BetterPoliciesforBetterLives:PolicyforWell-beingandSocialProgress

Lesson5.SocialWelfareoverTime:SustainabilityMarcoMirad’Ercole(marco.mira@oecd.org)OECDStatisticsDirectorate

2

SustainabilityintheOECDwell-beingframework

“Sustainabledevelopmentisdevelopmentthatmeetstheneedsofthepresentwithoutcompromisingtheabilityoffuturegenerationstomeettheirownneeds”.Twokeyconcepts:i)theconceptof needs,inparticulartheessentialneedsoftheworld'spoor,towhichoverridingpriorityshouldbegiven;ii)theideaof limitations imposedbythestateoftechnologyandsocialorganizationontheenvironment'sabilitytomeetpresentandfutureneeds”

WorldCommissiononDevelopmentandtheEnvironment(Brundtland,1987)

A. The‘capitalstock’approachtosustainabilityB. Differenttypesofcapital

– Economiccapital– Humancapital– Socialcapital– Naturalcapital

C. WeakandstrongsustainabilityD. Sustainabilityandpolicymaking

3

Structureofthislesson

4

A.Capitalapproach(1)Keyideas• Communitiesandpolicy-makersdonotcareonlyaboutcurrentwell-being,butwantwell-beingthatlastsovertime(sustainability)

• Forthistohappen,youneedtofocuson‘drivers’supportingvariouswell-beingoutcomes(i.e.instrumentallyimportant)

• Someofthesedrivershavefeaturesofpersistence:theylastovertimebutshapedbytoday’sactionsandbehaviours,i.e.capitalstocks

• Whileresourcesdifferdependingonthewell-beingoutcomeconsidered,someareimportantformanyoutcomesatthesametime

• Theseresourcesareembeddedin‘systems’shapingpeople’slife(e.g.naturalsystem,economicsystem,socialsystem)

5

A.Capitalapproach(2)Sustainableincome. RootsinFisher’s(utility-based)income:“flowofconsumptionthatcouldbeharvestedfromanation’scapitalstock”

• Conventional(Hicksian)incomewouldrankaneconomywithGDPpcof20KUSD,butwherepeopleliveshortlives,asequivalenttoaneconomywiththesameGDPpcwherepeoplelivemuchlongerlives

Whataretherelevant‘capitalstocks’?Well-beyondeconomiccapital

• Resourcesforfuturewell-beingare‘capitals’thatlastovertime,dissipatequicklyifnotattendedto,shapedbyinvestmentanddepreciationoccurringnow

Kt =Kt-1 +It – Dt

• Severaltypesofcapital(economic,natural,humanandsocialcapital)areimportantforfuturewell-beingofindividualsandsocieties

SWt+n =F(Ket,Kht,Kst,Knt,…)

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A.Capitalapproach(3)Whataretherelevant‘prices’foralltheseresources?• Notpricesobservedonthemarket,but“shadowprices”thatreflectthe

contributionofvariouscapitalstohumanwell-beingtodayandinthefuture• Thesepricesreflectallthenegativeexternalitiesassociatedtoeconomicactivities,

missingmarkets,andincreasewhenstocksofcapitalapproach“tippingpoints”

Whatisthenecessaryconditionfor‘sustainability’?• Stockoftotalcapitalpercapitathatisnon-declining

0≤(Σi )Ki *PsiWhatdoesitrequire?• ThemaximumrateofCt consistentwithmaintainingCt+n isNetNationalProduct,

i.e.yieldgeneratedbysocietystockofcapital• “Output-sustainabilitycorrespondenceprinciple”,i.e.in“idealisedconditions”(i.e.

marketscapturefullsocialvalueofallinputs,andaccountsincludeallstocksofcapital)NNPandsustainableincomeareidentical.Corollary:Ø TotheextentthatSNAomitimportantcomponentsofconsumptionandofnet

capitalaccumulation,theyprovidemisleadingmeasureofsustainableincome

Inthinkingaboutcapital,weareinterestedin

• Stocks,i.e.theamountofcapitalavailableatapointintime,generallyexpressedonapercapitabasis

• ‘Net’stocks,i.e.thedifferencebetweenassetsandliabilitiesofacountry/community,basedoncomprehensivebalancesheet

