ANALYSIS
Sustainable development and social welfare
Werner Hediger *
Agricultural Economics,Swiss Federal Institute of Technology,ETH-Zentrum(SOL),8092Zurich,Switzerland
Received 2 October 1998; received in revised form 27 July 1999; accepted 25 August 1999
Abstract
Sustainable development is a normative concept which involves trade-offs among social, ecological and economic objectives, and is required to sustain the integrity of the overall system. This is usefully formalized in terms of a social welfare function which is based on an aggregate of individual preferences and, as a prerequisite of intergenerational equity and overall system integrity, on a set of sustainability constraints. A ‘sustainability-based social value function’ is proposed to integrate these issues, and to go beyond traditional conceptions of sustainability that are either based on a value principle of maintaining some aggregate of capital (‘weak sustainability’), or stationary-state criteria of maintaining social, ecological and economic assets constant over time (‘strong sustainability’). Along with individual preferences and macroeconomic objectives, the proposed welfare function integrates principles of basic human needs (‘critical economic capital’), integrity of the ecosystem (‘critical ecological capital’) and the socio-cultural system (‘critical social capital’). This implies restrictions of the social opportunity space within which sustainable develop-ment can proceed and the new value function is defined. © 2000 Elsevier Science B.V. All rights reserved.
Keywords:Basic needs; Criticality; Distribution weights; Economic development; Population growth; Social welfare; Sustainability www.elsevier.com/locate/ecolecon
1. Introduction
Sustainable development encompasses
eco-nomic, social, and ecological perspectives of con-servation and change. In correspondence with the WCED (1987), it is generally defined as ‘develop-ment that meets the needs of the present without
compromising the ability of future generations to meet their own needs.’ This definition is based on an ethical imperative of equity within and be-tween generations. Moreover, apart from meeting the basic needs of all, sustainable development implies sustaining the natural life-support systems on Earth, and extending to all the opportunity to satisfy their aspirations for a better life. Hence, sustainable development is more precisely defined as ‘a process of change in which the exploitation of resources, the direction of investments, the * Tel.: +41-1-6322363; fax:+41-1-6321086.
E-mail address:werner.hediger@iaw.agrl.ethz.ch (W. Hedi-ger)
orientation of technological development, and in-stitutional change are all in harmony and enhance both current and future potential to meet human needs and aspirations’ (WCED, 1987: 46).
This definition involves an important transfor-mation and extension of the ecologically-based concept of physical sustainability to the social and economic context of development (Adams, 1990). Thus, terms of sustainability cannot exclusively be defined from an environmental point of view, or on the basis of attitudes. Rather, the challenge is to define operational and consistent terms of sus-tainability from an integrated social, ecological, and economic system perspective. This gives rise to two fundamental issues that need to be clearly distinguished before integrating normative and positive issues in an overall framework.
The first issue is concerned with the objectives of sustainable development; that is, ‘what should be sustained’ and ‘what kind of development do we prefer’. These are normative questions that involve value judgments about society’s objectives with respect to social, economic, and ecological system goals (cf. Barbier, 1987; Munasinghe, 1993; Khan, 1995). These value judgments are usefully expressed in terms of a social welfare function which allows an evaluation of trade-offs among the different system goals.
The second issue deals with the positive aspect of sustainable development; that is, the feasibility problem of ‘what can be sustained’ and ‘what kind of system we can get’. It requires one to understand how the different systems interact and evolve, and how they could be managed. For-mally, this can be represented in a dynamic model by a set of differential equations and additional constraints. The entire set of feasible combina-tions of social, economic and ecological states describes the intertemporal transformation space of the economy in the broadest sense.
To date, various definitions and stationary-state criteria of sustainability have been proposed. Many writers have been concerned with partial questions, such as technological assumptions and the substitutability of natural resources in eco-nomic transformation processes, and the resilience and criticality of ecological processes (cf. Pearce et al., 1994; Turner et al., 1994; Atkinson et al.,
1997). But, the social dimension did not receive the same attention, and has not adequately been integrated into formal analysis. Moreover, posi-tive aspects of feasibility and the normaposi-tive con-tent of sustainable development have not been clearly distinguished.
