Kotosz, B. (2012): Measuring Sustainable Development At Macro Level. In: Zentkova, I. (Ed): Global Commodity Markets: New Challenges And The Role Of Policy pp. 707-712. ISBN: 978-80-552- 0792-6.
MEASURING SUSTAINABLE DEVELOPMENT AT MACRO LEVEL KOTOSZ Balázs (HUN) University of Szeged ABSTRACT Few concepts appear to have captured the public and political imagination more than that of ‘sustainable development’. The concept is intended to embrace the idea of ensuring that future generations inherit an Earth which will support their livelihoods in such a way that they are no worse off than generations today. GDP shortcomings, as an index for measuring socioeconomic progress, feature again prominently in the public debate, following years of benign neglect. Such criticisms are almost as old as the concept itself and national accountants have repeatedly warned about limitations of GDP as a welfare indicator. The list of alternative indicators is long; the focus of the article is on seven widely known measures. The main dimensions of these measures are different (economic, social and environmental), but only a measure that is balanced in the three dimension can satisfy the requirements about an ideal index. Even, the famous Stiglitz-commission could not solve the problem, but to conceive 12 recommendations that may transform thinking. KEY WORDS sustainable development, indicators, well-being INTRODUCTION GDP shortcomings, as an index for measuring socio-economic progress, feature again prominently in the public debate, following years of benign neglect. Such criticisms are almost as old as the concept itself and national accountants have repeatedly warned about limitations of GDP as a welfare indicator. “Indicators of sustainable development need to be developed to provide solid bases for decision-making at all levels and to contribute to a self-regulating sustainability of integrated environment and development systems.” United Nations (1992, Agenda 21, Chapter 40.4) Increasing concerns have been raised since a long time about the adequacy of current measures of economic performance, in particular those based on GDP figures. Moreover, there are broader concerns about the relevance of these figures as measures of societal wellbeing, as well as measures of economic, environmental, and social sustainability. Reflecting these concerns, President Sarkozy has decided to create a Commission, to look at the entire range of issues. The Commission on the measurement of economic performance and social progress has been created at the beginning of 2008 on French government's initiative. Its aim was to identify the limits of GDP as an indicator of economic performance and social progress, to consider additional information required for the production of a more relevant picture, to discuss how to present this information in the most appropriate way, and to check the feasibility of measurement tools proposed by the Commission. The Commission was chaired by Professor Joseph E. Stiglitz, Columbia University. Professor Amartya Sen, Harvard University, was Chair Adviser. Professor Jean-Paul Fitoussi, Institut
d'Etudes Politiques de Paris, President of the Observatoire Français des Conjonctures Economiques (OFCE), was Coordinator of the Commission. Members of the Commission are renowned experts from universities, governmental and intergovernmental organizations, in several countries (USA, France, United Kingdom, and India). Its final report has been made public on 14 September 2009. MATERIAL AND METHODS There is not a collective consensus of what sustainability means and of what constitutes sustainable development. The development solution to global environmental problems while described under one name ‘sustainable development’ is understood and defined in different ways. By Defra National Statistics (2010), sustainable development is about enabling people to satisfy their basic needs and enjoy a better quality of life, without compromising the quality of life of future generations. It combines important social, environmental and economic goals. In our paper we compare theoretical concepts: seven indicators will be analyzed and compared. We will use two different point of view, once that of Meadows, and the recommendations of the Stiglitz committee. RESULTS AND DISCUSSION Some researches focus on a strict and narrow field of the sustainable development, while generally three points of view are separated: economic, social and environmental. (see Figure 1) The three aspects have different meaning of development and sustainability. The economic development is very often based on growth, while in the environmental aspect constancy and the conservation of status quo is more accentual. Sustainability is interpretable from all aspects, the most common expoundings are: (1) economic sustainability as a stable path of yield, (2) social sustainability as demographic and sociological balance, and (3) environmental sustainability as subsistence of living conditions of living beings.
