APPENDIX 18
Memorandum by Professor David Pearce OBE,
Professor of Environmental Economics, University College London,
and Visiting Professor, Imperial College London
Historical note: Professor Pearce was Special
Advisor to the Secretary of State for the Environment 1989-92.
He was the main author of the UK Government's response to the
Brundtland Commission's 1987 report Our Common Future (Pearce
et al 1989), and was one of the contributor's to the UK's first
White Paper on environmental policy—This Common Inheritance
released in 1990. He has written extensively on the economics
of sustainable development
THE DEFINITION
OF SUSTAINABLE
DEVELOPMENT
A common confusion relates to the definition
of sustainable development and the conditions necessary to achieve
it. Sustainable development is simply development that lasts.
How far into the future one should look is open to debate: most
would probably agree that thinking 50 years hence is very sensible,
and perhaps 100 years too. Thinking ahead 1,000 years or more
hardly seems consistent with human preferences (our "coefficient
of concern" declines with time) or the reliability of information,
but see below. "Development" is a value word: it means
whatever people want it to mean. But most people would accept
that rising material standards of living (real GNP per capita)
are important, as is good health, education, environmental quality
and human freedoms. An almost endless list of indicators exists
for measuring "development"—a virtual industry
in producing them has emerged. But it can be argued that what
has to be done to achieve sustainable development is largely invariant
with the definition. If so, debating definitions is interesting
but not particularly helpful. Nonetheless, it is clear that some
people advocate, or imply, definitions of sustainable development
that would require radically different actions—the issue
is discussed shortly.
THE CONDITIONS
FOR ACHIEVING
SUSTAINABLE DEVELOPMENT
The economics literature on sustainable development
is much further advanced than the literature from other disciplines.
That literature emphasises the role of capital assets as the means
for "producing" development, ie capital assets define
our capabilities for development. Of course, any generation can
fail to achieve this potential by mismanaging those assets, and
there is plenty of evidence that many countries have done this.
It is vital to understand what is meant by "capital assets".
They comprise the conventional meaning—manufactured assets
such as infrastructure and machinery (the old-fashioned definition
of capital); the stock of skills and knowledge—human capital
as it is now called; the stock of environmental assets and natural
resources (oil, coal, water, water quality, the global atmosphere
etc); and the set of trusting social relationships between people
and between people and institutions—so-called "social
capital". Human freedoms are usually regarded as part of
social capital. There is an extensive literature in development
economics showing how human wellbeing varies with the endowment
of these assets. Technological change permits any of these assets,
or all of them, to be more "productive"—just as
we know workers are more productive the more manufactured capital
they have, so we know that technological change has raised the
productivity of natural resources, and so on. Whilst debated by
some, population growth tends to dissipate capital resources—spreading
them out over more and more people, and thus lowering the per
capita endowment of those resources. Research shows that surprisingly
low rates of population growth (around 1% per annum) are sufficient
to place sustainable development at very serious risk. Political
correctness has tended to downplay these findings, but nothing
is gained by pretending that the chances of sustainable development
are unaffected by population growth.
Achieving sustainable development thus requires
that we increase the endowment of the overall stock of assets
per head of the population through time. At the very least, that
per capita stock should not decline unless we are satisfied that
the positive effects of technological change are outstripping
the negative effects of population change.
THE BRUNDTLAND
COMMISSION
While sustainable development was discussed
well before the Brundtland Commission's report of 1987, that Commission
placed the concept "on the map". There are two features
of that Report worth noticing. First, the Commission was as concerned,
if not more so, about distribution of wellbeing across people
now, as they were about distribution through time. Curiously,
most of the subsequent literature has focused on the inter-temporal
distribution, perhaps because the problems of poverty are well
known, and the problems facing "future generations"
are, for some reason, more attractive to debate. The phrase "sustainable
development" obviously contributes to this asymmetry of treatment.