Given these circumstances, the aim of this pa-per is to elaborate a social value function which is compatible with the general objective and system requirements of sustainable development. In the next section, I briefly review some fundamental principles of sustainability from an ecological-eco-nomic perspective. In Section 3, I present an extension of these principles to the social context, and provide a formal approach which includes distributional concerns and population growth. In Section 4, I address principles of basic human needs, and criticality of ecological and social cap-ital. Building on this background, I formulate a ‘sustainability-based social value function’, which integrates individual preferences and system re-quirements of sustainable development. Conclud-ing remarks about the use of this new value function and the feasibility of sustainable develop-ment follow in Section 5.
2. Ecological and economic interpretations of sustainability
Divergent interpretations and opposing defini-tions of sustainability are sources of confusion, rather than contributions that could help to rein-force the root idea of sustainable development. As a consequence, there is disagreement about the conceptual and operational content of ‘sustain-ability’. This has resulted in different paradigms that are referred to as ‘weak’ and ‘strong’ sustain-ability principles, respectively (cf. Turner et al., 1994; Hediger, 1999).
ob-jective of weak sustainability can be variously
defined. In narrow terms,6ery weak sustainability
(‘Solow sustainability’) requires that the general-ized production capacity of an economy is
main-tained intact, such as to enable constant
consumption per capita through time (Solow,
1986). In broader terms, weak sustainability
re-quires that the welfare potential of the overall capital base remains intact (Pearce et al., 1994). The latter principle allows the integration of dif-ferent objectives of development, whereas the for-mer is restricted to consumption per capita.
In contrast, the idea of ‘strong sustainability’ emerged from the pre-analytic vision of ecological economics that the economy is an open subsystem of the finite and non-growing global ecosystem (Costanza et al., 1991; Daly, 1991). This bio-phys-ical principle is founded upon the laws of thermo-dynamics, and requires that certain properties of the environment must be sustained. Yet, this has been variously interpreted in the literature.
In the most restricitive version,6ery strong sus
-tainability calls for a set of stationary-state con-straints that must be imposed on the scale of the macro-economy (Costanza, 1991; Daly, 1991).
Less restrictive, strong sustainability is defined as
an ecosystem principle, which better corresponds to the concept of sustainable development. As advocated by the WCED (1987: 46), ‘sustainable development requires that the adverse impacts on the quality of air, water, and other natural ele-ments are minimized so as to sustain the ecosys-tem’s overall integrity.’ This imperative can either be translated in a principle of maintaining the ecological capital intact over time (Hediger, 1998), or restricting environmental degradation above some critical level of resilience beyond which the ecosystem could not recover from shocks or stress (Common and Perrings, 1992; Pearce et al., 1994; Perrings, 1996).
In any case, strong sustainability cannot be defined in terms of maintaining the entire natural resource base (natural capital) constant over time. Rather, it must be expressed in terms of ecological capital (the ecosystem’s resource base). This view is founded on a distinction between economic capital, natural capital, and ecological capital (Hediger, 1999):
1. Economic capital is defined as an economy’s generalized productive capacity; that is, the potential to generate income. It consists of manufactured capital (machines and build-ings), immaterial assets (knowledge and know-how, social organization, institutions, and the state of technology), and natural resources (including non-renewable resources, renewable resources, and land) that are harvested or de-veloped for use in economic transformation processes. Correspondingly, economic capital does not include ecological assets that are not directly used, but that are essential for the functioning of the ecosystem.
2. Ecological capital (ecosystem capital) consists of the total of renewable resource stocks (both used and non-used in economic production), semi-natural and natural land areas, as well as ecological factors, such as nutrient cycles, cli-matic conditions, and the resilience of ecosys-tems. This is the part of natural capital which
determines the overall quality of the
ecosystem.
3. Natural capital is defined as the natural re-source base of a geographic area. It consists of the ecological capital and stocks of non-renew-able resources.
4. Total capital is an aggregate of overlapping compartments of economic and natural capital — that is, the aggregate value of human-made capital, non-renewable resources, ecological capital — as well as immaterial assets of social capital (cf. Section 3).