Economic aspects
Socio-economic metrics
Societal aspects
Sustainability metrics
Eco-efficiency metrics
Environmental aspects
Socio-ecological metrics
Figure 1. Sustainability metrics Source: Sikdar (2003)
Indicators of one field are typically directly observable or measurable base data (CO2 emissions, number of cars, mortality rate). The combination of two aspects results problems with simple base data indicators, since aggregating not comparable variables and values is not without discredit. Real sustainability metrics (in the intersection of the three sets, see Figure 1) are almost always composite indicators, linear combination of base data or the result of some multivariate dimension reduction method. Composite indicators are synthetic indices of groups of individual indicators which are used to compare and rank countries in areas such as environmental performance and sustainable development. Composite indicators are valued for their ability to integrate large amounts of information into easily understood formats for a general audience. They limit the number of statistics to be presented and allow for quick comparisons of country performance. In this, the use of composite indicators as a communication and analytical tool is growing. As Meadows (1998) summaries, a good indicator, measure, or index should fulfill at least 15 requirements: 1. Clear in value: no uncertainty about which direction is good and which is bad. 2. Clear in content: easily understandable, with units that make sense, expressed in imaginable, not eyeglazing, numbers. 3. Compelling: interesting, exciting, suggestive or effective action. 4. Policy relevant: for all stakeholders in the system, including the least powerful. 5. Feasible: measurable at reasonable cost. 6. Sufficient: not too much information to comprehend, not too little to give an adequate picture of the situation. 7. Timely: compliable without long delays. 8. Appropriate in scale: not over or under-aggregated. 9. Democratic: people should have input to indicator choice and have access to results. 10. Supplementary: should include what people can’t measure for themselves (such as radioactive emissions, or satellite imagery). 11. Participatory: should make use of what people can measure for themselves (such as river water quality or local biodiversity) and compile it to provide geographic or time overviews 12. Hierarchical: so a user can delve down to details if desired but can also get the general message quickly. 13. Physical: money and prices are noisy, inflatable, slippery, and unstably exchangeable. Since sustainable development is to a large extent concerned with physical things — food, water, pollutants, forests, houses, health — it’s best wherever possible to measure it in physical units. (Tons of oil, not dollars’ worth of oil; years of healthy life, not expenditures on health care.) 14. Leading: so they can provide information in time to act on it. 15. Tentative: up for discussion, learning, and change. The Stiglitz committee summarized their findings in 12 recommendations:
1. When evaluating material well-being, look at income and consumption rather than production 2. Emphasize the household perspective 3. Consider income and consumption jointly with wealth 4. Give more prominence to the distribution of income, consumption and wealth 5. Broaden income measures to non-market activities 6. Quality of life depends on people’s objective conditions and capabilities. Steps should be taken to improve measures of people’s health, education, personal activities and environmental conditions. In particular, substantial effort should be devoted to developing and implementing robust, reliable measures of social connections, political voice, and insecurity that can be shown to predict life satisfaction. 7. Quality-of-life indicators in all the dimensions covered should assess inequalities in a comprehensive way 8. Surveys should be designed to assess the links between various quality-of-life domains for each person, and this information should be used when designing policies in various fields 9. Statistical offices should provide the information needed to aggregate across qualityof-life dimensions, allowing the construction of different indexes. 10. Measures of both objective and subjective well-being provide key information about people’s quality of life. Statistical offices should incorporate questions to capture people’s life evaluations, hedonic experiences and priorities in their own survey. 11. Sustainability assessment requires a well-identified dashboard of indicators. The distinctive feature of the 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 essentially focused on economic aspects of sustainability. 12. The environmental aspects of sustainability deserve a separate follow-up based on a well-chosen set of physical indicators. In particular there is a need for a clear indicator of our proximity to dangerous levels of environmental damage (such as associated with climate change or the depletion of fishing stocks.) (Stiglitz et al, 2009) The Gross Domestic Product (GDP) is the sum of the gross value added by all resident producers in the economy plus any product taxes and minus any subsidies not included in the value of the products. (United Nations, 2009) However, this measure is calculated without making deductions for depreciation of fabricated assets or for depletion and degradation of natural resources. It is easy to see why GDP is inadequate as an index of sustainable development. An economy’s productive base will shrink if its stock of capital assets depreciates, and its institutions are not able to improve sufficiently to compensate for that depreciation. The term GDP is an acronym for gross domestic product. The word “gross” means that GDP ignores the depreciation of capital assets. It is certainly possible for a country’s productive base to grow while its GDP increases, which is no doubt a path of economic development we all would like to follow. However, it is also possible for a country’s productive base to shrink during a period when GDP grows. The problem is that no one would notice the shrinking if
