematically impossible to derive a social welfare function from measures of individual welfare.) Although theorists continue to debate the concept and meas- ures of welfare, focusing on an observable quantity is more practical. Recall the argument that someone spends money to buy a bicycle, carton of orange juice, or cell phone because it creates satisfaction or improves their quality of life (i.e., wel- fare). Thus, purchases of goods and services can be used as an indicator of welfare. At least, that’s how one very influential view goes. There are rather serious flaws with this argument, as we will show. (Note, we discussed types of indicators in ­chapter 4.) One can think of a region’s or nation’s economy as a massive system of stocks and flows. This system can be analyzed by examining sectors: agriculture, mining, manufacturing, trans- portation, healthcare, energy production, and so on. Firms in each sector are producing goods and/​or services and selling them either to consumers or to other firms (often in other sec- tors). Our bicycle maker will sell bicycles, but to make them she will be buying metal goods and energy from other firms. You get a sense of the bicycle manufacturer’s economic well-​being (their sustainability, if we go back to ­chapter 2) by looking at their balance sheet. But to get a sense of the entire economy’s “bottom line,” you would have to total up exchanges of all firms. That’s daunting, but getting a handle on each sector’s buying and selling is doable. In fact, economists have been doing it for the US economy since the 1930s. The economists who estimate Gross Domestic Product (GDP) on a quarterly basis are adding up the buying and selling across all sectors in the economy. Although economic growth refers conceptu- ally to any expansion of economic activity, it is typically meas- ured simply in terms of an increase in GDP from one quarter to the next. If GDP goes down, the economy is shrinking. If an economy shrinks continually for longer than six months, that is described as a recession. Economists also look at the status of several other indicators like unemployment and real 110 Sustainability income to diagnose a recession, but we don’t think everyone needs to know about these details to understand sustainable development. GDP and the concepts of economic expansion and contrac- tion were not originally created to explain or measure capital stocks or the capacity to produce welfare. They nonetheless serve as a reasonable proxy. As a technical economic notion, then, economic development is understood to track closely with GDP. The primary caveat is that while GDP can fluc- tuate periodically in conjunction with cycles in the activity of individual firms (i.e., the business cycle), economic develop- ment refers to longer-​term expansion and accumulation of a society’s overall capacity to produce a high quality of life—​a high standard of welfare—​for its citizens. We’ll come back to the role of GDP in measuring development later. Historically, economists and other social theorists presumed that although a nation’s economy (and occasionally the global economy) would go through cycles of expansion and con- traction, increases in aggregate social welfare are the overall pattern. This is to say that development reflects a steady up- ward trend in economic growth, even as there may be periods of contraction. The long-​term upward trend of development was observed to eventually overcome even extended periods of economic contractions in economic activity, or depressions. By the 1950s, economists observed growth in GDP over a long period for industrialized countries in Europe and North America, as well as Japan, Australia, and a few others. But this growth did not occur everywhere, and the uneven pattern of economic expansion and associated disparities in wealth and quality of life were exactly what led to both theoretical and practical efforts to stimulate development in less industrial- ized parts of the world. These included former European col- onies in Africa and Asia that attained independence following World War II as well as countries that relied heavily on re- source extraction and export. This disparity was central to the work of the Brundtland Commission (discussed in c­ hapter 1)  Sustainable Development 111 and the formulation of their famous definition of sustainable development. How are wealth and poverty related to welfare and economic growth? Defining and measuring wealth and poverty are topics within development economics, which is itself a field within wel- fare economics, where the characterization and measurement of changes in welfare have seen a long and complex history. This body of theory lies behind some of the debates over sus- tainable development discussed later in the chapter. We can simplify the various approaches to defining wealth and pov- erty for present purposes by holding fast to the description of welfare that we have already given. Wealth and poverty refer to the general state of an individual’s welfare or to the aggre- gate welfare of some population or group. Poverty is a con- cept for recognizing deficits in wealth such that one’s welfare falls below some level that is determined by ethics and social norms. One way of indicating poverty is a lack of basic neces- sities such as food, water, shelter, and clothing. Extreme or ab- solute poverty occurs when people are deprived of these basic needs. The current World Bank standard for extreme poverty is an income of less than $1.90 (US dollars) per day. Previously, we noted that the welfare of individuals in- creases when their ability to purchase goods and services in- creases. We also discussed how growth in GDP (which occurs when purchases of goods and services increase) is used as a proxy for improvements in the aggregate welfare of individ- uals living in a given region or country. But this measure is not sensitive to the fact that wealth is not evenly distributed among those in the region, and so