• Flows,i.e.investments,depreciationanddepletionthatleadtochangesinthestockavailableatagivenpointintime

• Risks,i.e.likelihoodthatachangeinagivenstockofresourceswilltranslateintochangesinwell-beingoutcomesforpeople

7

A.Capitalapproach(4)

Example:climatesystem

• ClimatechangeisduetoaccumulationinatmosphereofdifferenttypesofGHGgases,eachwithitswarmingpotential(carbon-equivalent),andimpactsonfuturewelfare

• ConcentrationofGHGsisthemaindriverofclimatechangeanditsimpactsonpeople’swell-being:concentrationsas‘hiddendebttonature’→Stock

• Concentrationsaredrivenbyflowsofman-madeemissions(negativeinvestment)andnaturaldecayofwarmingpotential(depreciation)→Flows

• GHGconcentrationstranslateintohighertemperatureswithdifferentprobabilities→Risk

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A.Capitalapproach(5)

Stabilisation level 2 C 3 C 4 C 5 C 6 C 7 C

450 ppm 78% 18% 3% 1% 0% 0%550 ppm 99% 69% 24% 7% 2% 1%650 ppm 100% 94% 58% 24% 9% 4%750 ppm 100% 99% 82% 47% 22% 9%

Source: Stern Review

Temperature increaseGHG concentration levels and temperature increase

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B.Differenttypesofcapital

B1.Economiccapital

B2.Humancapital

B3.SocialCapital

B2.Naturalcapital

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Dualnatureofeconomiccapital• “storesofvalueoverwhichownershiprightsare

enforcedbyinstitutionalunits..fromwhicheconomicbenefitsmaybederived bytheirownersbyholding..orusingthem,overaperiodoftime”(SNA2008)

B1.Economiccapital(1)

The‘wealth’and‘capital’perspective• Relatedconcepts(valueofaneconomicassetshouldreflectis

itscurrentandfutureproductivecapacity)butnotidentical• Marketpricesforwealthmayreflect‘bubbles’or‘rent

extraction’unrelatedtoproductiveuse

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ScopeofeconomiccapitalinSNA• Machines,buildings,infrastructure(fixed,produced,material)• Inventories(not-fixed,produced,material)• Landandnaturalresources(fixed,non-produced,material;partof

‘economiccapital’whendeliveringeconomicbenefits)• R&D,intellectualproperty/knowledgecapital(produced,immaterial)• Netforeignassetpositionofacountry(financialcapital)Measuredthrough• Balancesheets(openingandclosingstocks;assets/liabilities/net

worth),forthetotaleconomyandvariousinstitutionalsectors• Accumulationaccounts,i.e.changesinthestockof

assets/liabilities/networthbetweentwodates(flows)• Capitalaccounts(transactionsinnon-financialassets,savings,capitaltransfers)• Revaluationaccounts(nominalholdinggains/losses,splitintorealandneutral)• Otherchangesinvolumesaccounts(effectsofexceptionaleventscausing

changesinvolumesofassets/liabilities,e.g.earthquakes)

B1.Economiccapital(2)

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B1.Economiccapital(3)MainpurposesformeasuringeconomiccapitalinSNA

• Computingconsumptionoffixedcapital(GDP/NDP)• Measuringcapitalservices(productivityanalysis,TFP)• Establishingbalancesheetsforeconomyandinstitutionalsectors

Measures• Investment,depreciation,andstocksofeconomiccapital• MethodologicalguidanceOECD(2009),MeasuringCapital

Limits• OECDcountriesdifferinthefrequencyandcomprehensivenessof

theirflow-of-fundsandbalancesheetdata• Limitedinformationonnon-financialassetsbysectors(e.g.land,

structures)

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EconomiccapitalandGDPgrowth

• Classicaleconomists:capitalaccumulationasmaindriver̶ Accumulationdrivenby‘normal’rateofprofit(higherwageratelowers

normalprofitabilityofinvestment)̶ But‘incentivetoinvest’alsodependsonutilisationofproductivecapacity,

whichinfluencesthe‘actual’rateorprofit

• Neo-classicaleconomists:technicalprogressasdriver• Growthaccounting

─ Solow-model:(exogenous)technicalprogress─ Endogenousgrowthmodels:technologicalprogressembodiedinnew

machinesandhumancapital• Investment(ineconomiccapital)determinedby(full-

employment)savings,interestratesasequilibratingmechanism

B1.Economiccapital(4)