But the challenges of dealing with distribution of wellbeing now
are arguably greater than the challenges facing future generations,
and this presents a problem for policies purporting to be in keeping
with "sustainability". Resources devoted to avoiding
or ameliorating future problems could well be at the expense of
resources that could alleviate poverty problems now. The added
puzzle is that future generations have a higher probability of
being richer than the current poor than being poorer. If there
is a trade-off—see below—it seems odd to allocate
resources to the potentially richer than the actually poorer.
Brundtland never resolved this issue because,
excellent though it is in many ways, it was a political report
that contained a message that any politician finds attractive:
there are no trade-offs—we can have everything. This illusory
message has fostered much of the subsequent "popular"
literature on sustainable development. This literature argues
that we can have economic growth, environmental quality, social
justice for the poor now, limited life risks for future generations,
and so on. The kind of picture thinking that results is typified
by the endless triangle and other diagrams showing the "three
pillars" of sustainable development: social, economic and
environmental. That simply is not true, and it seems that only
economists have faced the reality that there are, and always will
be, trade-offs.
At the domestic level even casual empiricism
testifies to the trade-offs. The UK government's policies on housing
and airport expansion alone are not consistent with maintaining
environmental assets in their current form. Overall land-take
and fragmentation of habitats means that biodiversity must decline.
It is true that one can think of other policies—eg, the
Water Framework Directive—which might actually increase
biodiversity through improved water quality. But whether one environmental
asset substitutes for another raises interesting issues of trade-offs
within the "environmental account".
SUSTAINABLE CONSUMPTION
Like "sustainable development", sustainable
consumption is a much abused term. But it is possible to give
it rigorous meaning. The simplest way is to think in terms of
the following two arguments. First, we are used to the idea that
income is made up of what we consume (consumption) and what we
save (saving). This holds true regardless of the agent (household,
government, company) doing the consuming and saving. Second, no
agent is economically viable (sustainable) if he or she fails
to put aside resources each year to cover the depreciation on
assets. Restated, the rule for sustainability is that savings
(what we put aside) must cover depreciation on all assets. But
we know that assets consist for the four types of capital outlined
above. So, the rule for a nation (it is more complex for a sector
or even a corporation) is that the nation must save more than
the depreciation on man-made assets, on the environment and on
social trust. Human capital is probably in a "special"
situation because although we lose wisdom and knowledge when (some)
people die, "thers tend to replace them, and the stock of
knowledge expands. National accountants are used to calculating
depreciation on man-made assets ("capital consumption"
in the accounts) and are increasingly understanding that they
also have to calculate resource depreciation (extraction and use
of resources which are not replenished) and environmental depreciation
(pollution damage). Others (rightly in my view) also worry about
"social depreciation" which shows up in increased lawlessness,
social breakdown, disrespect and unruly behaviour.
All this suggests that one can define a concept
of "genuine savings" which is simply the difference
between savings and asset depreciation. If savings exceed overall
depreciation, "genuine" savings is positive. What this
reduces to is a simple requirement—we can consume as much
as we like so long as the capital base of the economy (the stock
of assets) does not decline. Put another way, (maximum) sustainable
consumption is that level of consumption consistent with genuine
savings being zero.
This is the essence of the economic analysis
of sustainable consumption. It gets more complex once we allow
for population change and technological change, but the basics
are as set out above. It may be worth noting that, while the argumentation
may look slightly complicated, it is all consistent with old fashioned
views that one should not "sell the family silver".
It does have considerable implications for policy, however. If
one runs down North Sea oil and gas, it is necessary to use the
proceeds (the "rents") to build up other capital assets.
Many countries, including the UK in the past, have failed to do
this—they "consume" the proceeds and because of
the way national accounts are calculated, this fosters the illusion
that they are growing "sustainably". Proper construction
of capital accounts would show that they are not necessarily sustainable.
Work at the World Bank, using these notions, has shown, for example,
that under reasonable assumptions even an economy as large and
powerful as the USA can fail a sustainability test.
One could make this sustainability test stricter.
