Challenges in Sustainability | 2013 | Volume 1 | Issue 1 | Pages 16–26
DOI: 10.12924/cis2013.01010016
Research Article
Sustaining Welfare for Future Generations: A Review Note on
the Capital Approach to the Measurement of Sustainable
Development
Thorvald Moe
1
, Knut H. Alfsen
1,
*, Mads Greaker
2
1
Center for International Climate and Environmental Research Oslo (CICERO), P. O. Box 1129, Blindern,
0318 Oslo, Norway; E-Mail: [email protected] (K.H.A.); Tel.: +47 22858569; Fax: +47 22858751
2
Research Department, Statistics Norway, P. O. Box 8131, Dep, 0033 Oslo, Norway
* Corresponding author
Submitted: 8 January 2013 | In revised form: 28 March 2013 | Accepted: 22 April 2013 |
Published: 12 May 2013
Abstract: Measuring sustainable development based on analytical models of growth and
development and modern methods of growth accounting is an economic approach—often called
the capital approach – to establishing sustainable development indicators (SDIs). Ecological
approaches may be combined with the capital approach, but there are also other approaches to
establishing sustainable development indicators—for example the so-called integrated
approach. A recent survey of the various approaches is provided in UNECE, OECD and Eurostat
[1]. This review note is not intended to be another survey of the various approaches. Rather
the objective of this paper is twofold: to present an update on an economic approach to
measuring sustainable development—the capital approach—and how this approach may be
combined with the ecological approach; to show how this approach is actually used as a basis
for longer-term policies to enhance sustainable development in Norway—a country that relies
heavily on non-renewable natural resources. We give a brief review of recent literature and set
out a model of development based on produced, human, natural and social capital, and the
level of technology. Natural capital is divided into two parts—natural capital produced and sold
in markets (oil and gas)—and non-market natural capital such as clean air and biodiversity.
Weak sustainable development is defined as non-declining welfare per capita if the total stock
of a nation's capital is maintained. Strong sustainable development is if none of the capital
stocks, notably non-market natural capital, is reduced below critical or irreversible levels. Within
such a framework, and based on Norwegian experience and statistical work, monetary indexes
of national wealth and its individual components including real capital, human capital and
market natural capital are presented. Limits to this framework and to these calculations are
then discussed, and we argue that such monetary indexes should be sustainable development
© 2013 by the authors; licensee Librello, Switzerland. This open access article was published
under a Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0/).
indicators (SDIs) of non-market natural capital, and physical SDIs, health capital and social capital.
Thus we agree with the Stiglitz-Sen-Fitoussi Commission [2] that monetary indexes of capital should be
combined with physical SDIs of capital that have no market prices. We then illustrate the policy
relevance of this framework, and how it is actually being used in long term policy making in Norway—a
country that relies heavily on non-renewable resources like oil and gas. A key sustainability rule for
Norwegian policies is to maintain the total future capital stocks per capita in real terms as the country draws
down its stocks of non-renewable natural capital —applying a fiscal guideline akin to the Hartwick rule.
Keywords: capital approach; indicators; national wealth; sustainable development
1. Introduction
Twenty-five years after the World Commission on
Environment and Development (WCED) published the
book Our Common Future [3], there is an emerging
view in economic literature on sustainable
development that one should focus on sustaining well-
being per capita in real terms for future generations,
and that analyses of measurement and policies should
be based on analytical models of growth and
development and modern wealth accounting.
Thus, a main message from the Stiglitz, Sen and
Fitoussi Report from 2009 is:
The report distinguishes between an assessment of
current well-being and an assessment of sustaina-
bility. Current well-being has to do with both
economic resources, such as income, and with
non-economic aspects of peoples' life (what they
do and what they can do, how they feel, and the
natural environment they live in). Whether these
levels of well-being can be sustained over time
depends on whether stocks of capital that matter
for our lives (natural, physical, human, social) are
passed on to future generations ([2], p. 11).