welfare is not evenly dis- tributed either. The Brundtland Commission was charged with evaluating global development. The per capita wealth in industrialized regions (the United States, Canada, Japan, Australia, and Europe) is much greater than in Africa, South 112 Sustainability America, and much of Asia (though China has grown rapidly since 1987). These inequalities are associated with social and moral issues because they result from exploitive histories of slavery, racism, and colonialism. As readers will see in the next chapter on social justice, inequality and exploitation also create direct problems for sustainability. In the rest of this chapter we emphasize how a systems approach to understanding links be- tween pollution, resource depletion, and global development challenges some of the fundamental assumptions in develop- ment theory. What is global development? Not surprisingly, global development is simply an application of the concepts discussed throughout this chapter on a global scale. But this is not as straightforward as it might initially seem. Grasping issues at a global scale is key for moving from a naïve understanding of sustainable development to a more sophisticated understanding. The historical starting point is the creation of international organizations such as the United Nations (UN), the World Bank, and the International Monetary Fund (IMF) at the end of World War II. At that juncture, world leaders began to see the vast inequalities between industrial countries and the less-​ industrialized nations of the global South as a problem. Debates over the way in which economic growth in regions with high poverty rates could be stimulated and how the welfare of their people could be improved shaped develop- ment theory significantly. The tensions between socialist econ- omies (such as the Soviet Union) and Western states was an important part of this story. This is because conflict between the United States and the Soviet Union during the Cold War era (1947–​1991) often took the form of skirmishes within and among states and resistance groups in these less industrialized nations. Would capital growth and improvements in welfare be achieved through government intervention or through private  Sustainable Development 113 investments? Although the details of this debate lie beyond the scope of this book, it is important to bear in mind how alternative approaches to development have been influenced by larger sociopolitical debates over socialism, capitalism, and the contours of geopolitical relations. What is most significant for understanding sustainability is that all conceptions of development (socialist or capitalist) in- itially envisioned that the wealth gap between the industrial- ized world and the global South would be closed as economies in less industrialized states caught up. This was both a political and a moral problem, since the low levels of capital in less in- dustrialized states were the legacy of colonialism. The wealthy countries were seen as morally responsible for the poverty of former colonies because they became wealthy through ex- ploiting the labor and resources of colonized places. Closing the wealth gap was a political problem because trade relations and foreign investment (possibly in the form of development assistance) had to be negotiated through global institutions like the World Bank, the IMF, and, eventually, the World Trade Organization (WTO). Development and economic expansion in these less indus- trialized former colonies—​ whether achieved through gov- ernment programs or private initiatives—​ were viewed as solutions to these moral and political problems. However, this vision was on a collision course with the limits to development reflected in the exhaustion of natural resources such as oil and other minerals, ocean fisheries, or fertile croplands on the one hand and the effects of industrial pollution on air and water on the other. Discussion of what we’ve called the naïve appre- ciation of limits to development began among global govern- ance institutions associated with the UN at a 1972 conference in Stockholm. Within the context of sharp inequalities in both economic activity (as measured by GDP) and quality of life, this problem looked even more complex at a global scale. Highly devel- oped economies such as the United States were consuming a 114 Sustainability disproportionate share of the world’s resources and emitting a disproportionate amount of the world’s pollution. Putting these inequalities in the context of environmental impacts made the problem more complex because countries with high rates of poverty could not catch up just by consuming more resources and emitting more pollution. The calculations of global capacity indicated that the planetary ecosystem would simply collapse if that were the case. (In fact, this bleak picture has only grown darker as the impacts of climate-​forcing pollu- tion have been added to the equation.) What was to be done? The Brundtland Commission (officially, the World Commission on Environment and Development, or WCED) was convened in the 1980s to address the moral, economic, and political dimensions of this situation. The options were stark. Advocates for impoverished nations were adamantly opposed to the suggestion that they should forgo expansion of their economies and a corresponding improvement in their quality of life. Although some saw the moral case for retrenchment of economic activity in the industrialized world in compelling terms, it has always been viewed as politically unacceptable. Given this impasse, the Brundtland Commission came up with its definition of sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” The high profile of the WCED pushed the language of sustaina- bility to the forefront, and the publication of their report Our Common Future in 1987 launched a new era of theorizing and debate over whether this vision is practically achievable. How can sustainable global development be