2. Sustainable economic welfare
Over the last 30 years, major concern has been raised in
relation to long-term rates of natural resource depletion and
environmental degradation, and its perceived impact on sustainable
development [19]. Seeking to address this in national
accounting, proponents of alternative measures of economic welfare,
which tend to incorporate wider quality of life considerations,
generally consider the incorporation of an array of additions to and
deductions from GDP [6,20]. At the core of ‘green’ national
accounting approaches is the notion of netting out from investment
in new durable capital goods the drawdown in items of
natural capital [21]. Although there remains no single accepted
interpretation of the term sustainable development, essentially
the concept considers a single choice: should natural capital be
afforded special protection, or can it be substituted by other forms
of capital, especially produced capital [22].
Predominantly economic approaches to sustainability frame the
dilemma in terms of welfare via the concept of utility and its
maximisation. Hamilton highlights that current income and consumption
expenditure data alone is an inadequate measure of economic
welfare, and draws upon the work of Samuelson [24] to support his
assertion [23]. Samuelson argued that economic welfare measures
need to integrate present and future consumption expenditure, with
the only approximation to a measure of welfare derived from a
quantification of wealth-like magnitudes, not income [24]. This idea
is broadly akin to Fisher’s depiction of current wealth as the present
value of future consumption streams, sourced from three asset types:
immovable wealth (land and the fixed structures upon it), movable
assets, and human beings [25]. Fisher’s main argument was that
income is the yield from society’s capital stocks, and that income was
the flow of services streaming from all human-made products [26].
The total sum of services represented a form of national dividend [27].
Although Fisher referred to the term ‘psychic income’, the terms
‘utility satisfaction’ or simply ‘utility’ are more commonly applied by
modern economists.
2.1. The weak sustainability paradigm
Neumayer describes a straight-forward intergenerational rule
whereby economic development is sustainable “if it does not decrease
the capacity to provide non-declining per capita utility for infinity”
[28] (p. 7). Utility can be sourced from four forms of capital: produced,
natural, human and social [29]. The creation of wealth is the process
and interactions of using the four types of capital to give rise to flows
of goods and services demanded by consumers, and in so doing
maintain or enhance capital stocks [22]. If a specific capital stock is not
maintained, then at some future point the goods and services derived
from it will decrease or cease altogether [22]. On this basis, each of the
four capital stocks may be linked to a type of sustainability—a denuded
natural capital stock is indicative of some level of environmental
‘unsustainability’ [30]. Where different capital stocks are considered to
be substitutes for one another, the declining stock of one can be
compensated by increases to another [28]. This is the essence of the
weak sustainability concept, whereas strong sustainability advocates
argue that both capital classes must be non-declining separately.
The weak sustainability approach initially developed in the
1970s, furnishing neoclassical theories of economic growth with
the additional consideration of non-renewable resource extraction
as a factor of production [31]. Solow [31] contemplated the
optimal use of income generated from the extraction of a nonrenewable
resource, seeking to establish rules on how to much to
consume now and how much to invest in produced capital to
increase consumption later. He also posed a third and more
underlying question related to whether economic growth could
be sustained to allow non-declining economic welfare in perpetuity,
and showed that this was very unlikely in a model inclusive
of non-renewable resources as factors of production. Instead, he
believed that consumption of non-renewable resources converges
to zero in the long run, unless very optimistic assumptions were
taken about how little an economy is constrained by the finite
nature of natural resources.
2.2. The strong sustainability paradigm
In contrast to proponents of weak sustainability, strong sustainability
advocates believe that natural capital is to a greater or
lesser extent non-substitutable [32]. In order to comprehend this
argument, it is necessary to examine the functions of natural
capital. Pearce and Turner consider four distinct functions of
natural capital [33]. First, it provides the raw materials for consumption, production, including food harvests, timber products
and non-renewable energy sources. Second, natural capital
acts as a waste assimilative sink from production and consumption
activities. Third, it provides largely intangible amenity services,
such as the indefinable visual quality of a landscape. Fourth,
natural capital delivers life-support functions on which human
beings depend for survival, such as air purification, pollination of
crops, and flood mitigation.