Some people believe that environmental assets are so "special"
that, not only should we insist on the overall stock of assets
growing, we should add a further requirement that environmental
assets should not decline. This is sometimes called "strong
sustainability". It contrasts with the notion of sustainability
introduced above because it would not allow a decline in environmental
assets to be offset by an increase in other assets. Thus, extracting
North Sea oil cannot be compensated for by building more universities,
say. The loss of oil assets must be compensated by some other
environmental asset—perhaps more renewable energy. This
notion has many problems and space forbids a discussion here,
but it is easy to see why it is attractive. We know far less about
what environmental destruction will do to future wellbeing than
we know about man-made assets. We can also build and "unbuild"
roads and houses: we can't recreate many environmental assets
when they have gone.
Changing the notion of sustainable consumption
to allow for this view is quite easy. What happens is that the
added constraint—keeping environmental capital constant
(whatever that means)—means that some resources must be
devoted to honouring that constraint when they might have yielded
a higher social return by being invested in, say, education or
health. There is an "opportunity cost" of the constraint
on using natural resources and this will lower the maximum sustainable
consumption level. Simply put, in a world where strong sustainability
ruled, there would still be a sustainable consumption level but
it would be less (per capita) than in the world where all assets
are substitutable for each other. (It is important to avoid another
confusion which pervades the literature: no-one is suggesting
one can substitute for all natural resources. The issue is substitution
"at the margin". Moreover, substitution is never one-way:
it could be the case that it is better to invest in natural resources
than more universities. It is an empirical matter, not one of
faith or dogma).
OTHER NOTIONS
OF SUSTAINABLE
CONSUMPTION
Both the above notions of sustainable consumption
have rigorous content. The same cannot be said for other notions
which are, nonetheless, quite popular. Confusion is again generated
by a failure to define terms properly: consumption is income not
saved. Call this final consumption. The consumption of materials
and energy is an input to this concept of consumption. It makes
a lot of difference if one is arguing about the former or the
latter, or both.
The first alternative notion has no real definition
of what is and what is not "sustainable" consumption.
Instead, it simply requires that consumption levels be reduced.
There are two meanings to this.
One is (presumably) totally uncontroversial.
It requires that we consume less materials and energy per unit
of final consumption. This is resource efficiency or resource
productivity, and the UK government has a modest programme of
work on this notion. We know that, in terms of technological potential,
resource productivity gains could be enormous (the so-called "factor
Four" argument). The debate then shifts to the costs and
benefits of securing this potential and the means of achieving
it (market-based environmental policies seemingly being particularly
effective in this context).
The second meaning of "reduced consumption"
is that final consumption is reduced. We simply "consume
less" by spending less money on consumer goods. One reason
for doing this is that someone may think it is "wrong"
to spend money on "frivolous" goods or even goods they
consider to be harmful. Such a view, quite widespread among the
more "evangelical" of environmentalists, raises all
kinds of issues about who decides, and whether overriding human
preferences is itself consistent with any sensible notion of sustainable
development. My own view, for the record, is that such an approach
to sustainable development is both undemocratic and self-defeating
(which does not mean that the viewpoint should not be aired!).
Another reason for reducing final consumption,
relevant to sustainable consumption, is that if we reduce consumption
we will also reduce the use of energy and materials. This second
argument might have some merit if the ratio of energy and materials
used to consumption is fixed in some way. The resource productivity
argument tells us that these ratios are not at all fixed. Initially,
it seems perverse to argue for reduced consumption on environmental
grounds if we can secure the same end by resource productivity
without interfering with what people want.
The reality is that this alternative view of
"sustainable consumption" is a weakly disguised version
of the 1970s anti-growth literature. Some of its advocates are
honest enough to say so, some are not. As noted, it has major,
and I would say, insuperable problems. It does not appear to be
consistent with what people want, it could not be usefully implemented
on a unilateral basis, it would harm those supplying us with goods
and services (including poor countries) and it would raise a myriad
social problems. But suppose all these were regarded as an acceptable
trade-off for the environmental returns. How would one implement
an anti-growth (anti high consumption) policy? One could tax consumption
and subsidies savings. But savings are simply tomorrow's consumption
so nothing is achieved by this. One could have campaigns telling
people they should not consume this or that. One could reduce
expenditure on education and health and on technological change,
because these are the things we believe generate higher consumption
possibilities. A moment's reflection shows that "sustainable
consumption" on this approach is not a feasible goal.