achieved? The answer to this question hides in the details of everything we have written so far. Some of the details reside in the general theory of development or in the way that GDP has been used to measure it. If GDP is not a reliable indicator (see our discus- sion of indicators in ­chapter 4), it may not be steering us toward  Sustainable Development 115 improved welfare. The world won’t achieve sustainable global development if development specialists are tracking an unre- liable indicator. The deeper significance of using GDP is em- bedded in debates over the strategy for continuing economic growth through expansion of capital. Answering whether sustainable global development is achievable requires us to return to a more sophisticated understanding of what limits development. Our naïve account of limits is not wrong in noting that stocks of many natural resources are finite, while the pollution associated with many industrial practices (including climate-​ forcing emissions) is adversely affecting human welfare. But development involves an increase in capital, and this is not the same thing as an increase in the production and consump- tion of goods that use up resources or emit pollution. Even if the consumption of finite resources and the depletion of en- vironmental quality have to stop, it is at least theoretically possible for development (meaning growth in welfare, which economists equate with growth in total economic activity) to continue. Perhaps it can even continue indefinitely. That was the thought behind an influential lecture entitled “An Almost Practical Step toward Sustainability,” given by Robert Solow in the early 1990s. One devil that resides in these details takes us back to the definition of capital. Any factor or input in production that endures throughout the process of production can be cat- egorized as capital, and our examples included both built or constructed facilities (factories and machinery) and the skills and knowledge that it takes to make something like a bicycle. It should be obvious that since factories and machinery are themselves made from finite natural resources, there cannot literally be continuous expansion of capital in that particular form. This points us toward other, nonmaterial forms of cap- ital, like knowledge and skill. Development might be sustain- able if people are able to shift more and more of the growth in economic activity to reliance on forms of capital stocks that do 116 Sustainability not themselves involve the depletion of finite resources or the degradation of environmental quality. And that leads to our next question. What are the forms of capital? The factories, tools, and machinery that are used in a produc- tion process constitute built or manufactured capital. We have already mentioned the contribution of skill, knowledge, or ability to production; that is human capital. The idea here is that as people become smarter, they can economize on other fac- tors that are used in a production process. One can envision human capital as consisting of a given individual’s experience, wisdom, or knowledge, or more generally as the accumulated knowledge possessed by society at large. In either view, educa- tion plays a key role in building human capital. In ­chapter 2, we discussed social permission to operate and linked it to a firm’s reputation within a community. A firm with a good reputation is said to have social capital. A bit more nebulous than skill or knowledge, the idea of social capital en- compasses productive capabilities that emerge out of a social group’s capacity for cooperation and collective action. This may consist of trust or goodwill that is tied to reputation, but it can also take the form of norms and traditions that allow people to engage in productive activity at a lower cost than they might otherwise incur. In some cases, social capital en- ables productive activities that would be entirely impossible without cooperation. The tradition of barn raising, where neighbors in rural areas pitch in to help with complex con- struction projects that could not be achieved by a farm family working on its own, provides an illustration of social capital. Business schools will emphasize financial capital, which is simply money that is treated as a base stock for supporting business activity. Money flows in and out of a business as it buys supplies, pays wages, and collects revenues. The finan- cial capital stock is the base amount that is not used up in the  Sustainable Development 117 sense that it remains constant (and hopefully grows some) after all of these transactions clear. Venture capital is a form of financial capital that represents the base money stock that an investor spreads around to various (often high-​risk) firms. The expectation is that after all the profits and losses have been tabulated, this basic stock is reproduced (it is not “used up”), and the investor takes some profit as income. But these are all examples that are somewhat peripheral to sustainability. They simply illustrate how someone might think of growing cap- ital even in the absence of doing something that draws down finite resources or contributes to environmental degradation. The form of capital that has been central to debates about sus- tainable development is natural capital. What is natural capital? There is no firm consensus on the answer to this question. The general idea is that nature itself produces a lot of things that contribute to human welfare. This is not the same thing as supplying natural resources or consumable goods, like oil and gas or fish from the sea. When people run short of resources or consumable goods, prices of those things increase, and they either economize on their use of them or shift to using some- thing else. Natural capital is more like nature’s capacity to pro- duce goods and services that are important to us as opposed to the goods themselves that human beings take from nature. Beyond the ocean’s capacity to produce fish, natural ecosys- tems do a lot of work for us in the form of making it rain, filtering the air and water, regulating our exposure to solar ra- diation, and many other examples. The Millennium Ecosystem Assessment described four ways in which natural capital pro- vides important goods and services: direct provision of goods and services, regulation of natural processes, support of cul- tural values, and the ways in which different natural systems support one another. (We answered the question “What are ec- osystem services?” back in c­ hapter 4.) 