The relationship between the different compart-ments of capital and the above-mentioned princi-ples of sustainability can be summarized as follows:
very weak sustainability is defined with respect
to economic capital,
strong sustainability is defined with respect to
ecological capital, and
weak sustainability is defined with respect to
total capital.
maximum amount of consumption that can be spent on consumption in one period without reducing real consumption opportunities in future periods. This is sustainable by definition (Daly, 1991). By con-trast, the objective of strong sustainability is to maintain the ecological capital at the initial level. This implies an astronomical value given to the environment in comparison with consumption. In other words, in a strong sustainability framework, the environment can be said to be considered as sacred capital (Taylor, 1996). Finally, the objective of weak sustainability is to maintain the level of social welfare. With respect to economic develop-ment and the environdevelop-ment, this is the total value of instantaneous consumption and the environment in an area. Apparently, among the above concepts, weak sustainability provides the most comprehen-sive approach to sustainable development. It allows for trade-offs between consumption and environ-mental quality. Moreover, it integrates very weak and strong sustainability as a special case. However, weak sustainability is not sufficient for sustainable development, since the latter cannot exclusively be defined with reference to economic development and the environment.
3. Extension to the social context
3.1. Sustainability and social capital
To comprehensively address the challenge of sustainable development, the above framework must be extended to the social context of develop-ment, and the terms of sustainability must be reformulated from an overall perspective:
The sustainability of a system should be judged on the whole system, not just part of it (Gowdy and O’Hara, 1997: 243).
Again, questions must be addressed about the objective and feasibility of sustainable development. In other words, sustainability must be defined with respect to human-ascribed system goals (objective), and the functioning of the overall system (feasibil-ity). This can only be assessed with respect to the ecological, economic and social capital of an area.
Ecological and economic capital, as well as related concepts of sustainability, are defined above. Yet, the concepts of social capital and social sustainabil-ity are more elusive (cf. Barbier, 1987; Tisdell, 1988; Munasinghe, 1993; Berkes and Folke, 1994; Khan, 1995; O’Hara, 1995; McPhail and Jacobs, 1996; Atkinson et al., 1997).
Munasinghe (1993) referred to socio-cultural sustainability as a concept which seeks to maintain the stability of social and cultural systems, including the reduction of destructive conflict. This is consis-tent with to the WCED (1987) definition of sustain-able development, which is primarily based on ethical principles of social justice, including a concern for equity within and between generations — especially the satisfaction of basic human needs and alleviation of poverty — as well as a concern for peace and security. Moreover, as defined at the World Bank (cf. McPhail and Jacobs, 1996), socio-cultural sustainability would at least require main-taining some critical components of social capital. In general terms, social capital (socio-cultural capital, cultural capital) refers to a society’s capa-bility to deal with social, economic and environmen-tal problems and be active in shaping the development of the overall system (cf. Berkes and Folke, 1994). It consists of socio-cultural values and norms, learned preferences, human capital and labor force, local knowledge of the environment, social competence and institutions, human health and life expectancy, as well as cultural and social integrity, and social cohesion.
Social capital is multifunctional. It embraces essential factors of economic production, provides
a basis for collective action within society,1and is
in itself an essential input factor of social capital
accumulation, including health care.2 Moreover,
1In a general anthropological sense, ‘culture’ consists of a set of rules for a society, and implies commonality (Berkes and Folke, 1994).
social capital is a valuable asset as such. In partic-ular, human health, literacy and life expectancy, cultural and social integrity, and social cohesion are components of human well-being (cf. UNDP, 1990; Atkinson et al., 1997). These components of social capital should be considered in a social welfare function, in addition to environmental quality and per-capita income. Furthermore, objectives of macroeconomic stability — such as full employ-ment, price level stability, and other economic goals — are determinants of individual and social well-being. Correspondingly, we can represent social welfare as an increasing function of aggregate
incomeY, macroeconomic stabilityM, social
cap-italS, and ecological capital Q:3
U=U(Y,M,S,Q) with UY, UM,US,UQ\0,
UYY,UMM, USS, UQQ00 (1)
This ‘socio-ecological-economic value function’ implies an extension of the above ecological-eco-nomic framework to the social and macroecoecological-eco-nomic context of human development. It enables formal analysis and definition of sustainability terms, going beyond the original conception of weak and strong sustainability, which is exclusively based on objec-tives of economic development and environmental preservation. The social welfare function (Eq. (1)) provides an integrated framework for addressing trade-offs across the various economic, social and ecological system goals. In practice, these trade-offs must be evaluated through an adaptive process of optimization for each location and each time (Bar-bier, 1987).
