Sustainable Development Research Paper

This research paper discusses briefly the emergence of the concept of sustainable development and provides a broad definition of sustainable development. Two distinct interpretations of sustainable development—weak and strong sustainability—are compared and contrasted. Recent advances in three areas of the literature that are relevant to understanding sustainable development and to designing appropriate policy responses are examined. These are: ecological functioning and resilience; environmental Kuznets’ curve (EKC) and the environment–growth debate; and endogenous growth, technological innovation, and resource dependency. For each area, the basic concept is explained and the implications for sustainable development are discussed. Finally, the policy issues and options for achieving sustainable development are discussed. Four key options are identified: measuring the ecological and economic impact of declining natural resources; improving our estimates of the economic costs of depleting natural capital; establishing appropriate incentives, institutions, and investments for sustainable management of natural capital; and encouraging interdisciplinary collaboration between the relevant social and behavioral sciences undertaking research on sustainable development.

1. Concept Of Sustainable Development

1.1 Definition Of Sustainable Development

The broad concept of sustainable development (Pearce and Barbier 2000) encompasses considerations of equity across and within generations, taking a longer-term perspective and accounting for the value of the environment in decision-making (Pearce et al. 1989). As noted by Turner (1997), the concept of sustainable development has been challenged on several grounds: as an oxymoron, as a means of imposing a particular political position, as an approach to divert attention from more pressing socioeconomic problems, and given the history of the human–environment relationship. However, sustainable development continues to receive increasing international recognition and it has become a key guiding principle for the global society at the start of the new millennium (National Research Council 1999).

There have been a substantial number of diverse and wide-ranging interpretations of sustainable development, both across and within scientific disciplines. Pearce et al. (1989) provide a collection of such definitions, and for summaries of recent developments see Goldin and Winters (1995) and Pearce and Barbier (2000). In general, sustainable development implies that economic development today must ensure that future generations are left no worse off than present generations. This means that future generations should be entitled to at least the same level of economic opportunities—and thus at least the same level of economic welfare—as is currently available to present generations. As Pezzey (1989) succinctly states, the welfare of society should not be declining over time.

1.2 Total Capital Stock

The total stock of capital employed by the economic system, which includes physical, human, and natural capital, determines the full range of economic opportunities and welfare available to both present and future generations. Natural capital comprises of natural resources and environments and provides various goods and services to society. For example, tropical forests provide direct use benefits in the form of timber, fruits, and nuts, indirect use benefits such as recreation, watershed protection, biodiversity protection, carbon storage, and climate maintenance, and nonuse benefits which include existence and bequest values (Barbier et al. 1994). Sustainable development requires managing and enhancing the total capital stock so that its aggregate value does not decline over time. Therefore, society must decide how best to use its total capital stock today to increase current economic activities and welfare, and how much it needs to save or even accumulate for the welfare of future generations.

However, it is not simply the aggregate stock of capital in the economy that matters but also its composition. In particular, whether present generations are ‘using up’ one form of capital to meet the needs of today. For example, much of the recent interest in sustainable development has risen out of concern that current economic development may be leading to the rapid accumulation of physical and human capital, but at the expense of excessive depletion and degradation of natural capital. The major concern has been that the irreversible depletion of the world’s stock of natural wealth will have detrimental implications for the welfare of future generations.

While generally it is accepted that economic development around the world is leading to the irreversible depletion of natural capital, there is widespread disagreement as to whether this necessarily implies that such development is inherently unsustainable. From an economic standpoint, the critical issue of debate is not whether natural capital is being irreversibly depleted. Instead, as argued by Maler (1995), the more crucial issue for sustainable development is whether we can compensate future generations for the current loss of natural capital, and if that is the case, how much is required to compensate future generations for this loss? This depends on whether natural capital is considered to have an unique or essential role in sustaining human welfare and whether special ‘compensation rules’ are required to ensure that future generations are not made worse off by natural capital depletion today.

1.3 Weak And Strong Sustainability

Two distinct interpretations of sustainable development are referred to commonly in the literature as ‘weak’ and ‘strong’ sustainability. According to the weak sustainability view, there is essentially no inherent difference between natural and other forms of capital, and hence the same optimal depletion rules ought to apply to both. That is, as long as the natural capital that is being depleted is replaced with even more valuable physical and human capital, then the value of the aggregate stock—comprising human, physical, and the remaining natural capital—is increasing over time. Maintaining and enhancing the total stock of all capital alone is sufficient to attain sustainable development.