However, there are other approaches to defining
and measuring sustainable development. In a recent
report from UNECE, OECD and Eurostat [1] differ-
ences of views are described thus:
One view, referred to as the integrated view, held
that the goal of sustainable development is to
ensure both the well-being of those currently living
and the potential for the well-being of future
generations. The second approach is that the
concern for sustainable development is properly
limited to just the latter.
For a survey of both "economic and non-economic"
approaches, the reader is referred to this report.
An illustration of the difference between empirical
work based on the integrated approach and work
based on the capital approach is whether one should
include estimated gross domestic product, GDP, as an
indicator of sustainable development or not. According
to present national accounting conventions, the use of
non-renewable natural resources is not deducted
when GDP is estimated. Thus, one may boost GDP by
rapidly drawing on such resources, but if the revenues
are spent on consumption rather than building up
other types of capital, the country in question may be
worse off in the medium or longer term as their stock
of capital or wealth is reduced. Sustainable indicator
sets using GDP based on an integrated approach may
thus be misleading to policy makers. GDP is a
measure of economic welfare in the short term, but
not an indicator of sustainable development.
Finally, the World Bank put forward the view:
Conceive of development as a process of
building and managing a portfolio of assets. The
challenge of development is to manage not just
the total volume of assets – how much to save
versus how much to consume – but also the
composition of the asset portfolio, that is, how
much to invest in different types of capital,
including the institutions and governance that
constitute social capital ([4], p. 4).
Instead of using GDP one may use Adjusted Net
savings (ANS) as a macro indicator of sustainable
development as presented by The World Bank. ANS,
also called genuine saving, is defined as national
saving adjusted for the value of resource depletion
and environmental degradation and credited for
education expenditures (a proxy for investment in
human capital). Since wealth changes through saving
and investment, ANS measures the change in a
country's national wealth, see [4].
In section 2 we elaborate on our analytical
framework based on the capital approach, and in
section 3 we illustrate the current measurement of the
economic elements in our model of development with
reference to current wealth accounting practices in
Norway.
We argue, furthermore, that measures of economic
or national wealth in monetary terms have their limits,
and one thus needs a few indicators in physical terms
of non-economic aspects of development, such as
critical elements of non-market natural capital and
17
health and social capital in order to make a
comprehensive assessment of whether a country is on
a sustainable path.
A main reason for measuring the main elements
that drive development over time is to inform policy.
In section 4 we illustrate how our analytical frame-
work and SDIs are actually used for policymaking in
Norway, which is a resource-producing country with
large reservoirs of non-renewable, or exhaustible
resources, in its oil and gas sector. S ection 5 concludes.
2. The Analytical Framework
In the 1970s economists reacted to the challenge of
OPEC and the "doomsday predictions" of the Club of
Rome by introducing energy, natural resources and
environmental pollution into the neoclassical theory of
growth. In the 1990s they reacted to global climate
change and the Report of the Brundtland Commission
[3] by introducing the same considerations into the
theory of endogenous growth.
Economic growth involves a two-way interaction
between technology and economic life: technological
progress transforms the very economic system that
creates it. The purpose of endogenous growth theory
is to seek some understanding of this interplay
between technological knowledge and various
structural characteristics of the economy and society,
and how such interplay results in economic
development. According to Aghion and Howitt [5],
endogenous growth theory is inherently more suitable
for addressing the problems of sustainable develop-
ment than neoclassical theory, because the central
question to which endogenous growth theory is
addressed is whether or not growth can be sustained.
See [5], especially chapter 5.
We take the view that economic development
should be evaluated in terms of its contribution to
intergenerational well-being. Specifically, we identify
sustainable development paths along which
intergenerational well-being per capita in real terms
do not decline. The idea that movements in wealth
should be used to judge the sustainability of
development paths was put forward by Pearce and
Atkinson [6], who defined sustainable development to
be an economic path in which (comprehensive)
wealth does not decline. The connections between
movements in wealth and changes in intergenera-
tional well-being or welfare were identified indepen-
dently by Hamilton and Clemens [7] and Dasgupta
and Mäler [8]. For further discussions of criteria for
sustainable development, see [9-11].
