Many environmentalists and social critics see economics as a discipline that is inconsistent with what most friends of the earth would like to see. Yet I argue in this chapter that sustainability can be fruitfully addressed on the grounds of modern economic theories. The concept of a greened domestic product can be developed and contrasted with alternative measures based on noneconomic indicators. Whereas the latter may address specific issues, the former reflects the idea of a social welfare function whose objective is to capture the overall predicament of a society. One can easily ridicule the idea of a single indicator by pointing at situations such as airplane flight safety or a patient's health; they cannot be meaningfully characterized by a single measure. Indeed, the more complex a research object is, the more indicators are necessary to capture its predicament. Nevertheless, often one would like to raise simple yes-or-no questions such as "Is this economy developing in a sustainable way?"
The classic definition asserts that sustainable development meets the needs of the present without compromising the ability of future generations to meet their own needs (WCED 1987). Although it would be difficult to challenge the logic of this succinct description, it is equally difficult to make it operational (Pezzey 1989). Economists have developed the concept of utility to capture the essence of satisfying human needs. This goes beyond what is routinely applied in statistical analyses based on gross domestic product (GDP) accounting. The latter assume that welfare is confined to the consumption of material goods and services available on the market. And yet not everything that determines human well-being can be bought in the market. First, many services are provided directly by households to their members. Second, some goods or services are provided directly by the natural environment. Third, human well-being is also determined by psychological factors such as a subjective feeling of justice, social cohesion, and a sense of purpose. Unlike the market value of goods and services consumed, utility can in principle reflect all these considerations. It also captures the phenomena that escape market valuation.
The main point, however, is not to swap the GDP for alternative indices too quickly. A major advantage of the GDP is its independence from arbitrary valuations. Quantities are recorded statistically, and prices are set by markets. Therefore, there is no room for arbitrary manipulations by researchers. In contrast, many other welfare indices are subject to arbitrariness, even though some researchers may not be aware of it. For instance, a typical non-GDP-based welfare index is a composition of a GDP-like number (e.g., the consumption of some material goods) and a series of other numbers reflecting social welfare (e.g., the availability of medical treatment, longevity, green areas per capita) (Moldan and Billharz 1997). Although many or all of such factors are indeed important elements of welfare, the totals finally reached depend on the number of factors included and the choice of measurement units. Any choice of units implies assigning weights that a researcher attaches (perhaps unconsciously) to a given factor.
Of course, there are procedures aimed at freeing such composite indices from arbitrariness, but they have no scientific foundation. Any expert judgment and method of statistical grouping or standardization may provide a researcher with the comfort of feeling not guilty of conscious manipulation, but in fact they are not objective (Kobus 2002).
The only alternative welfare indices that can be defended as consistent with economic theory are those based on GDP. Because many exercises of this type were carried out specifically in order to take environmental considerations into account, the concept of a greened GDP was formed. The latter is a GDP in which certain corrections were added to account for the environmental factors that are not adequately reflected in the standard GDP.
Yet another approach is based on the critical natural capital concept (Ekins et al. 2003). According to this, there are limits to substitution between various elements of welfare: The lack of a resource cannot be compensated by the abundance of something else. The purpose of studying critical natural capital is to identify certain minimum or safe levels of natural resources essential for sustainability. This is a promising area of study, but it will take a long time before the approach produces widely accepted sets of indicators (Ekins 2003).
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