There is a sustainable consumption literature
that shows how many resources are used by the "rich"
compared to the "poor" and this is used to argue that
the rich should be less rich and the poor less poor. But several
muddles are involved in this argument. The aim of development
is, in part, to make people "rich", so it seems illogical
to complain that the policy should not be successful. It also
tends to imply that if we take $1 away from, say, an American
citizen, this $1 will magically reappear as $1 for a poor person.
It will only do this if the $1 actually materialises and is then
taxed away and given to the poor. But this sustainable consumption
literature says that the $1 should not have been generated in
the first place. If so, it simply never appears for rich or poor:
it is, to paraphrase Monty Python's parrot sketch, a "non-dollar".
If what this "iterature is complaining about is the high
volume of materials and energy used per person in rich countries
(interestingly, not per dollar, because resource efficiency tends
to be higher in rich countries than in poor countries) then we
can have sympathy. But this is an argument about resource productivity,
not reducing consumption.
Finally, there is a notion of sustainable consumption
which argues that we should consume less because that will reduce
environment pollution and resource use and hence what resources
we have will last longer and we can hence have more future generations
than we otherwise would have done. The idea here is to maximise
human survival time on Earth. It has a kind of evolutionary arrogance
about it as a goal, but no doubt some people would find another,
perhaps religious, rationale for it. But if maximising survival
term did make any sense, its implications are formidable. The
easiest way to bring it about would be to lower the consumption
level of every generation (except the last one ever to exist!)
to subsistence levels. This hardly has any appeal to any generation,
save the last one to exist.
CONCLUSIONS
— Clarity in arguing about sustainable
development can be aided by differentiating definitions of sustainable
development from conditions for sustainable development.
— The definition involves defining
a value word—"development"—but this definition
may not matter if the conditions for achieving whatever the goal
is, are similar.
— While most of the discussion about
sustainable development is about inter-temporal development, the
Brundtland Commission was clear in giving priority to development
for the poor now.
— Allocating resource to inter-temporal
concerns involves using resources that could be used to help the
poor now. The result could be perverse, with resources being allocated
to people in the future who will probably be richer than the poor
now.
— The correct context for policy is
one of trade-offs. The popular literature, aided by the Brundtland
Report, has given the impression that sustainable development
is about having everything at the same time. This is an illusion.
— Actual policy proceeds with trade-offs
that are often ill-informed. Housing and other land use policy
in the UK might be an example. It is certainly not an example
of "development" that protects environmental assets.
— "Sustainable consumption"
can be defined rigorously, although this is not how it is treated
in the major part of the popular literature.
— The first rigorous notion defines
sustainable consumption as that level of consumption that is consistent
with not running the nation's overall capital assets down. This
is equivalent to saying that "genuine savings" must
not be negative.
— The second rigorous notion of sustainable
consumption is that level of consumption consistent with maintaining
all capital assets, and, maintaining environmental assets at their
existing level as well. If investing in resource conservation
has a lower rate of return than investing in, say, education,
this definition implies a lower level of maximum sustainable consumption
than the previous definition.
— Other notions of sustainable consumption
are usually muddled or infeasible. One popular notion is simply
that consumption levels should be reduced in order to save resources
and the environment. If so, one would want to know why this cannot
be better achieved by resource productivity than by reducing consumption.
There are also problems in terms of thinking what the policies
are that would reduce consumption. Most would be infeasible because
they would be politically suicidal, but there are also questions
about whether such policies could ever be implemented without
sacrificing the means of development—education, health,
and technological change—which are regarded as good in themselves.
— Much of the "sustainable consumption"
literature is actually a rebirth and restatement of the 1970s
anti-growth literature. The idea that the rich should be less
rich and the poor less poor is muddled. Certainly the poor should
be richer, but making the rich less rich is simply a gratuitous
loss of wellbeing—it does not make the poor any less poor.
But it is correct to insist that we do all we can to make the
rich more resource productive per capita, just as they are already
more resource productive per dollar or pound.
May 2004
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