According to [8] welfare is very closely related to
what we think of as wealth, as wealth represents the
totality of resources upon which we are able to draw
to support ourselves over time. From this it is clear
that welfare is a forward looking concept in which
what counts is not how well off we are today, but our
prospects for being well off in the future. In other
words, welfare is an intertemporal concept.
As for well-being, there seems to be no single
definition, and there remains a considerable debate
regarding its determinants. Some use it synonymously
with welfare. Others, including Dasgupta, claim that
well-being encompasses welfare but goes beyond it to
include benefits derived from things other than
consumption, for example human rights. While the
formal distinction may continue in academic debates,
it is not of great importance for the discussion in this
paper. For this reason, and because it may be the
more encompassing term, well-being is the term used
in this paper.
A large number of empirical econometric tests
confirm the importance of technological change and
resulting productivity increases for growth and develop-
ment. We observe, for example, steady energy
efficiency improvements over an extended period in
most OECD countries. Thus, we include the level of
technology, TL, in our model. Our analytical frame-
work for explaining longer-term development of well-
being can be summarized thus:
WB= f (RC , HC , NC , HSC , TL)
(1)
where:
WB = Well-being;
RC = Real or produced capital;
HC = Human capital;
NC = Natural capital which has two main elements,
resources sold in markets—Market Natural Capital
MNC, and Non-Market Natural Capital NMNC (clean
air, biodiversity);
HSC = Health and Social capital;
TL = The level of technological knowledge.
In standard wealth accounting, National Wealth,
NW equals the stocks of capital, thus the definitional
equation:
NW = RC + HC + MNC + NMNC + HSC
(2)
and thus:
WB= f ( NW , TL)
(3)
Development of well-being is a function of the
stock of national wealth, NW, and the level of
technology, TL.
In literature, weak sustainable development, WSD,
is total real NW per capita not declining over time.
Strong sustainable development, SSD, requires that
none of the individual capital components, i.e. RC,
HC, MNC, NMNC and HSC, are reduced below critical
or irreversible levels. For further discussion of criteria
for sustainable development, see for example Pearce
and Atkinson [10] and Alfsen and Moe [11].
Whether economic development will be sustainable
in the longer term may, in the final analysis, depend
on technological developments, see Aghion and
18
Howitt [5], chapter 5, and Hamilton and Atkinson
[12], chapter 8. We return to this issue in section 3.4
below.
The criteria for assessing sustainable development
should then be that national wealth per capita in real
terms and adjusted for productivity growth should be
non-declining, and that none of the components in
equation 2 above is reduced below critical or
irreversible levels.
3. Measurement
The Stiglitz Commission ([2], recommendation 11,
p.17) recommends:
Sustainability assessment requires a well-defined
dashboard of indicators. The distinctive feature of
components of this dashboard should be that they
are interpretable as variations of some underlying
stocks. A monetary index of sustainability has its
place in such a dashboard but, under the current
state of the art, it should remain focused on
economic aspects of sustainability.
We now have fairly well developed methods for
such monetary indexes, i.e. measurement methods
for economic wealth, EW, cfr. section 3.1 below.
3.1. Monetary Indexes of Economic Wealth (EW)
Norway has been a resource-producing country for a
long time, and wealth accounting goes back to the
1980s. Present methods used and presented regularly
in order to inform policy are presented below.
Calculating Economic Wealth goes through three
steps.
3.1.1. STEP 1: Calculating Resource Rents
The first step, based on an approach by Eurostat [13]
and the United Nations et. al. [14], is to calculate the
resource rents from market based natural resources,
MBNC.
Resource rent = (4)
Value of production
± Product specific taxes/subsidies
- Raw materials
- Wage payments and capital costs
± Not sector specific taxes/subsidies
3.1.2. STEP 2: Decomposing Net National Income
(NNI)
The next step is to decompose the observed net
national income, NNI, on returns from the various
types of capital.
NNI = (5)
Resource rents from non-renewable natural resources
(oil and gas, etc.)
+ Resource rents from renewable resources (fish,
agriculture, forestry, etc.)