3.2. Defining sustainability from a socio-ecological-economic perspecti6e
Using the socio-ecological-economic value func-tion (Eq. (1)), we can formally define terms of weak and strong sustainability. As illustrated below, weak sustainability requires keeping the aggregate
value U at least constant over time. But weak
sustainability cannot exclusively be defined with reference to income growth and environmental change. Social and macroeconomic change must
also be taken into account. Likewise, strong sustain-ability can no longer be restricted to issues of maintaining some compartment of natural capital intact. Rather; it is respectively defined in terms of economic, social and ecological sustainability:
weak sustainability:
U: =UYY: +UMM: +USS: +UQQ: ]0 (2a)
strong sustainability:
economic sustainability: UYY: +UMM: ]0
(2b)
social sustainability: S: ]0 (2c)
ecological sustainability: Q: ]0 (2d)
economic de6elopment
(with constant population): Y: ]0 (2e)
Minimum requirements for ecological and social sustainability are non-decreasing stocks of ecolog-ical and social capital, respectively. Economic sus-tainability requires that the aggregate value of income growth and change of macroeconomic performance will not decrease over time. This represents the traditional trade-off among macro-economic policy goals, namely, adequate income growth, full employment, and price-level stability. This concept of economic sustainability is not equivalent to that of very weak sustainability. The former requires macroeconomic stability (including adequate income growth), while the latter repre-sents the minimum requirement for economic devel-opment which is simply defined in terms of per-capita income (or, for constant population, aggregate income).
As a common feature, strong sustainability terms are defined within the realm of one partial system: economy, society, or the environment. By contrast, the concept of weak sustainability is less restrictive than any principle of economic, social, or ecological sustainability. It requires that the aggregate value of economic, social, and ecological capital will be maintained intact over time, rather than to sustain
economic, social, and ecological capital separately.4
4The aggregation weightsU
Y,UM,USandUQcorrespond to the marginal value (marginal social utility) of aggregate income and the current state of the economic, social and ecological system, respectively.
3U
3.3. Indi6idual utility and social welfare
Weak sustainability is defined above as a com-prehensive concept that entails strong sustainabil-ity principles as special cases, and allows one to take into account trade-offs across the various system goals. It implies consideration of social values of income, macroeconomic stability, social capital, and environmental quality. This is a pre-requisite for socially optimal resource allocation, which demands that resources should be allocated to their highest-valued uses. For free-market economies, the values used for making such judg-ments are assumed to be those of private
con-sumers, while social optimality involves a
statement about the desired distribution of re-sources and resource rights. Moreover, defined as non-decreasing social welfare, weak sustainability implies a principle of intertemporal equity; a prin-ciple which has been discussed extensively, and which must logically be extended to interpersonal equity, or distributive justice, in order to be con-sistent with the core idea of sustainable develop-ment. This does not necessarily imply an equal treatment principle. Rather, we can reformulate the social welfare function (1) as a weighted sum of individual utilities:
U=%
N
i=1
gi·ui(yi,M,S,Q) (3)
For each individual i (i+1,...,N), utility ui is
defined as a function of individual income yi as
well as the economic, social, and ecological system
conditionsM, Sand Q, that are the same for all
inhabitants of a neighborhood or region. For the
aggregation, individual utility weights, gi, are
used. These weighting factors are fundamental for determining a social optimum which integrates economic efficiency and social equity require-ments. They constitute a normative element which is made explicit in Eq. (3), and which is implicit in a conventional economic framework of general market equilibrium (cf. Negishi, 1960). While practical difficulties may be involved with the task of establishing utility weights, it seems, for ethical reasons, more appropriate to use explicit rather than implicit utility weights. This is particularly
justified in the presence of poverty and
distribu-tional concerns.5
On the basis of the Bergson-type social welfare function (Eq. (3)), we can redefine the formal condition for weak sustainability. It requires that
the value of social welfare U does not decrease
over time. For constant population N, weak sus
-tainability is defined in terms of intertemporal welfare change, this is the weighted sum of
in-tertemporal change of individual utilityu;i, plus an
additional term which results from conceivable change of utility weights:
U: = %
N
i=1
gi·u;i+ % N
i=1
g;·ui]0 (4a)
By contrast, indi6idual impro6ement requires
non-decreasing individual utility u:
u;i=(ui
(yi·y;i+ (ui (M·M: +
(ui (S·S: +
(ui
(Q·Q: ]0 (4b) Weak sustainability requires that the total value of social welfare should be maintained intact over time. It does not necessarily imply improvement for all individuals. Rather, weak sustainability requires that individual losses are balanced by adequate improvements for other individuals, such as the aggregate value of social welfare will not decrease over time. In contrast, if effective compensation is required for social stability, then Pareto improvement will be necessary for sustain-able development. Thus, both criteria of weak sustainability and individual improvement of all must be satisfied.