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Concernsonsustainabilityarepartlylinkedtoweakaccumulationofeconomiccapitalinaftermathofcrisis

B1.Economiccapital(5)

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B1.Economiccapital(6)Ø Investmentandaccumulationofeconomiccapitaldependonunusedcapacity:recessions

impactonboth‘actual’and‘potential’output,i.e.effectsofcrisisbecomepermanent

GrowthinpotentialGDPindifferentOECDprojections,2007=100

Source: OECD Economic Outlook June versions from 2007 to 2016

Euro area 13United States

95

100

105

110

115

120

EO81(2007)

EO99(2016)

95

100

105

110

EO81(2007)

EO99(2016)

Distributionofeconomiccapitalmattersforsustainability• Concentrationofrisksinoneinstitutionalsectormaythreatenwholesystem– Grossdebtandfinancialnetworthofgovernment– Householddebt– Leverageofthebankingsector

• Distributionalsoimportantwithineachsector– Over-indebtedhouseholds– Over-exposedfinancialinstitutions(‘stresstests’)

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B1.Economiccapital(7)

B2.Humancapital(1)Definition

– “theknowledge,skills,competenciesandattributesembodiedinindividualsthatfacilitatethecreationofpersonal,socialandeconomicwell-being”(OECD,2001)

• RecognisedsinceA.Smith– Valuation: “Amaneducatedattheexpenseofmuchlabour

ortime..mustbeexpectedtoearnoverandabovetheusualwages..thewholeexpensesofhiseducation,with..ordinaryprofitsofanequallyvaluablecapital”

– Depreciation: “Amanwhosewholelifeisspentperformingafewsimpleoperations..hasnooccasiontoexerthisunderstanding..Henaturallyloses..thehabitofsuchexertionandbecomesasstupidandignorantasitispossibleforahumancreaturetobecome”

– Under-provision: “Thisisthestateintowhichthelabouringpoor,i.e.thegreatbodyofthepeople,mustnecessarilyfall,unlessgovernmenttakessomepaintopreventit”

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B2.Humancapital(2)Features

• Non-market(embodiedinindividuals)• Depleteswhennonused(contrarytoeconomiccapital)

Measurement• OutsidetheSNAassetboundary(non-material,noownershiprights,no

transferabilityacrosseconomicunits)• Measuredthroughphysicalindicatorsofitsvariouselements– Highestlevelofeducationcompleted– Meanyearsofschooling– Shareofworkforcereceivingon-the-jobtraining– Unemploymentandwithdrawalsfromlabourforce– Healthconditions

ØDistinctionbetweencurrentwell-being(i.e.skills,health)andhumancapitalbecomesblurredunlessyoutakeforward-lookingview(e.g.children)orfocusonrisks(e.g.obesity)

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B2.Humancapital(3)Anoverallmeasureofthehumancapitalstock?• Jorgenson-Fraumeni approach(monetaryvaluation)

– Discountedpresentvalueoffutureearningsthatcouldbegeneratedoverthelife-timeofpeoplecurrentlyliving

– Dependoneducation,mortality,labourmarketconditions– Recursivesystem:

• Lifetimeearningsofapersonofgiveneducationaged64(1yearbeforeretirement)equaltheirannualearningsatthatage

• Lifetimeearningsofpersonaged63isthesumoftheirannualearningsat63plusthe(discounted)earningshe/shemayexpecttoreceiveuponreaching64

• ..andsoonuntilyoureachschoolage 19

B2.Humancapital(4)Whatdothesemonetaryestimatesshow?