+ Return on real capital calculated as an average rate
of return on the total capital stock
+ Net income from financial wealth
± A residual containing return on human (and social)
capital as well as income from natural capital not
captured in the resource rent calculations
3.1.3. STEP 3: Converting Streams Into Wealth
The third step is to convert future income streams of
income into (stocks of) Economic Wealth (EW):
Economic Wealth (EW) = (6)
Present value of future resource rents of non-renewable
resources
+ Present value of future resource rents from renewable
resources
+Real capital stock
+Present value from future returns on human capital
+Net foreign assets
For further details and concrete calculations of EW
in Norway, see Alfsen and Moe ([11], pp. 14–17).
Figure 1 shows development over time of the
renewable natural capital of Norway.
Note that "agriculture" has a negative value. This
follows from the definition of resource rents, and the
extensive subsidizing of the sector, that is, all product
specific subsidies should be treated as a cost of
production. Note also that hydropower has had a
significantly higher value for the last 8 years. This is
most often explained by the liberalizing of the power
sector in Norway. Finally, note that all in all the
management of the renewable natural resources
seems to be improving. A majority of the natural
resources have a positive rent, and the negative rents
in agriculture are becoming less prominent.
Figure 2 shows the development in the components
of national wealth (NW) in Norway from 1985 to
2011.
Non-renewable resources consist of oil, natural gas
and mining, however, mining is only a tiny fraction of
the total value (close to zero on average). We further
note that the value of the non-renewable resources
has been declining since 2004. The rent has however
been invested in a fund, The State Pension Fund—
Global, which transforms revenue from non-renewable
resources to financial capital abroad according to
sustainability criteria elaborated on in section 4 below;
note the yellow bar.
Dividing total national wealth by the population
gives national wealth per capita, see Figure 3.
19
Figure 1. Development of renewable natural capital in Norway 1985–2011.
Figure 2. Decomposed national wealth (NW) in Norway 1985–2011
20
Figure 3. Development of national Economic Wealth per capita in Norway 1985–2011.
National wealth per capita has been increasing for
most of the period, despite a large increase in
population due to migration. Our measurements
appear to be stabilizing at 12 million NOK per capita.
In order to ensure sustainability, development must
be followed closely. Human capital, the largest
component of total economic wealth, was earlier
arrived at as a residual, i.e. something that cannot be
measured directly, however, in recent years great
strides have been made in methods for direct
calculations of human capital, and we now turn to this
topic.
3.2. Direct Measurement of Human Capital
An improvement and further development of this
established wealth accounting procedure is to
estimate the stock of human capital directly using one
of the following alternative methods, see Jorgensen
and Fraumeini [15], Stroombergen et al. [16], Greaker
[17] and Greaker and Lui [18]:
• The cost based method that measures human
capital from the input side (how much is spent on
education, etc.);
• The revenue generating method that estimates
human capital from the output side (e.g. increased
wages due to improved education and skills).
Recently the UNECE Conference of European
Statisticians (CES) prepared a stock taking report
providing an overview of what has been done in the
field of human capital measurement [19].
The concept of human capital is broad,
encompassing a range of personal attributes, such as
people's health conditions. The OECD [20] has
gradually extended its definition of human capital to:
The knowledge, skills, competencies embodied in
individuals that facilitate the creation of personal,
social and economic well-being.
A pragmatic approach to estimate stocks of human
capital in monetary terms focuses on economic
returns, and implies that the health component of
human capital will have to be dealt with separately
from the education aspect.
The income-based approach measures human
capital by looking at the stream of future earnings
that human capital investment generates over the life
time of a person. Hence, in contrast with the cost-
based approach, which focuses on the input side, the
income-based approach measures the stock of human
capital by looking at the output side. However,
outputs from human capital investment may be of
many types (i.e. monetary and non-monetary, private
and public), and the output measured by the life time
approach is limited to the private monetary benefits
that a person investing in human capital accrues.
Some developed countries now, more or less,
regularly compute numbers for human capital stocks
in monetary terms (although not as part of official
statistics), and such calculations have been carried
out in Norway for some time.
Figure 4 shows estimated returns to human capital
in Norway compared to total wages paid.