In contrast, proponents of the strong sustainability view argue that physical or human capital cannot substitute for all the environmental resources comprising the natural capital stock, or all of the ecological services performed by nature. This view questions whether human, physical, and natural capital comprises a single homogeneous total capital stock. Uncertainty over many environmental values, in particular the value that future generations may place on increasingly scarce natural resources and ecological services, further limits our ability to determine whether we can compensate adequately future generations for irreversible losses in essential natural capital today. Thus, the strong sustainability view suggests that environmental resources and ecological services that are essential for human welfare and cannot be substituted easily by human and physical capital should be protected and not depleted. Maintaining or increasing the value of the total capital stock over time in turn requires keeping the nonsubstitutable and essential components of natural capital at least constant over time.

2. Aspects Of Sustainable Development

2.1 Ecological Functioning And Resilience

The ecological economics literature has called attention to the important role of ecological functioning and resilience in sustaining human livelihoods and welfare (Perrings et al. 1992). By ecological functioning, ecologists usually mean those basic processes of ecosystems, such as nutrient cycling, biological productivity, hydrology, and sedimentation, as well as the overall ability of ecosystems to support life. Ecologists consider the collective range of life-support functions to be the key characteristic that defines an ecosystem, as well as the source of the many key ecological resources and services that are important to human welfare (e.g., drinking water, food, and soils).

Although there is some dispute in the ecological literature over precise interpretations of the term ecological resilience, ecologists generally use this term to mean the capacity of an ecosystem to recover from external shocks and stresses (e.g., drought, fire, earthquakes, pollution, biomass removal) (Holling 1986, Walker 1992). As the health of an ecosystem usually is determined by its capacity to deliver the life-support functions appropriate to its stage of ecological succession, then the ecological resilience of the system is linked inherently to its ecological functioning. That is, if an ecosystem is resilient, then it should recover sufficiently from any human-induced or natural stresses and shock and function normally. However, if ecosystems are insufficiently resilient to recover from persistent problems of environmental degradation then the ability of ecosystems to function normally and deliver important biological resources and ecological services will be affected. At some threshold level of ecological functioning, ecosystems that are subject to persistent environmental degradation and disruption begin to malfunction, breakdown, and ultimately, collapse.

The loss of ecosystem functioning and resilience will lead to a decline in the availability of some economically important biological resources and ecological services. For example, the loss of fish stocks as the result of pollution impacting on marine systems, the inability of rangeland pastoral systems to recover from drought, and the decline of the watershed protection function of degraded forests. At first these ecological and welfare impacts may be localized, but if they occur on a sufficiently great enough scale, they may generate wider national, regional, or even global effects, such as climate change. Although the scale of such impacts and their ultimate effects on human welfare are often uncertain and difficult to determine, the irreversible loss of key biological resources and ecological ‘services’ through the disruption and breakdown of ecosystems could constitute a growing problem of ecological scarcity (Barbier 1989). The rising ‘scarcity’ of ecological resources and services will mean that they will increase in value relative to human-made goods and services produced in economic system. Moreover, persistent and rising ecological scarcity may be an indicator of more widespread and frequent disruptions to the functioning and resilience of ecosystem, and increase the likelihood of ecological collapse and catastrophe on ever widening scales (Daily and Ehrlich 1992, Meadows et al. 1992, UNPF 1993).

2.2 Implications Of Ecological Functioning And Resilience For Sustainable Development

Given the rate at which ecological disruption is occurring globally as a result of the cumulative impacts of pollution, habitat modification, and conversion and over-exploitation of some biological resources, the ecological functioning and resilience upon which many important ecological resources and services depend may be undermined. Thus, not only is there a danger of depleting essential ecological components of natural capital, but the widespread disruptions to the functioning and resilience of ecosystems may mean that these essential components are being lost irreversibly. Therefore, the ecological economics literature generally endorses the strong sustainability view.

Ensuring sustainable development first will require identifying those essential ecological resources and services that are most at risk from current patterns of economic activity and development. Second, it is necessary to take appropriate policy measures to protect the irreplaceable components of natural capital. Finally, it is important to maintain the functioning and resilience of the key ecosystems on which they depend. This implies a fundamental rethinking in the way in which countries currently manage their environments, as well as the relative importance of policies for environmental protection in the process of economic development. The additional costs that are required to adjust current patterns of economic activity and development could be significant, especially in the short and medium term, and may constrain such a comprehensive shift in policy.

2.3 Environmental Kuznets’ Curves And The Environment–Growth Debate

There has been a long-standing debate about the relationship between economic growth and the environment. An early view was expressed in the publication of the Club of Rome’s Limits to Growth in 1972 that there exists a trade-off between economic growth (measured by rising real per capita incomes) and the environment, whereby an improvement in one implies a reduction in the other (Meadows et al. 1972, Daly 1987). The modern sustainable development debate has focused more on the potential complementarity between growth and the environment, where growth is considered compatible with improved environmental quality.

