The economics of sustainability



Sustainable development is a term that is frequently used by non-economists to describe a level of economic development that is seen as socially beneficial. This seems to make a distinction from what is economically beneficial, which presumably is based on a concept of maximising the growth in the measurable wealth in the economy.

The UK government is keen to be seen to include in its policy making the concept of sustainability. For instance, in developing water policy it set out the following as four objectives to ensure a better quality of life for everyone, now and in the future:

- Social progress which recognises the needs of everyone
- Effective protection of the environment
- Prudent use of natural resources
- Maintenance of high and stable levels of economic growth and employment

The issue is how these are interpreted in policy making, and what this contributes to the economic debate. At face value it would seem hard to rationalise what level of economic growth is sustainable and how this could be established.

Attacking growth

One argument to make is that the concept of sustainable development has been produced as a political compromise between environmentalist movements and business/government. Within economics this can be best seen through the eyes of the anti-growth movement. The focus of this is to attack the use of GDP as a measure of growth. This tackles the view that accounting for increases in GDP as being the main goal of long run economic policy is wrong. GDP is seen as a measure of consumption and increased consumption in itself is not a good thing. It is argued that in a similar way to a corporate that has a large turnover but poor productivity and profitability, a country that spends more money in total each year has not necessarily improved. What really matters is producing the same amount with less use of resources, on the grounds that resources are always scarce and therefore measuring growth as just increased consumption can only ever be a short term gain.

This debate is intrinsically linked to what is known as 'consumer confidence'. It is often linked to overall economic growth and therefore consumption cannot be separated from this. Even the UK government statement on sustainability would hint at agreement with this, with the focus on stable levels of economic growth linked to employment (although they did throw in the high bit just to make sure that business wasn't upset by the statement)

Not the environment

The guiding principles used in the UK avoid too many mentions of envirnomental issues. The focus is put on a better quality of life in terms of health and productivity. It talks about a long term perspective for the environment whilst meeting today's needs, using the example that fossil fuels have to be used today to keep houses warm. Both costs and benefits, monetary and non-monetary are to be taken into account. Trade and competitiveness has to flourish. Irreversible damage has to be avoided (which implies that reversible damage may be allowed in the short term). The final statement of principle defines that the polluter should pay, this definition including the ultimate consumer if necessary.

Some elements of this can be seen in current government policy. The development of the landfill tax and the climate change levy allow a cost/benefit trade off to be passed on to consumers, absolving the government from the decision making process. The government merely prevents serious environmental harm from occuring and alters taxation levels to dictate its environmental priorities.

Not the environment internationally either

International treaties more recently seem to have settled on a more economic focus for sustainability also. The failed Kyoto protocol tried to solve greenhouse effect causing gases by proposing a trading arrangement that would allow comapnies to choose between environmental protection payments and restricting economic growth. Previous treaties such as the Montreal protocol that tackled ozone depleting chemicals concentrated on timetables towards outright bans on environmental harm rather than the view that there was a sustainable level of damage.

Less orthodoxy

Perhaps the difference now is that there is less agreement on environmental matters. The environmental science movement, perhaps bouyed by previous successes is often seen as overclaiming risks and damage. Climate change provides an example of this, where there is a large range of alarmists projections of temperature increases. Environemntal science also seems somewhat more defensive and less open to scrutiny than it used to be. Rather than winning the argument over the damage that emissions cause, those who question statements of environmental damage are attacked rather than countering the arguments they use.
Economic orthodoxy is also an issue here. Whilst the US negotiators claimed to be constructively engaged in the Kyoto proccess, behind the scenes talk about oil taxation and the American way of life being under attack seemed to be more about the economics of politics than of the environment.