• Evidence: Sizeofhumancapitalinrichcountriesissignificantlyhigherthanthatofeconomiccapital

• Implication: weunderminefuturewell-beingbytreatingexpendituresineducation,training,health-careasconsumptionratherthanproductiveinvestment

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B2.Humancapital(5)Whatarethesemonetaryestimatesmissing?• Permanenteffectsofrecessionsonhumancapital

– Firmsreduceon-the-jobtraining,andlooseexperiencedworkerswhencuttingjobs:effectsnotcapturedbyJF-typemeasures

– Newgraduatesenteringlabourmarketinarecessionmayexperiencehigherunemploymentandlowerearningthatwillpermanentlyscartheirfutureprospects

• Assumptionsoffuturegrowthanddiscountrate– Earningsgrowthinrecentpastmaybepoorguidetofutureearningsgrowth(laboursharehasbeenfallingovertime)

• EffortstowardsconstructinghumancapitalsatelliteaccountsarepursuedbyNSOs/researchers

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B3.Socialcapital(1)

• “Networkstogetherwithsharednorms,valuesandunderstandingsthatfacilitatecooperation withinoramonggroups”(OECD,2001)

• Features– Non-material,non-marketasset– Valueincreaseswithuse– Relationsbetweenpeopleratherthanindividualfeature

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B3.Socialcapital(2)

Different(orthogonal?)conceptsofsocialcapital

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• PierreBourdieu:individuals’accesstonetworks,transmissionofadvantageacrossgenerations

• JamesColeman:‘varietyofentities’ shapingpeople’sbehavioursandresults(e.g.education)

• RobertPutnam:networkofsupport,civicengagementandnormsofreciprocity(horizontalandverticalrelationships),regionaldevelopmentinItaly

B3.Socialcapital(3)Elements

– Socialnetworksupport(e.g.havingsomeoneyoucancountuponincaseofneed)

– Personalrelations(frequencyanddensityofrelations,e.g.howoftendoyoumeetfamiliesandfriends?)

– Civicengagement(e.g.participatingormembershipofvariousorganisations)

– Trustandcooperativenorms(e.g.honesty,attitudestostrangers,propensitytocooperate)

..Allcanbemeasuredthroughsurveysandothermeans

Ø Nostatisticalstandards,butmethodologicalworkpursuedonsomeaspects(e.g.OECDGuidelinesonMeasuringTrust)andinsomecountries(e.g.ONSconsultationonSC)

24

B3.Socialcapital(4)

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ØMuchoftheinternationalevidenceonsocialcapitalisbasedonsurvey-measuresoftrustinstrangers:whatdoesthisshows?

• Datafrom≠wavesWVS• ‘Cluster’ofhigh-trust

(Nordic)andlow-trust(SouthEurope)countries

• Divergence:NOR,NLDmovefurtherup;UK,USmovefurtherdown

Source:UKBehaviouralInsightUnit

B3.Socialcapital(5)• Governanceasatypeofsocialcapital?

– Noagreement.But,whethertheyincludedinSKornot,muchconsensusthatgovernancemattersforawiderangeofdevelopmentoutcomes

– Whatis“governance”?

• "theexerciseofpolitical,economicandadministrativeauthoritynecessarytomanageanation'saffairs”(OECD,2013)

• the"sumofthemanywaysindividualsandinstitutions,privateandpublic,managetheircommonaffairs...acontinuingprocessthroughwhichconflictinganddiverseinterestsmaybeaccommodatedandco-operativeactiontaken.Itincludesformalinstitutionsandregimesempoweredtoenforcecompliance,aswellasinformalarrangementsthatpeopleandinstitutionseitherhaveagreedtoorperceivetobeintheirinterest“(CGG,1995)

– Developmentofinstitutionsfollowsitsownlogic,separatefromeconomicandsocialdevelopment

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B3.Socialcapital(6)Conceptof‘governance’isill-defined• Focusonpublicinstitutions(i.e.judiciary,executive,legislative

branches)butotherinstitutions(e.g.media)arealsoimportant

Whatdoesgovernancedo? A.Smithon‘sovereign’sduties’• “protectingsocietyfromtheviolenceandinvasionofother

independentsocieties”• “protecting ..everymemberofthesocietyfromtheinjusticeor

oppressionofeveryothermemberofit,orthedutyofestablishinganexactadministrationofjustice”

• “erectingandmaintainingthosepublicinstitutionsandpublicworkswhich,thoughtheymaybeinthehighestdegreeadvantageoustoagreatsociety,are,however,ofsuchanaturethattheprofitcouldneverrepaytheexpensetoanyindividual..(thosethat)cannotbeexpectedthatanyindividualorsmallnumberofindividualsshoulderectormaintain”