The strong sustainability approach is grounded in the acknowledgement
that some or all of the functions of natural capital –
waste assimilation, for example – cannot be replaced by produced
capital [34]. Moreover, complex natural systems, such as the global
carbon cycle, are only partially understood, and humanity cannot
be sure of the damaging effects that might stem from polluting
activities. In the most extreme precautionary approach to strong
sustainability, no substitution would be permitted, even to provide
some produced capital and associated waste assimilation. On a
global scale this view seems to be too strict as eco-resilience is not
necessarily achieved via a static view of nature, but could be
achieved through a sustainable evolution of natural and human
systems [35]. However, for some of the features determining the
healthiness of vital ecosystem services, such a strict approach
could be necessary since vital life support systems such as food,
clean air and a stable climate are almost certainly impossible to
substitute 2.3. GPI and sustainability
In order to move the strong sustainability paradigm from
philosophy to practice, Goodland and Daly [35] have advocated
specific global management rules:
The use of non-renewable resources should be reduced as far as
possible and replaced with renewable resources;
Renewable resources should be used such that their stocks do
not deteriorate i.e. they are harvested at their maximum
sustainable yield;
The efficiency and recycling of resources should be maximised;
The environment should be used as a sink for pollution only so
far as its natural assimilative capacity does not deteriorate over
time [35].
During the middle of the 1990s, the Index of Sustainable
Economic Welfare (ISEW) was revised by the Redefining Progress
think tank to become the GPI [3]. Although both methodologies
are very similar, still in use and endeavouring to measure sustainable
economic welfare in monetary terms, the GPI is now more
commonly assessed at the national level. The GPI calculation
embeds Goodland and Daly’s global management rules for strong
sustainability in its calculation processes. Beginning with the main
constituent of GDP, private consumption expenditure, this aggregate
value is weighted according to income inequality. The next
step is to add or subtract a monetary valuation for activities that
either contribute to or diminish economic welfare [36]. Costanza
et al. describe the calculation process as a weighting for income
distribution followed by adjustments related to household expenditures
and work, mobility, social capital, pollution, land loss,
natural capital and net investment [37]. According to Posner and
Costanza [36], the most common basic formula for calculating the
GPI is:
GPI ¼ Cadj þGnd þW–D–E–N
where Cadj is personal consumption expenditures adjusted for
inflation; Gnd is non-defensive government expenditures; W is
non-market contributions to welfare; D is defensive private
D. , it provides the raw materials for
consumption, production, including food harvests, timber products
and non-renewable energy sources. Second, natural capital
acts as a waste assimilative sink from production and consumption
activities. Third, it provides largely intangible amenity services,
such as the indefinable visual quality of a landscape. Fourth,
natural capital delivers life-support functions on which human
beings depend for survival, such as air purification, pollination of
crops, and flood mitigation.
The strong sustainability approach is grounded in the acknowledgement
that some or all of the functions of natural capital –
waste assimilation, for example – cannot be replaced by produced
capital [34]. Moreover, complex natural systems, such as the global
carbon cycle, are only partially understood, and humanity cannot
be sure of the damaging effects that might stem from polluting
activities. In the most extreme precautionary approach to strong
sustainability, no substitution would be permitted, even to provide
some produced capital and associated waste assimilation. On a
global scale this view seems to be too strict as eco-resilience is not
necessarily achieved via a static view of nature, but could be
achieved through a sustainable evolution of natural and human
systems [35]. However, for some of the features determining the
healthiness of vital ecosystem services, such a strict approach
could be necessary since vital life support systems such as food,
clean air and a stable climate are almost certainly impossible to
substitute [19].
2.3. GPI and sustainability
In order to move the strong sustainability paradigm from
philosophy to practice, Goodland and Daly [35] have advo