3.4. Population growth, economic de6elopment,
and sustainability
Up to this point, I have abstracted from popula-tion growth, though this is generally seen as major threat to sustainable development. Yet, popula-tion growth implies more pressure on natural capital, resulting from land use change and re-source consumption. Moreover, under
tion of population change, terms of economic development and weak sustainability need to be reformulated.
In simple terms, economic development can be referred to as growth of per-capita income. The
latter is defined as total income Y divided by
population N, while total income is the sum of
individual incomesyi:
total income: Y= %
N
i=1
yi (5a)
average per-capita income: y=Y
N (5b)
Correspondingly, economic de6elopment
(growth of per capita income) requires that the growth rate of aggregate income must exceed the population growth rate:
y;=y·
Y:Y− N:
N
n
]0 (6)This is only an imperfect proxy for economic development, even if properly defined in the Hick-sian sense, and thus sustainable by definition. Based on a measure of average income, it is not sensitive to distribution inequality and lack of macroeconomic stability. By contrast, the concept of weak sustainability embraces distributional concerns in an integrated framework with trade-offs across economic, social and ecological system goals.
I have defined weak sustainability as non-de-creasing social welfare. For constant population, this is represented in Eq. (4a) as the weighted sum of intertemporal change of individual utility, and the aggregate welfare change as a result of possi-ble alteration of distribution weights. In the case of population growth, this expression must be extended. An additional term appears, which is equal to the product of population growth times
social welfare:6
weak sustainability with population growth:
U: = %
Using Eq. (4b) and the subsequent set of definitions we can reformulate the equation on the left, as follows:
we finally get a modified condition for weak sustainability:
The first term in square brackets corresponds to the original expression for weak sustainability with constant population, equal utility levels and equal utility weights for all individuals. The sec-ond bracket represents the change of social wel-fare due to a conceivable change of utility weights. For practical reasons, we may assume constant weights, at least for short-term compari-sons on an annual base. In this case, the second bracket term would vanish.
6Remember that social welfare is defined asU=
i=1
i=N
giui,
and compare the special case with equal individuals (equal weight and equal utility):U=Ngu[U: =N(gu;+g;u)+N:gu=
The third pair of square brackets contains the expression for intertemporal welfare change as a result of population change. Under the assump-tion of decreasing marginal utility of aggregate
income (UY\0 andUYYB0) and growing
popu-lation, this expression is positive:
N:
N·(U−UYY)
=N:
N·
U Y−(U (Y
·Y!
]0for N: ]0 B0for N: B0
By contrast, for declining population this ex-pression would be negative. Thus, weak sustain-ability is not easily defined, if population and distribution weights change. However, some gen-eral rules can be proposed.
For decreasing population, the rule is
straightforward:
N: B0: UYY: +UMM: +USS: +UQQ:
]−
N:
N·
UY−UY
·Yn
]0 (13)Since the expression in square brackets is nega-tive, the term on the right is positive. In this case, the value of intertemporal change of the total capital must exceed some positive value. This is determined by the absolute value of the popula-tion decline rate, times the difference between society’s average and marginal utility of income, times aggregate income.