A recent extension to this literature looks at the analysis of environmental Kuznets’ curves (EKC). This is the hypothesis that there exists an ‘inverted U’ shaped relationship between a variety of indicators of environmental pollution or resource depletion and the level of per capita income (Kuznets 1955, Grossman and Kreuger 1995, Shafik 1994). The implication of this hypothesis is that environmental degradation should be observed to increase initially, but to eventually decline, as per capita income increases. To some extent, this combines the two previous views on the relationship between economic growth and the environment. That is, at low incomes there exists a tradeoff between economic growth and environmental quality, while at higher incomes economic growth is complementary to improved environmental quality.

Pearce and Barbier (2000) and Stern et al. (1996) provide a review of the relevant empirical studies. These studies suggest that EKC relationships are more likely to hold for only a few pollutants with short-term and local impacts, such as sulphur dioxide (SO ) and to a lesser extent solid particulate matter (SPM). In addition, even when an EKC relationship is estimated, the ‘turning point’ on the curve where environmental degradation starts to decline with per capita income is very high relative to the current per capita GDP levels of most countries. This is a particular problem for less developed countries with low per capita income levels. However, several recent studies have also demonstrated that EKCs are highly susceptible to structural economic shifts and technological changes, which are in turn influenced by policy initiatives such as the Montreal Protocol and the Second Sulphur Protocol.

2.4 Implications Of Ekcs For Sustainable Development

Recent EKC studies have revived the wider ‘growth vs. the environment’ debate. Some commentators have argued that the empirical evidence of EKCs supports the general proposition that the solution to combating environmental damage is economic growth itself (Beckerman 1992). For example, the EKC literature offers limited evidence that for certain environmental problems, particularly air pollutants with localized or short-term effects, there is an eventual reduction in emissions associated with higher per capital income levels, which may be attributable to the ‘abatement effect’ that arises as countries become richer (Panayotou 1997). Also, both the willingness and the ability of political jurisdictions to engage in and enforce improved environmental regulations, to increase public spending on environmental research and development, or even to engage in multilateral agreements to reduce emissions may also increase with per capita income levels.

Other commentators have been more cautious, noting that conclusive evidence of an EKC relation-ship applies only to a few pollutants, which makes it difficult to support more general growth-environment linkages. It has also been noted that, even for those pollutants displaying EKC characteristics, aggregate global emissions are projected to rise over time, demonstrating that the existence of an EKC relation- ship for such pollutants does not imply necessarily that, at the global level, any associated environmental damage is likely to disappear with economic growth. Therefore, the recent EKC literature should not be taken to imply that economic growth on its own will foster environmental improvement automatically. As Panayotou (1997) concluded, ‘when all effects are considered, the relationship between growth and the environment turns out to be much more complex with wide scope for active policy intervention to bring about more desirable, and in the presence of market failures, more efficient economic and environmental outcomes.’ Or, as Arrow et al. (1995) have succinctly put it: ‘economic growth is not a panacea for environmental quality; indeed it is not even the main issue.’

2.5 Endogenous Growth, Technological Innovation, And Resource Dependency

Another recent advance in the literature with important implications for sustainable development looks at endogenous growth, technical innovation, and resource dependency. A key feature of recent endogenous growth models is that technological innovation, that is, the development of new technological ideas or designs, is endogenously determined by private and public sector choices within the economic system (hence the term ‘endogenous’ growth) rather than determined outside (i.e., ‘exogenous’) to the system (Romer 1990). This implies that the level of technology in an ‘endogenous growth’ economy can be advanced perpetually through public and private investments, such as research and development expenditures and increases in human capital skills. Since technical innovation adds to physical capital already used in production, the economy can potentially ‘sustain’ growth rates indefinitely. Furthermore, as the economy develops, its growth rate should eventually diminish until it reaches its long-run growth rate (Barro and Sala-I-Martin 1995).

The recent debate over the role of innovation in economic growth has led to empirical studies across countries and regions in the factors underlying long-term economic growth. Empirical evidence seems to support the notion that rich countries have higher rates of savings or more ‘effective’ institutions, and implies that persistently bad government policies and ineffective institutions are inhibiting the long-run growth prospects of low-income countries. In addition, poor countries may fail to achieve higher rates of growth because they fail to generate or use new technological ideas to reap greater economic opportunities.