118 Sustainability The general idea of capital came from nineteenth-​century economists. They may have taken the idea that natural pro- cesses also contribute to productivity for granted, but in any event, this idea did not formally enter into thinking on eco- nomic development until recently. Again, it’s important to understand that the idea of natural capital relates more to natural capacities for producing welfare than it does to the stocks of natural resources or to the stocks of renewable re- sources that are harvested on an annual basis. The theory of ecological economics arose in the 1980s in response to questions about whether capacities that produce ecosystem services can be degraded or damaged in ways that reduce that stock of nat- ural capital. Although most theorists who have studied these questions agree that they can, whether this is a problem is a de- bate that rages on. Part of that debate is about whether world leaders and economic development specialists pursue weak or strong sustainability. What are weak and strong sustainability? Weak sustainability is the view that declines in natural cap- ital can be offset by gains in other forms of capital. In this view, you can still have sustainable development even when nature’s contribution to welfare is declining. For proponents of weak sustainability, all the various types of capital are fun- gible, or interchangeable, with respect to one another. In par- ticular, if nature’s capacity to produce goods that contribute to welfare degrades or is damaged, the increase in technical capacities, human skills, and financial wealth that comes about through economic development can more than make up for it. Total capital (and total welfare) can therefore con- tinue to increase (or grow) indefinitely. As a very simple ex- ample, coastal wetlands in some regions have been replaced by levees and sea walls. The levees and walls help prevent coastal flooding, which is what the wetlands did before they were eliminated.  Sustainable Development 119 Strong sustainability is the view that substitutability among the various forms of capital is limited; that is, some forms of natural capital cannot be replaced by growth in technical abilities or the accumulation of other forms of wealth. Strong sustainability also argues that some things economists have traditionally thought of as contributing to development (like manufacturing that releases air and water pollutants) are not actually helping. The loss of natural capacities, according to this view, is leading to an irreversible decrease in welfare, which implies that modern industrialized societies are actually losing capital, rather than increasing it. Proponents of strong sustainability argue that loss of coastal wetlands and their ability to buffer storm surges also comes with a concomitant loss of species habitat and recreational space—​both of which are types of natural capital. Increasing hurricane risks due to a changing climate also represent a loss of natural capital. And when the levee breaks, the ecosystem services provided by coastal wetlands are sorely missed. It is worth noting that one’s views can align with weak or strong sustainability to varying degrees. One might think that some substitution is possible but that eventually some substi- tutions will have to stop. This is the position taken by Herman Daly, one of the economists who helped the field of ecological economics get a start. One might also think that certain forms of natural capital really are essential, while others are not. One example of an important but (perhaps) inessential type of nat- ural capital might be natural areas that contribute to welfare by providing for recreational or spiritual experiences. These contributions are important, but perhaps people in the future can learn to do without them. (Of course, not everyone will agree.) Even among people who do not really think deeply about the various forms of capital and their role in economic develop- ment, the divide between weak sustainability and strong sus- tainability still plays an important role. People who think that humanity can innovate its way out of the global predicament 120 Sustainability are said to embrace weak sustainability, while those who think that people have to constrain their impact on natural systems and shift to a very different way of life line up with the ad- vocates of strong sustainability. We are not going to settle all the debates around weak and strong sustainability here. Regardless of your position in this debate, you need to con- sider what indicators like GDP tell us about progress toward sustainable development. And the topic of sustainability in- dicators opens a whole new debate: Is GDP a good indicator? Your response to that question is going to be determined in part by what you think about the substitutability of different forms of capital—​ especially whether increases in technical capacities, human skills, and financial wealth substitute for natural capital. What is wrong with GDP as an indicator of sustainability? Technically, GDP is an indicator of economic activity: that is what it was designed for. It is computed by adding up the dollar value of all goods and services produced in an economy in a given time period.1 Calculating GDP allows us to estimate what each sector of the economy is contributing to overall pro- ductivity. As we noted earlier, so long as the total productivity (that is, GDP) of