3.3. Indicators in Physical Terms for the Non-Market
Elements of Natural Capital
There are limits to the capital approach and the
monetization of indexes of capital stocks. Thus,
ecological approaches have their place in assessing
what we have called non-market natural capital: they
21
Figure 4. Estimated returns to human capital in Norway compared to total wages paid 1985–2011.
relate to the ability of the environment to sustain
essential ecological resources and functions. See
Pearce and Barbier [21], chapter 5. Recently
Rockstrøm et al. [22] have proposed a framework
based on planetary boundaries. These boundaries
define the safe operating space for humanity with
respect to the Earth system and are associated with
the planet's biophysical subsystems or processes.
A main category in which critical assets are found is
natural capital, as it is here where the assets that are
essential for basic life reside. Although there remain
scientific debates as to just which (largely non-
market) assets are critical, and which are not, there is
reasonable consensus that the following are very
important, if not essential:
• A reasonably stable and predictable climate;
• Air that is safe to breathe;
• High-quality water in sufficient quantities;
• Areas of intact natural landscapes;
• A diversity of plant and animal life.
Some of the assets on this list may in fact be
valued in monetary terms, although this is usually
done in articles in research literature and more
seldom in connection with wealth and sustainable
development accounting. For example, it is difficult to
put a reasonable monetary value on the stock of clean
air, but we can put a value on the quantity of
particulates in the air because we can value the
associated health damages in the exposed population
(and similarly for water pollutants, although here the
question of exposure is more complicated). Intact
natural landscapes can be valued in terms of the
environmental services they provide to other assets
and in terms of our willingness to pay to enjoy them
(or simply to know that they exist)—not easy to value,
but we know broadly how to do it. However, until such
methods are refined and widely accepted, there
remains the need for a few physical indicators. One
should also account for the fact that some capital
assets contribute to well-being outside the market
place. While this is not a concern for produced capital,
it may be for human, natural and social capital.
Non-market natural capital contributes to the well-
being outside the market when people experience
nature directly or when they derive pleasure from the
knowledge that nature continues to exist in a
reasonable condition. In principle, the well-being
associated with the use of non-market natural capital
may be valued in monetary terms. In practice,
however, the scope for actually estimating such values
in monetary terms is limited, and any such monetary
indicator may underestimate welfare. As of now, some
physical indicators are called for to assess the extent
to which the non-market components of natural
capital are, or are not, approaching critical or
irreversible values.
22
3.4. Health Capital, Social Capital, Population and
Technology
As mentioned in section 3.2, the health aspects of
human capital are not included in the direct measures
presented of stocks of human capital. An increase in
life expectancy translates into improved health. More
specifically, the value of health improvements may be
defined as the value that people attach to the additio-
nal years of life that result from such improvements.
Arrow et al. [23] calculate the monetary value of an
additional year of life by starting with estimating the
value of a statistical life (VSL). A common method for
estimating VSL is to study differential wages for jobs
involving differential risks of a fatal on-the-job
accident. For more details, see section 4.3.2 of their
paper, but also comments by Hamilton [24].
If one thinks this is complicated, or if one finds it
difficult to put monetary values on an extra year of
life, one may simply use a physical indicator of the life
expectancy at birth—which is readily available in many
countries. This is done in the Norwegian SDI set.
Social conditions, governance and institutions are
important factors for development. Whether such
factors are critical for sustainable development is not
clear, but indicators for such factors are needed.
D'Ercole and Salvini [25] argue plausibly that social
welfare systems are important. The World Bank [4],
[26] in their estimates of Adjusted Net Saving refer to
intangible capital as a residual. In the Norwegian core
sustainable development indicator (SDI) set, one uses
a physical indicator of the share of people of working
age that are receiving non-working benefits (disability
and long-term unemployment benefits) compared to
the total population in the labour force – as the share
is large and increasing it poses a challenge to the
future labour supply and to government finances.
Population is a capital asset. It could seem intuitive
that when population size changes the criterion for
sustainable development should be non-declining
comprehensive wealth per capita. Arrow et. al. [23]
identify conditions under which this intuition actually
holds true, and in their empirical calculations they
simply adjust changes in wealth between two time
periods (which they call comprehensive investment)
for population growth in the same period.