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B3.Socialcapital(7)

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GOVERNANCE

Valuedoutcomes

• Principles:“whatisexpectedfrompublicinstitutions?”Answer:frametheiractionsundersharedvalues,e.g.safeguardingfreedom,maintainingpeace,respectingdemocraticprocess

• Processes:“howdopublicinstitutionsperformtheirrole?”Answer:dueprocess,competence,integrity,transparency(steering)

• Outcomes:”whatdotheydeliverthatimprovespeople’slife?”Answer:qualityservices,responsivenesstopeople’sneed,accessonanon-discriminatorybasis

B3.Socialcapital(7)Measurableaspectsof‘governance’

– peaceandsecurity– functioningofthejudicialsystem– people’srights– absenceof discrimination– transparencyandruleoflaw– accountabilityandlegitimacy

Statisticalinstruments– Administrativedata– Expertopinions– Householdsurveys 29

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Trust in governments, average of 28 OECD countries

Percentage of the population reporting confidence in the national government, 2006-2014

Source: Gallup World Poll, www.gallup.com/services/170945/world-poll.aspx.

Ø LowerlegitimacyofinstitutionsinaftermathofGreatrecession

B3.Socialcapital(8)

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B3.Socialcapital(9)

ØTrustininstitutions:..Largedifferencesacrosscountries

43.4%

70.5%

68.5%

74.9%

53.5%

62.6%

0%10%20%30%40%50%60%70%80%90%100%

National government

Health care

Education

Local police

Judicial system

Public transportation

OECD average Italy Minimum Maximum

GallupWorldPoll

B4.Naturalcapital(1)

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“Naturallyoccurringlivingandnon-livingcomponentsofEarth..thebio-physicalenvironmentthatmayprovidebenefitstohumanity”(UNSEEA,2012)

Scope• Naturalresourcesenteringin&flowingfromeconomicproduction• Ecosystemservicesprovidedtohumans

– Supportingservices(nutrientrecycling)– Provisioningservices(providingfood,geneticresources)– Regulatingservices(carbonsequestration,floodregulation)– Culturalservices(recreation,heritage,religion)

Measurement:SystemofEconomicandEnvironmentalAccounts(SEEA)― Coreaccounts(e.g.naturalresources),stat.standardsince2012― Experimentalaccounts(ecosystemservices)

B4.Naturalcapital(2)

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SEEAcoreaccounts • AppliesSNAaccountingconcepts,structuresprinciple• Startsfromeconomicperspective• Includesphysicalsupply-use-tables,functionalaccounts(e.g.environmentalprotectionexpenditure),assetaccountsfornaturalresources• Bothmonetary(basedonSNAassetboundary)andphysicalaccounts(beyond)• Assetscovered:i)mineralsandenergyres.;ii)land;iii)soilresources;iv)timberresources;v)aquaticresources;vi)otherbiologicalresources;vii)waterresources

B4.Naturalcapital(4)

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• SEEAecosystemexperimentalaccounts• AppliesSNAaccountingconcepts,structures,principles• Startsfromtheperspectiveofecosystems(“dynamiccomplexofplant,animalandmicro-organismcommunitiesandtheirlivingenvironmentinteractingasfunctionalunit”)• Eachecosystemassetrepresentdistinctspatialarea• Twotypesofflows:i)withinandbetweenecosystemassets(e.g.wetlanddependsonriver-flowsfromriver-basin);ii)flowsbetweenecosystemsandhumanactivities

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B4.Naturalcapital(5)Driversofdepletion/degradationofnaturalcapital

EnvironmentalKuznetscurve?

• Hypothesis: EnvironmentalpressuresincreaseduetohighereconomicgrowthuntilpointreachedathighlevelofGDPpc,afterwhichrelationbetweeneconomicdevelopmentandenvironmentaldegradationbecomesnegative

• Historicalevidence:mixed• PercapitaemissionsofCO2andSO2showapositivecorrelationwithGDPpc(i.e.richer

countrieshavehigher emissions),risingforCO2 (upto1970s),fallingforSO2

• Bio-diversityloss(MSA)isnegativelycorrelatedwithGDPpc(i.e.bio-diversitylossishigher inpoorer countries),weakining overtime

Pressure on natural capital

Change in population

Change in GDP pc

Income elasticity of

environmental demand

Shift from agriculture/ industry to services

Change in environmental efficiency of production

Demography Ec. Growth Preferences Ec. Structure Technology

Scale effects (+) Offsetting effects (-)

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EvidenceØClimatechange

B4.Naturalcapital(5)

37

Ø Forests

B4.Naturalcapital(6)

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ØWaterabstractions

B4.Naturalcapital(7)

B4.Naturalcapital(8)Nine“criticalthresholds”ofnaturalcapital(Rockstrom etal.)