the economy is growing, policymakers have presumed that welfare is increasing. But many things that con- tribute to economic productivity have a questionable contribu- tion to welfare. Recall our earlier point that there are serious flaws in the as- sumption that increases in the buying and selling of goods and services represent increases in welfare. Consider expenditures on healthcare, one of the fastest growing sectors of modern in- dustrial economies. On the one hand, spending on healthcare may indeed reflect an increase in wellness, and that would be a contribution to welfare. On the other hand, people may be spending more on healthcare because more and more of them are sick, or they are sick with more debilitating (and expensive)  Sustainable Development 121 conditions. Arguably, reducing the need to spend money on healthcare in the first place could increase welfare. There are other examples. If a society spends more money on policing or military defense because hunger or poverty (whether at home or elsewhere) are leading to social unrest, one may see an increase in GDP from those sectors of the economy. But again, whether these increases are really making the members of that society better off is questionable, partic- ularly if one compares those expenditures with what might have been spent to prevent unrest in the first place. Similarly, if a coastal area is ravaged by a hurricane, the purchases of every­thing needed to repair and rebuild homes, businesses, and infrastructure boost GDP. But does that increase in GDP indicate that the residents of that coastal area are better off? In short, a healthy debate continues about whether GDP is a very good indicator of welfare in the first place. If it’s not, then measuring sustainable development in terms of contin- uous growth in GDP is probably not a very good approach. But it may also be a poor choice because of how it accounts or fails to account for capital. Economists include investment in some types of capital when calculating GDP. Purchases of new factories or equipment by a business are examples of invest- ments in manufactured capital that get counted in GDP. One might argue that expenditures for education could, if studied carefully, indicate investments in human capital. GDP meas- ures savings, and that is financial capital. But two important things don’t get accounted for: investments in social capital and investments in natural capital. And if we are right and en- vironmental quality (­chapter 4) and social justice (­chapter 6) matter for sustainable development, then GDP is leaving out something important. For those comfortable with weak sus- tainability, this may not matter—​capital stocks are fungible. If people are investing in some type of capital, we’re good. Of course, we’ve already noted that the devil is in the de- tails. Proponents of strong sustainability worry specifically about investments in natural capital. This may or may not 122 Sustainability show up in GDP. More precisely, they worry about the loss of natural capital—​depreciation or disinvestment, if you will. The loss of coastal wetlands, and the ecosystem services they provide, doesn’t show up in GDP calculations (although the expenditures to recover from hurricanes do). To be fair, GDP doesn’t account for any depreciation of capital. Economists also calculate Net Domestic Product (NDP), which subtracts depreciation of manufactured capital like buildings and ma- chinery from GDP. But how do you account for depreciation of human capital? And if social capital and natural capital aren’t accounted for in the first place, NDP doesn’t help. Proponents of strong sustainability are understandably critical of GDP as an indicator of sustainable development. Finally, let’s return to the inequality issue briefly. Comparisons of GDP across countries have to consider things like population size, since a very small country is not likely to achieve (nor does it need) as much economic activity as a much larger one. This is generally accounted for by calculating GDP per capita. Even this effort to refine the use of GDP is challenged, though, be- cause neither GDP nor GDP per capita tells us anything about the distribution of wealth (welfare) within a given population. Following the Great Recession of 2008–​2009 in the United States, critics of income inequality created the label “one-​percenters” to refer to the fact that so much of the wealth in the United States is concentrated in the top 1 percent of the population. The Brookings Institution reported that in 2016 (data used for their 2019 report), the top 1 percent of the income distribution in the United States held 29 percent of the country’s wealth, while the top 20 percent held 77 percent of the nation’s wealth. In many countries around the world, wealth inequality is even more ex- treme. If growth in GDP, or even GDP per capita, masks such distributional imbalances, can anyone be sure it gives us an accurate picture of whether global societies are achieving any progress on the sustainable development front? This is, in truth, a debate within the theory of development, rather than something that is crucial to sustainability as such.  