By contrast, in case of population growth, the sign of this term changes; it is negative. This means that the welfare of the original population could decrease, while the outcome would be judged as aggregate welfare improvement, and thus considered weakly sustainable. Yet, as proposed above, Pareto improvement may be necessary for sustainable development. Corspondingly, a rule is required which is more re-strictive. For this purpose, I suggest, as an approximation for practical uses, that the original weak sustainability rule (Eq. (2a)) can be applied as a ‘safe’ criterion in the case of population growth:
N: ]0: UYY: +UMM: +USS: +UQQ: ]0 (14)
In other words, the original value principle of weak sustainability, which calls for maintaining the total value of capital intact over time, is a ‘safe minimum rule’ for cases with population growth and constant distribution weights. We may use this approximation (Eq. (14)) with the qualification that the social welfare function (Eq. (3)) is defined as the weighted sum of individual utilities, and that the set of definitions in Eq. (8) applies for the marginal social values of aggregate income, macroeconomic stability, social capital, and environmental quality.
4. A ‘sustainability-based social value function’
Population growth will have impact on the opportunity space, and thus the feasibility set of sustainable development. The boundaries of the opportunity space for sustainable development are determined by economic, social, and environ-mental system capacities, and critical limits of capital beyond which the system could not re-cover from stress or shocks. Altogether, this im-poses limitations upon human activity in the long-run that need to be anticipated for sustain-able development. Correspondingly, an adequate value function must not only integrate individual and social values, but also account for limits of criticality, namely, ecosystem resilience and the satisfaction of basic human needs (Hediger, 1999): 1. Sustainable development is a normative princi-ple that calls for meeting basic human needs. The latter are conventionally defined in terms of adequate supply of food, water, health care, shelter, and minimum education (WCED, 1987; Moon, 1991). These minimum standards of development are physical, but also cultur-ally and economiccultur-ally determined (Chichil-nisky, 1977), and cannot be traded off against each other and against market commodities (Pearce and Turner, 1990). In an aggregate form, this can be defined in terms of a ‘mini-mal’ level of consumption or income, and rep-resented by a poverty line (cf. Atkinson et al., 1997).
capacities. This does not necessarily imply preservation of current assimilation and regen-eration capacities of the ecosystem. Rather, as Perrings (1996) pointed out, ‘the best that can be achieved through environmental manage-ment is the stabilization of the system at sus-tainable levels of activity, and this is the same as the protection of system resilience.’ Corre-spondingly, thresholds of ecosystem resilience must be considered in any viable concept of sustainable development (cf. Holling, 1973; Common and Perrings, 1992). This has also been referred to as a concept of ‘critical natu-ral capital’ (Pearce et al., 1994).
So far, I have introduced minimum conditions of ecological and economic sustainability that re-strict the opportunity space for sustainable devel-opment. These constraints (limits of criticality) are defined in terms of thresholds of ecosystem resilience and minimum income to satisfy basic
human needs,Qc and Yc, respectively.
Yet, to comprehensively address the challenge of sustainable development, critical levels of social capital and macroeconomic performance must also be included. As mentioned above, social sus-tainability refers to a concept which seeks to maintain the stability of social and cultural
sys-tems. Correspondingly, ‘critical social capital’Sc
may usefully be defined as minimum level of social cohesion beyond which the social system risks collapse. In a similar form, one may imagine maximum levels of unemployment and inflation,
Mc, above which the socio-economic system may
abruptly change. Thus, to coherently address is-sues of sustainable development, critical levels
Qc, Yc, Sc, and Mc must be taken into
ac-count with reference to environmental quality, basic needs, social capital, and macroeconomic stability.
Using the social welfare function (Eq. (1)), as simplification of the more adequate form (Eq. (3)), we can define the opportunity space for sustainable development. It is restricted by the
current social indifference curve, U0=
U(Y0,M0,S0,Q0), which is historically determined
by the present state of developmentY0, as well as
present levels of macroeconomic stability M0,
so-cial capital S0, and environmental quality Q0, as
well as the critical levels Yc, Mc, Sc, andQc.