• Stratosphericozonelayerinatmosphere filtersoutultraviolet(UV)radiationfromthesun.WhenlayerdecreasesduetoCFCemissions,moreUVreachgroundlevel,causingskincancerinhumans,damagetoterrestrial/marineeco-systems

• Biodiversityloss,duetohigherdemandforfood,waterandnaturalresources,causebiodiversitylossandchangesinecosystemservices

• Chemicalpollution(toxicandsyntheticorganicpollutants,heavymetalcompounds andradioactivematerials)haveirreversibleeffectsonlivingorganismsandphysicalenvironment(affectingatmosphericprocessesandclimate)includingreducedfertilityandpermanentgeneticdamage

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B4.Naturalcapital(9)Nine“criticaltypes”ofnaturalcapital

• ClimateChange.GHGconcentrations(nowpassing400 ppmv),duetohigheremissionsandweakening/reversalofterrestrialcarbonsinks,reachedapointwherelossofsummerpolarsea-iceiscertainlyirreversible.

• Oceanacidification.~quarteroftheCO2 emitteddissolvesinoceans,formingcarbonicacidwhichalteroceanchemistryandrise pHofthesurface. Beyondathreshold,risingaciditymakesithardforcorals,shellfishandplanktonspeciestogrowandsurvive.Surfaceoceanacidityincreasedby30%frompre-industrialtimes.

• Freshwatercycle,stronglyaffectedbyclimatechange;humanpressure asdominantdrivingforceshapingfunctioninganddistributionofglobalfreshwater.consequencesincludeboth global-scalechangesinriverflowsandshiftsinvapour flows.By2050,½ billionpeoplearelikelytobesubject towaterscarcity

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B4.Naturalcapital(10)Nine“criticaltypes”ofnaturalcapital

• Landconvertedtohumanusewhenforests,grasslands,wetlandsandothervegetationtypesareconvertedtoagriculturalland;effectsonbiodiversity,waterflowsandbiogeochemicalcyclingofcarbon,nitrogenandphosphorus.Forestsplayimportantroleincontrollinglanduseandclimate.

• Nitrogenandphosphorusflowstothebiosphereandoceans duetoindustrialandagriculturalprocesses. Nitrogenandphosphorusareessentialelementsforplantgrowth.Humanactivitiesleadtoemissions thatpolluteswaterways andcoastalzonesoraccumulatesintheterrestrialbiosphere. Whentheyendupinaquaticsystems,algaegrowinresponsetohighnutrientsupply,andthenmakesitswaytothe sea

• Atmosphericaerosolloading: importantroleinhydrologicalcycleaffectingcloudformation,patternsofatmosphericcirculation,directeffectonclimate,bychangingsolarradiationthatisreflectedorabsorbedintheatmosphere.Humanschangeaerosolloadingbyemittingatmosphericpollutionandthroughland-usechangethatincreasesreleaseofdustandsmokeintotheair.Inhalinghighlypollutedaircausesroughly800,000peopletodieprematurelyeachyear.

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Will Steffen et al. Science 2015;347:1259855Published by AAAS

Status of control variables for 9planetary boundaries (not quantified for 2, chemicals, aereosols)

• Green zone is the safe operating space

• Red (high-risk): climate, biodiversity, nitrogen cycle)

B4.Naturalcapital(11)Boundariesandtippingpoints

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C.Weakandstrongsustainability(1)

43

Twoviewsonsustainability,informingtwomeasurementapproaches

• Weaksustainability,i.e.differenttypesofcapitalcanbesubstitutedwitheachother(e.g.higherhumaninterferencewithclimatesystembecomes“sustainable”whenaccompaniedbyhigherlevelofeconomicorhumancapital)- Requiressingleindex,i.e.commonnumeraire