Sustainable Development 123 Simon Kuznets, the economist who came up with the method for calculating GDP, cautioned from the start that GDP should not be considered a measure of standard of living, but almost immediately that was how it was used. Debates about sus- tainable development have reinvigorated criticisms of GDP that date back to the 1930s, when Kuznets did his work. In re- sponse, some theorists of sustainable development have come up with alternative ways to measure increases or decreases in social welfare. One of these is the Genuine Progress Indicator. What is the Genuine Progress Indicator? The Genuine Progress Indicator (GPI) is similar to the GDP, in that it measures economic activity. But the GPI is intended to assess many other variables that are presumed to contribute to well-​being or happiness in addition to just production of goods and services. For example, it modifies the standard calculations of economic activity by adjusting downward as income inequality increases, reflecting the assumption that greater income inequality results in lower social welfare. It accounts for contributions to welfare that aren’t reflected in GDP, such as the value of volunteer work. It adjusts down- ward for things like pollution, loss of natural capital, and crime—​all of which are said to reduce well-​being. Remember, cleaning up pollution, depleting natural capital, and fighting or recovering from crime all involve expenditures that in- crease the GDP. The GPI (or a variation of the GPI) has been calculated for several US states and a number of countries around the world. Maryland and Vermont, Canada, and some European Union countries consider these calculations in budgeting and other legislative decisions. In all areas where GPI has been cal- culated, a singular message rings through. Comparing GDP changes and GPI changes over specific periods of time shows that during periods of robust GDP growth, GPI was stag- nant or declining. This, it is argued, is evidence that GDP is 124 Sustainability overestimating the extent to which economic growth means real improvements in quality of life. GPI and similar indicators are not without their critics. One principal argument goes like this: Adding up the value of goods and services produced is straightforward and con- sistent. For example, the dollar value of bicycles produced adds to GDP in a straightforward way because, product dif- ferentiation notwithstanding, bicycles and money spent for bi- cycles are a known entity. The same cannot be said for some of the elements that are included in GPI. For example, the value for every hour of volunteer work may not be the same. People do all kinds of volunteer work, and they may not contribute equally to social welfare. Similarly, is there some commensu- rable way to capture the costs of lost wetlands and air pollution so that such measures can be combined into a single indicator? A final argument questions whether any indicator can truly measure the well-​being of a diverse society whose members have very different views of what is important and what adds to or diminishes social welfare. Clearly, measuring some of the items included in the GPI is challenging, but proponents of its use believe society as a whole benefits from making the effort to obtain a clearer accounting of general welfare. Is sustainable development just equivalent to sustainability? We think not. Our discussion of sustainable development has emphasized the way that the most quoted definition (meeting the needs of the present generation without compromising future generations’ ability to meet their needs) emerged out of a very focused understanding of what development is and why it matters in a global context. We also think that sloppy thinking on this point (usually combined with skimpy under- standing of what development is and the history that led to the Brundtland Commission) is one of the reasons why sustain- ability seems so mysterious and hard to pin down for many people. It is meaningful to ask whether a given development  Sustainable Development 125 trajectory is sustainable, and it is at least theoretically inter- esting to ponder the question of whether capital itself can grow indefinitely. It’s also true that the “meeting needs” definition can be meaningfully applied to many other human activities. Someone could say that sustainable agriculture meets the needs of the present generation without compromising future generations’ ability to meet their needs, and one might say similar things about architecture, urban infrastructure, or transportation sys- tems. It is less clear that this aphorism clarifies what it means with respect to ecosystems or with respect to many of the other environmental goods that were discussed in ­chapter 4. It’s not even clear that a sustainable business is one that meets the needs of present generations without compromising future generations’ ability to meet their own needs. Business is often much more about satisfying wants than meeting needs. When one adds the concerns about GDP into the mix, the de- bate becomes even more complex. But perhaps the root issue is whether one thinks that increasing the total stock of social wel- fare is itself what people should be trying to achieve through sustainability. As we’ve seen, total welfare can increase even as some people’s welfare goes down. What if some groups in so- ciety are constantly made worse off even as total welfare goes up? Is that really something people want to sustain? Recall our discussion in ­chapter 1 that not everything that seems to continue indefinitely aligns with the social goals embedded in broader discussions of sustainability. Then we can add in the possibility that humanity has moral responsibilities to take the interests of animals into consider- ation, or to think of themselves as caring for the earth itself. Some religious and cultural traditions have placed much more emphasis on preserving and continuing natural and cultural systems than they have on increasing the health, wealth, and happiness of current generations. An understanding of sustain- ability that focuses on the continuous reproduction of social practices or traditions or on the preservation of biodiversity 126 Sustainability and the integrity of regional or planetary ecosystems might not presume that human welfare is the be all and end all of sustainability. Again, we don’t presume to settle these debates, but we do think that understanding what is at issue is part of what every­ one needs to know about sustainability. Not everyone thinks that progressive and continuous development is what sustain- ability means. Simply presuming that sustainability means sustainable development is thus a barrier to the conversations that would contribute to a more sustainable society.