As illustrated in the economy-environment sphere of Fig. 1, the consideration of these critical levels leads to a sustainability frontier that is broken into three parts. For given levels of
macroeconomic stability M0\Mc and social
capital S0\Sc, and for any level of aggregate
income Y\Yc and environmental quality Q\
Qc, it is equal to the social indifference curveU0
which is based on individual preferences. By
con-trast, for Y=Yc andQ=Qc, the sustainability
frontier lies on the boundaries imposed by Qc
and Yc, respectively; while for any YBYc or
QBQc, no terms of sustainability and
sustain-able development can be defined. In other words, if the starting conditions are not in the interior of
the maximum sustainability space {Q0\Qc,
Y0\Yc,M0\Mc,S0\Sc}, sustainable
devel-opment is not feasible. Rather, a process of transi-tion is required to enter the opportunity space of sustainable development.
The boundaries of this opportunity space are crucial for sustainable development analysis. Any
modification of the system across these
boundaries of ecosystem resilience, basic needs, critical social capital, or critical levels of unem-ployment and inflation, could impose irreversible change. In economic terms, this means that such alterations would significantly reduce the variety of possible choices for a long time into the future (Henry, 1974), and would be infinitely costly to reverse (Arrow and Fisher, 1974). This involves a fundamental problem for decision making and the
evaluation of alternative development paths within the opportunity space of sustainable
devel-opment. Along the original indifference curveU0,
which is part of the sustainability frontier in Fig. 1, irreversibility would not be anticipated. But irreversible change would suddenly appear when
the system reaches either limit Qc or Yc. This
may not in general be socially desirable. Rather, a social value function should be conceptualized so as to anticipate potentially irreversible effects at the boundaries of the sustainability space.
Proposition: A sustainability-based social 6alue
function matches values based on aggregate indi-vidual preferences, the current state of develop-ment of economy, society and the environdevelop-ment
(Y0, M0, S0, Q0), and socio-ecological-economic
system requirements of sustainability (critical
lim-its Yc, Mc, Sc, and Qc), and anticipates
po-tentially irreversible changes at the boundaries of
the opportunity space for sustainable
development:
W=W(Y, M,S, Q,Y0, M0, S0,Q0) (15)
forY\Yc, M\Mc, S\Sc, Q\Qc
with
WY,WM,WS,WQ\0,
WYY,WMM, WSS, WQQB0
limYYcWY(Y, M, S, Q, Y0, M0,S0,Q0)=,
limMMcWM(Y, M, S, Q, Y0,M0, S0, Q0)=
limSScWS(Y, M,S, Q, Y0, M0,S0,Q0)=
limQQcWQ(Y, M, S, Q, Y0, M0,S0,Q0)=
W(Y0,M0,S0, Q0)=U(Y0, M0, S0, Q0)
WY(Y0,M0, S0, Q0)=UY(Y0, M0,S0,Q0),
WM(Y0, M0,S0,Q0)=UM(Y0,M0, S0, Q0)
WS(Y0, M0, S0, Q0)=US(Y0, M0, S0, Q0),
WQ(Y0,M0, S0, Q0)=UQ(Y0, M0,S0,Q0)
This function is defined forY\Yc,M\Mc,
S\Sc and Q\Qc, only. It is based on a
system perspective, and, apart from current
devel-opment (Y0, M0,S0,Q0), different from the
indif-ference curveU0. The new value functionW0does
asymptotically approach the minimum standards
Yc, Mc, Sc and Qc, and implies equivalent
combinations of Y, M, S and Q that are above
those of the original value function U0 which is
exclusively based on individual preferences. Cor-respondingly, the sustainability-based social value
function W0 does not intersect the
preference-based social value function U0. This is illustrated
in Fig. 1 for givenM0andS0, and the indifference
curves U0 and W0.