• Strongsustainability,i.e.sometypesofcapitalsare‘unique’,whatislostwhensomeelementsofcriticalcapitalfallbelowtippingpointcannotbereplacedwithhigherlevelsofanothercapitaltype- Requiresdashboardofindicators,eachwithitsownunit

“Stock” indicators “Flow” indicators Riskfactors

Naturalcapital

• Concentration ofgreenhousegasesintheatmosphere

• Landassets:forestcover• Freshwaterresources

• Greenhousegasemissions

• Annualexposuretoairpollution (PM2.5)

• Freshwaterabstractions

• Threatenedspecies

Humancapital

• Educationalattainment of25-34year• Adultcompetencies(PIAAC)• Cognitiveskillsamong15year-old

students(PISA)• Lifeexpectancyatbirth

• Educationalexpectancy(atage5-39)

• Smokingprevalence• Obesityprevalence• Long-term

unemployment

Socialcapital

• Trust inothers• Trustinpublicinstitutions

• Voterturnout• Volunteeringrates• Governmentstakeholder

engagement

Economiccapital

• Net wealthofhouseholds• Netfinancialwealthofhouseholds• Netfixedassets• Knowledgecapital• Financialnetworthofwholeeconomy

• Grossfixedcapitalformation

• InvestmentinR&D

• Household indebtedness• Financialnetworthofgeneralgovernment

• Leverageofthebankingsector

C.Weakandstrongsustainability(2)

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OECDDashboards

Singleindexes:theory (Arrowetal.)• Inter-temporalsocialwelfare

i.e.inter-temporalsocialwelfareofanygenerationdependsonutilityfromcurrentconsumptionandonutilityoffuturegenerations

• Sustainabilitycriterioni.e.inter-temporalsocialwelfareofanygenerationisnotlowerthanthatoftheprecedinggeneration

• Necessaryconditioni.e.thetotalsumofthechangesindifferenttypesofcapital(valuedattheirshadowprices)mustbepositive(i.e.differenttypesofcapitalareperfectlysubstitutable)

45

C.Weakandstrongsustainability(3)

Singleindexes:applications• Genuine(adjustednet)savings(theWorldBank)

– Conceivessustainabilityasrequiringmaintenanceofaconstantstockof“extendedwealth”

– Genuinesavingsaschangeintotalwealthoveraperiod,e.g.year

• Inpractice:– Deductsfromgrossnationalsavingsthecapitalconsumptionofproducedassets,togetnetdomesticsavings

– Addscurrentexpendituresoneducationtonetdomesticsavings,tocaptureinvestmentinhumancapital

– Deductsmonetaryvalueofdepletionofmanynaturalresources,toreflectdeclineinassetvaluesduetoextractionandharvest

46

C.Weakandstrongsustainability(4)

Genuinesavingsrate:empiricalevidence

47

C.Overallassessmentof‘sustainability’?(5)

• Whataresingleindexesofsustainabilitymissing?– Limitedcoverageofassets– Marketvaluation– Highsavingratesmaydepresscapitalformationbyloweringratesofcapacityutilisation

– Globalresponsibilities(consumptionpatternsinrichcountriesaffectresourcesinotherpartsoftheworld)

48

C.Weakandstrongsustainability(6)?

• Externalities.Manyofthenegativeeffectsoncapitalsareconsequencesofeconomicactivitiesimposingcostsonothers:‘polluterpays’principle

• Publicgoods.Mosttypesofcapitaltaketheformof‘publicgoods’(under-providedbymarkets)

• Risksandinsurance:the‘precautionaryprinciple’• Timediscounting.Pay-offoftodays’actionsdependsonhowfuturebenefitsare‘discounted’,i.e.‘timepreference’andassumptionsonfuturewell-being

• Wealthmanagementperspective. “Resourcecurse”(andwaysofavoidingit)

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D.Sustainabilityandpolicymaking(1)

• OECD(2015),“Resourcesforfuturewell-being”,chapter3inHow’sLife2015,OECDPublishing

• UNECE(2014),ConferenceofEuropeanStatisticiansRecommendationsofMeasuringSustainableDevelopment,chapter1to7,Geneva

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