everyone’s eyes were riveted on gross domestic product. If the productive base continues to shrink, economic growth will, sooner or later, stop and reverse sign. The standard of living will then decline, but no one would have suspected that a fall was forthcoming. Thus, growth in GDP per head can encourage us to think that all is well when in fact it is not. (Dasgupta, 2007) England (1997) reviews the GDP from a national accounts point of view. His paper is a good summary of economic statistics reasons, why GDP is not adequate even in the economic field. One can also see that the GDP does not fulfill Meadows’ requirements, with the exception of (1), and obviously infringes the 12 recommendations. Nonetheless, interest in alternatives or complements to GDP resumed progressively during the 90s. Emblematic of this new trend was the creation of the United Nations “human development index” (HDI) that combines GDP (per capita at PPP) with a long and healthy life (life expectancy at birth) knowledge (adult literacy rate and gross enrolment ratio) This very simple index only synthesizes a limited amount of information. It is also more relevant for comparisons of developing countries than for comparisons of more advanced countries but it remains one of the few indexes that are regularly compiled and widely disseminated by international organizations to allow systematic cross-country comparisons. It also played a large role in raising the profile of important non-economic dimensions of the quality of life. (Bleys, 2005) From the Stiglitz point of view, this measure is more adequate, mainly (7) and (10)-(12) recommendations are failed, but environmental aspects are included only in a very indirect way. As HDI is a result of normalization, the number has not a clear meaning, and including the GDP, all computation shortcomings (necessary database, not physical, etc.) are hung on. The ecological footprint (EF) measures the demands humans place on nature. It provides a quantitative assessment of the biologically productive area (the amount of nature) required to produce the necessary resources (food, energy, and materials) and to absorb the wastes of a given population. If the human load exceeds the productive capacity of the biosphere then consumption patterns are clearly not sustainable given current circumstances. The human load can vary depending on population, technology, and eco-efficiency. The ecological footprint therefore, ultimately measures the sustainability of human consumption patterns. (Wilson et al, 2007) This indicator is better to evaluate activities or smaller places than countries. The ecological-environmental aspect is predominant, so the measure is unbalanced. The final comparison is in monetary units, and official statistics cannot significantly help its computation, just like our next measure. The surplus biocapacity (SB) measure also assesses the sustainability of consumption patterns. Specifically, the SB is the difference between a country's ecological footprint and its domestic production area of ecologically productive land and water. The environmental sustainability index (ESI) is a composite index targeting environmental, socio-economic, and institutional indicators as a means to assess sustainability. The ESI incorporates 20 indicators, each of which combines two to eight variables, for a total of 68 underlying datasets. The core components of the ESI include: environmental systems, reducing stresses, reducing human vulnerability, social and institutional capacity, and global stewardship. Unless we lack the economic aspect, this measure is the closest to the ideal one expressed by Meadows’ requirements and the Stiglitz-committee recommendations.
The wellbeing index (WI) is a composite index evaluating human and ecosystem wellbeing. This metric is based upon the philosophy that assessing the combination of these two elements offers insight into how close a country is to becoming sustainable. The WI is an equally weighted average of the human wellbeing index (HWI) and ecosystem wellbeing index (EWI). Both consist of five dimensions, the former comprising health and population, household and national wealth, knowledge and culture, community, and equity, while the latter consists of land, water, air, species and genes, and resource use (Prescott-Allen, 2001). This index finally combines all three fields of sustainable development with stronger weight on environmental issues; ideally fits for Prescott-Allen’s three basic requirements (representative, reliable, feasible). The Gross National Happiness (GNH) composite measure was created in Bhutan, based on Buddhist values, but nowadays computed for many countries around the world. It integrates 33 indicators based on 72 questions of 9 domains (psychological wellbeing, health, education, culture, time use, good governance, community vitality, ecological diversity and resilience). This measure clearly rejects the economic aspects, and concentrates on social point of view. It is based on people’s opinion (thereby the most subjective composite indicator), measuring or estimating is not necessary.
CONCLUSION In the long run and at the macro level, happiness and subjective well-being are not correlated with income or GDP. This finding is known as the Easterlin paradox, since it has been first pointed out and updated by Easterlin (1974 and 1995). Economic welfare and well-being are static, while development and sustainability are dynamic phenomena. All indicators are based on past facts or on questionable forecasts that do not facilitate measuring the dynamic dimension.
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PRESCOTT-ALLEN, R.: The Well-Being of Nations: A Country-by-Country Index of Quality of Life and the Environment. Island Press, Washington, D.C., 2001. SIKDAR, S. K.: Sustainable Development and Sustainability Metrics. AIChE Journal, Vol. 49, No. 8, pp. 1928-1932., 2003. STIGLITZ, J. E. – SEN, A. – FITOUSSI, J-P.: Report by the Commission on the Measurement of Economic Performance and Social Progress. 2009. http://www.stiglitz-senfitoussi.fr/documents/rapport_anglais.pdf (accessed 2012-02-29) UNITED NATIONS: Agenda 21: The United Nations Programme of Action from Rio. United Nations, New York. 1992. UNITED NATIONS: System of National Accounts 2008. United Nations, New York, 2009. WILSON, J. – TYEDMERS, P. – PELOT, R.: Contrasting and comparing sustainable development indicator metrics. Ecological Indicators 7, pp. 299–314., 2007. CONTACT ADDRESS Balázs Kotosz, University of Szeged, Faculty of Engineering, Institute of Economics and Rural Development, H-6724, Szeged, Mars tér 7. Hungary,
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