Sustainable Development: An Economic Perspective

By Khalil, Samina | Economic Review, June 1991 | Go to article overview
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Sustainable Development: An Economic Perspective

Khalil, Samina, Economic Review

Sustainable Development: An Economic Perspective

In the process of economic development, the intention is to raise the standard of living on a sustained basis. All human activity, economic and socio-cultural, takes place in the context of certain types of relationships between society and the bio-physical world (the rest of nature). "Development" necessarily involves a transformation of these relationships.

Sustainable Development is about being fair to the future that is behaving sustainable. The concept of sustainability is becoming more prominent on the global agenda. At a general level, the concern is that our current organization of society and modes of production and consumption are not sustainable and that we need to undergo a transformation so that we can meet "the needs of the present without compromising the ability of future generations to meet their own needs" (WCED, 1987).

It can also be termed as a process of change in which exploitation of resources, the direction of investments, the reorientation of technological development and institutional change are all in harmony and enhance both current and future potential to meet human needs and aspirations.

The idea of a sustainability has quite deep historical roots such as in classical economics. It is perhaps best seen as an issue which has been recognized for some time, but which has only become more widely realized now that a number of subsidiary ecological situations (notably climate change) have reached a critical stage. The concerns which underline the overall topic of ecological sustainability have emerged over the last few decades in a number of disciplines. These include economics, particularly resource economics, ecology, social theory and development studies. The major contributions to our understanding now have been the following realizations:

1) External costs of production. 2) Potential resource scarcity. 3) Physical limits of indefinite material growth. 4) Diminishing social returns of growth. 5) Global inequality. 6) Reduced biological diversity.

These cumulative concerns are reflected in recent global overviews which go some way toward presenting overviews of the sustainability debate. Now for the first interpretation of sustainability as fairness to the future, it is the total stock of all forms of wealth that must not be depleted. It is consistent with this view that environmental wealth is depleted as long as that depletion is compensated for by a building up of the other forms of wealth, human and capital wealth. Equally, if man-made wealth is run down, environmental capital must be built upto compensate.

Deciding how much to have of each form of capital rest on determining their correct values. To the economist this means finding the right prices. The argument that environments are beyond price" is not illogical. Even though environmental services are rarely bought and sold in markets, it is possible to get some idea of what those values be if only there was a market. This is the economist idea of a "shadow-price", the price that would rule if environmental goods and services are traded in the "right" amounts. So we can say that sustainable development means getting our accounting systems to reflect as far as possible, the shadow prices of environment. This could be one of the several major steps that need to be taken in practice.

Remodelling the National

Accounting System

There is already a significant amount of effort going into the modification of the way in which we measure economic progress in the developed countries. The basis indicator is gross national product (GNP) which measures the aggregate value of the output in the economy in a given year. GNP ought to be related to society's well being. If GNP goes up we ought to be able to assume that well being has improved. But GNP is misleading in this respect. Consider what happens if people spend money trying to adapt to or prevent pollution.

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