As previously mentioned, Aghion and Howitt [5]
explore the role of technology using endogenous
growth models as an aid. Their general conclusion is
that:
The chances of achieving sustainable growth
depend critically on maintaining a steady flow of
technological innovations ([5], p. 151).
Hamilton and Atkinson [12], chapter 8, discuss the
role of total productivity growth or future
technological developments for sustainable
development and present estimates for a number of
countries. Their results depend heavily on whether
technological improvements are assumed to be
exogenous and costless or endogenous; this being of
far greater importance in the first case.
According to Acemoglu et al.:
While a large part of the discussion among climate
scientists focuses on the effect of various policies
on the alternative—and more "environmentally
friendly"—energy sources, the response of tech-
nological change to environmental policy has until
very recently been all but ignored by leading
economic analyses of environmental policy, which
has mostly focused on computable general
equilibrium models with exogenous technology
([27], p. 1).
In their empirical work, Arrow et al. [23] follow the
procedure of merely adding total factor productivity
growth (TFP) to changes in total wealth between two
periods—what they call comprehensive investment—
and thus assume for practical purposes that
technological change is costless and exogenous
("manna from heaven"). It makes a great deal of
difference to their empirical results. For example, the
US has negative comprehensive investment between
two recent time periods if one does not add TFP
growth.
For our part, we think one may risk making too
optimistic estimates of sustainable development by
simply adding TFP growth. Technological change
involves investment in research and development
(R&D). Expenditures on R&D are therefore a part of
the change in total wealth between two time periods,
and we would prefer to use empirical numbers for
such expenditures to assess the role of technology in
wealth accounting.
There is also a lack of empirical analyses of this key
issue for sustainable development, and more research
is needed.
4. Sustainable Development Indicators for
Policymaking: An Example from Norway
For countries dependent on non-renewable natural
capital, transforming natural capital into other forms
of wealth is a path to sustainable development. Thus,
we will briefly illustrate how this policy area in actual
practice is coordinated in a small, open and resource-
producing economy—and how SDIs are used in policy
making in Norway÷as we believe this illustrates in
concrete and practical terms the usefulness of the
analytical framework and the measurements (SDIs)
discussed earlier in this paper for actual longer-term
development policies.
Earlier in this paper we argued that one needs:
• An analytical framework;
• Measures to assess the sustainability of development;
• Institutions to coordinate longer term policies.
Norway has been a petroleum producing country
23
for forty years, and non-renewable resources (oil and
gas) presently contribute some 25 per cent of GDP,
around one third of total government revenues, and a
large share of the surplus of Norway's balance of
payments. It would be very misleading to use GDP
per capita as a core SDI in Norway, as use of non-
renewable resources, as underlined above, is not
subtracted according to present national accounting
standards. Norwegian GDP could increase rapidly
while drawing down exhaustible resources. Thus
wealth accounting, as illustrated in section 3.1 above,
and monetized estimates of total or comprehensive
wealth and produced capital, market-based natural
capital and human capital are presented regularly. In
addition Norway has established a national SDI set
within a capital framework which also contains some
physical indicators of critical natural resources—a
Nature Index. An index of life expectancy at birth is
used as a proxy for health capital.
Employment is high and unemployment is low in
Norway, but a large share of the population of
working age is receiving non-working benefits
(disability – and sickness benefits), and this is seen as
a challenge to longer term sustainability, both as a
social issue and because a smaller labour force has to
support a rapidly ageing population. Thus, as men-
tioned above, the number of people on non-working
benefits as a share of the working population is used
to monitor these aspects. Longer-term fiscal sustaina-
bility is also seen as a challenge to sustainability.
Therefore, employing generational accounting meth-
ods, one may use the deficit as a percentage of GDP
in 2060 (under certain assumptions) as an SDI of
such conditions.