Institutional and policy failures in poor economies are important determinants of their inability to innovate sufficiently to achieve higher long-term growth rates. Another important factor may be the structural economic dependence of these economies on their natural resource endowments. Recent explanations as to why resource dependence may be a factor in influencing economic growth point to a number of possible fundamental linkages between environment, innovation, and long-term growth relevant to poor economies. Previous studies of an economy’s dependence on natural resources and its long-run growth (Dasgupta and Heal 1979, Stiglitz 1974) have been extended by Barbier (1997) to include an endogenous growth economy in order to determine whether an economy’s dependence on an exhaustible natural resource is necessarily a binding constraint on long-term growth. The results of the analysis show that sufficient allocation of human capital to innovation will ensure that in the long run resource exhaustion can be postponed indefinitely, and the possibility exists for sustained long-term per capita consumption. However, when negative feedback effects between the rate of resource utilization and innovation exist, the conditions under which it is possible to sustain per capita consumption over the long run are much more stringent and again assume that the economy is able to build up sufficient human capital and to innovate.

2.6 Implications Of Endogenous Growth Theory, Technical Innovation, And Resource Dependency For Sustainable Development

Endogenous growth theory offers some support for the weak sustainability view. That is, provided that obstacles such as persistent policy distortions, political instability, and institutional failures can be overcome, any economy—even a low-income and resource dependent developing country—should be able to foster endogenous innovation to substitute human and physical capital for a declining natural capital base in order to sustain economic opportunities and welfare indefinitely. The key appears to be developing effective policies and institutions, including the necessary public and private investments to enhance research and development and human capital skills.

Unfortunately, in most low-income countries current economic policies and investments in agriculture, forestry, and other resource-based sectors have led to rapid changes—frequently with adverse economic consequences—in resource stocks and patterns of use. Demographic trends have often worsened the relationship between population and resource carrying capacity in many regions, and chronic environmental degradation may itself be contributing to social conflict and political instability, thus undermining the social and economic conditions necessary to foster long-term innovation and development (HomerDixon 1995). In addition, the type of ‘resource-saving’ innovations envisioned in most endogenous growth models are likely to be technologies to abate pollution and other waste products, and to conserve the use of raw material and energy inputs. However, many ecological resources and services, such as biodiversity, amenity services, and ecological functions, are less amenable to substitution by the conventional resource-saving innovations developed in the economic process. Thus, innovations are less likely to lead to opportunities for the substitution of the more unique, and possibly essential, range of ecological resources and services, including the general life-support functioning and resilience of ecosystems.

3. Policy Issues And Options For Sustainable Development

This section discusses the policy issues and options for sustainable development. There are some important areas of common ground for policy makers that make good progress towards sustainable development, regardless of the viewpoint on strong and weak sustainability. For example, as there exists considerable scope for substituting human and physical capital for natural capital through conservation and substitution of resource inputs, reducing pollution, and improving environmental protection, then designing policies for sustainable development must begin with these basic objectives in mind. To do this requires progress in four areas.

First, it is important to improve existing efforts to measure the economic and ecological consequences of natural capital depletion and degradation. That is, in order to consider how well an economy is substituting physical and human capital for natural capital, it is necessary to measure how much the value of the natural capital stock has been ‘depreciated’ through current efforts to use environmental resources and services to promote greater levels of consumption and investment in the economy. Determining the ‘sustainable’ level of income and consumption, that is, accounting for the increases in the total available goods and services in the economy net of the depreciation in the value of the natural capital stock, is an important economic approach to measuring sustainability. Equally, determining the ecological ‘limits’ to exploitation of the natural capital stock, including ecological thresholds, carrying capacities, and key ecological goods, services and natural environments that might be considered ‘essential,’ are important ecological contributions to measuring sustainability.

Second, many of the resources and services of our natural capital endowment are either ‘unpriced,’ meaning that unlike other goods and services in our economy there are no markets for them, or they are ‘underpriced,’ meaning that where markets do exist for some environmental goods and services the prices in these markets do not necessarily reflect their true contribution to human welfare. As long as environmental goods and services continue to be ‘unpriced’ and ‘underpriced,’ then their contribution to human welfare relative to other goods and services in the economy is effectively ‘undervalued.’ Thus, in order to promote better policies for sustainable development it is necessary to determine the correct economic values for environmental goods and services and to develop a variety of economic tools for assessing these values.

Third, determining an appropriate ‘mix’ of human, physical, and natural capital to ensure sustainable development is ultimately about designing appropriate incentives, institutions, and investments for efficient and sustainable management of the natural environment. In order to promote sustainable development it is important to determine the causes of environmental degradation, particularly where the failure of institutions, markets, and government policy are the main contributing factors, and to demonstrate how correcting these failures can lead to improved incentives and investments for efficient and sustainable management of natural capital.

Finally, in order to make genuine progress towards sustainable development, it is necessary for the conventional social and behavioral sciences, such as economics and ecology, to work together towards a common goal of sustainable development.

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