An important feature of the sustainability-based social value function is the implicit balance across different approaches. Given the current
state of development (Y0, M0, S0, Q0), aggregate
preference maximization is given priority for the evaluation of marginal changes, while more con-servative approaches will be dominant if the
sys-tems moves toward any boundary of the
sustainability space. The W-function implies an
anticipation of potentially irreversible changes at the boundaries of the opportunity space for sus-tainable development. It is more sensitive to mod-ifications of the overall system than the original
welfare function U. In other words, from an
integrated sustainability perspective, which is
rep-resented by the social value functionW, the
trade-offs among the different system goals are higher valued than in a weak sustainability framework, which is based on the individualistic value
func-tion U. This implies that, for society to be
indif-ferent in the course of development, income growth that would be required to compensate for the degradation of social and ecological capital is higher in an integrated sustainability framework than an aggregate value function based on indi-vidual preferences would suggest. In like manner, any sacrifice of income would need to be compen-sated by an improvement of the overall system to an extent which is higher than traditional welfare concepts would suggest.
5. Conclusion
trade-offs across different objectives of develop-ment, and is required to sustain the integrity of the overall system. This involves a value principle which is based on the concept of weak sustainability and a set of minimum requirements of sustainable development. This concept is usefully formalized on the basis of a social welfare function which is defined as an aggregate of individual preferences. But, to comprehensively address the challenge of sustain-able development, the application of this welfare function must be restricted by a set of minimum sustainability requirements. The latter are not defined as stationary-state (‘strong sustainability’) criteria of economic, social or ecological sustainabil-ity. Rather, they refer to some thresholds of
criti-cality that are integrated in the proposed
sustainability-based social value function. This confined value function provides an approach which goes beyond traditional conceptions of sustainabil-ity. It integrates principles of basic human needs (‘critical economic capital’), ecosystem resilience (‘critical ecological capital’), and integrity of the socio-cultural system (‘critical social capital’), along with individual preferences, income growth and macroeconomic stability.
Population growth is generally seen as major threat to sustainable development because it in-volves pressure upon the overall system. This is a problem of feasibility. But, as the analysis in this article shows, it has no dominant impact on the formulation of the weak sustainability criterion. By contrast, the levels of critical capital impose limits upon the opportunity space within which sustain-able development can proceed. The sustainability-based social value function is only defined within these limits. It implies a value principle which theoretically anticipates potentially irreversible changes at the boundaries of the opportunity space. As a consequence, it is more sensitive to changes in the overall system than are traditional measures of weak sustainability. The value of the function is determined by the present state of development (per-capita income, macroeconomic stability, social capital, and environmental quality), population size, and long-term requirements of the overall system. Marginal values of any change close to these limits are astronomically high. Therefore, the sus-tainability-based social value function implies
higher values associated with the trade-off between income growth and other objectives than a purely preference-based welfare function would suggest. Hence, to compensate for environmental and social change, or decrease of macroeconomic stability, sustainable development requires income growth per capita, which is higher than it would be suggested from a purely preference-based perspective of weak sustainability.
To make this approach operational, one will be required to assess the trade-offs included in the social welfare function upon which the concept of weak sustainability is based. In addition, the levels of criticality must be defined to confine the opportunity space for sustainable development. Given the cur-rent state of development, the isoquant of the social welfare function must then be transformed into the sustainability-based social value function that asymptotically approaches the levels of criticality, as illustrated in Fig. 1 and formalized in Eq. (15). The proposed value function provides an exten-sion of the weak sustainability concept. It allows the evaluation of changes towards the levels of criticality before they are reached. This is more important close to the levels of criticality, where approaches of safe minimum standards may be applied. In contrast, the weak sustainability approach, as defined in this article, can still provide a good approximation for the evaluation of marginal changes at any initial state far from the boundaries of the opportunity space for sustainable development. Altogether, the sustainability-based social value function provides an integrated approach for the evaluation of change. It is balanced between the value principle of weak sustainability and approaches of conservation such as safe minimum standards.
are compatible with the minimum requirements of the socio-ecological-economic system. Such a tran-sition towards sustainable development may in-volve structural changes within the economy and society, especially changes of the stock of human-made production capital and social organization to exceed the minimum standards of criticality.
Acknowledgements
I am grateful to various colleagues at the Swiss Federal Institute of Technology Zurich and two reviewers of this Journal who provided suggestions and critical comments to improve this article. Remaining errors are the responsibility of the author.
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