The Ministry of Finance is the institution respon-
sible for economic and fiscal policies, and is also
responsible for coordinating policies to enhance
sustainable development. Under this ministry, a saving
instrument for the revenues from non-renewable
resources (oil and gas), a Sovereign Wealth Fund
(SWF) – today named The Government Pension Fund
– Global was established in 1990. All revenues from
petroleum are placed directly into this fund. In 2001 a
savings rule – a fiscal guideline – for domestic use of
petroleum revenue was adopted by Parliament.
The Hartwick rule [28,29] provides a simple rule of
thumb for sustainable development in countries that
depend on non-renewable natural resources. The
Hartwick rule holds that consumption can be main-
tained if the rents from non-renewable resources are
continually invested rather than used for current
consumption.
The Norwegian fiscal guideline is akin to this rule.
Only the rate of return of the stock of financial capital
in the Norwegian SWF, which now stands at some 660
billion USD, is to be used domestically for current
consumption through the central Government Fiscal
Budget. Thus, stocks of Norwegian non-renewable
natural resources are transformed into other forms of
wealth—a basic rule for sustainable development
policies. For more details, see Moe [30,31], The
Norwegian National Budget 2013 [32]—the govern-
ment's main yearly White Paper on economic policies
—which contain chapters on both sustainable develop-
ment and climate change, and the recent Long Term
Perspectives for the Norwegian Economy [33].
An important aspect is global sustainability and
Norway's contribution to this. To assess this further
with regard to climate change, one could use the
product of an assumed social cost of carbon multiplied
by the amount of CO
2
emitted by Norway as an
indicator.
5. Conclusions
Important elements of sustainable development, like
the challenge of climate change, are global problems.
Thus, ideally one should have global agreements,
indicators, institutions and policies. As of today
however, and for the medium term, current policies to
sustain present well-being for future generations will
probably be largely national with relatively little
regional or global cooperation and coordination. Thus,
one needs an analytical framework for such policies,
national indicators to monitor developments, criteria
for assessing sustainability, and national institutions to
carry out these tasks.
Each country concerned with policies to enhance
sustainable development must chose the framework
and set of national indicators best suited for their
situation and prospects. We have argued in this paper
—based on recent economic literature and Norwegian
experiences—that developed countries with estab-
lished institutions and statistical bases, would benefit
from a core national set of SDIs consisting of:
1. Monetary estimates of National or Compre-
hensive Wealth in real and nominal terms, adjusted
for population and technological improvements
between periods.
2. Monetary estimates in real terms of real, pro-
duced capital (RC), human capital (HC), health
capital (one could for simplicity—as is the practice
in Norway—simply use estimates of life expectancy)
and the market based natural capital base (MNC).
Such measures are necessary, but not sufficient, to
assess strong sustainability. That is because they
do not convey the very real limits to substitutability,
impending thresholds for natural capital, or possible
irreversibilities and catastrophic events. Thus,
indicators are required to assess such conditions
and how they develop over time, cf. 3 below.
3. Some indicators in physical terms for the most
important or critical elements of non-market natural
capital (NMNC)—e.g. climate change, biodiversity
based on an ecological approach.
4. Physical indicators of social capital (conditions)
and the functioning of institutions—as appropriate
24
to the developed country in question.
Even if SDIs under 1 and 2 above increase in real
terms per capita, as they presently do in Norway,
indicating weak sustainability, we argue that it is also
necessary to monitor SDIs under 3—especially critical
non-market natural resources—and 4 to see if what
we have called non-market capital are on sustainable
development paths or not.
For all countries, and especially resource-producing
ones, one should compute annual estimates of
Adjusted Net Savings (ANS)—as published by The
World Bank as a simple macro indicator and check on
sustainability. Their estimates published in The
Changing Wealth of Nations in 2011 [4] and annually
in their World Development Indicators, show negative
adjusted net savings for a number of developing
countries—especially resource-producing countries in
Africa—which is an indication of non-sustainable
development paths. Especially for resource-producing
developing countries, it would be useful to compute
ANS regularly, possibly each year in addition to GDP,
to get an annual check on whether the country in
question is on a sustainable path. In any case, there
is logic for extractive economies such as Norway in
using a "depletion-adjusted" measure of net saving,
such as ANS. The new SEEA central framework [34]
suggests this as an aggregate sustainability indicator.
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