Chapter 16: Indicators of Development Sustainability Beyond Economic Growth: An Introduction to Sustainable Development By Tatyana P. Soubbotina
Overview of Chapter 16: Indicators of Development Sustainability What is national wealth? Physical capital plus human and natural capital Does accumulation of national wealth indicate sustainable development? The genuine savings rate adjusts the classical savings rate What is a measure of global wealth/sustainability? Social capital and corruption
What is national wealth? Classical economics focuses on physical capital Building physical capital is classified as “investment” Everything else is classified as “consumption” including improvements in human capital or natural capital National wealth is determined by physical, human, and natural capital “Green” national accounts, for example, “Green GDP”, account for changes in natural and human capital Developed countries have lower share of natural capital in their national wealth (Fig. 16.1)
Does accumulation of national wealth indicate sustainable development? Sustainable development must allow physical, human, and natural capital to grow (or not to decline) The “genuine savings rate” accounts for natural resource depletion & pollution, and growth in human capital (see Figure 16.2) Major oil exporters may have negative genuine savings rates The genuine savings rate does not capture limited substitutability between types of capital Some physical capital (solar panels) can substitute for natural capital (oil). Is there a substitute for a coral reef?
What is a measure of global wealth/sustainability? Material throughput determines the total stress that humans put on the environment Sustainability limits this stress to tolerable levels Consumption at the levels of high-income countries would require ten planets (!) like Earth New technologies required to extend development to everyone
Social Capital and Corruption Social capital (the way people interact, cooperate, and resolve conflicts) is critical for economies to grow Corruption (bribery or misuse of public funds) is an important indicator of social capital degradation Two important types of corruption Administrative corruption: bribes to administrators to ignore laws or to win public contracts State capture: bribes to lawmakers to create favorable laws Corruption can be reduced by a reformed public administration, an independent judiciary, an independent media, and competitive markets