Monday, May 2, 2011

Sustainability: Defining the undefinable

What does it mean for something to be "sustainable"? Does the term, as it is widely used in the public lexicon today, contribute anything useful to our everyday lives, or even those of future generations?

David Friedman, scion to the more famous Milton, thinks not. He has written several posts that have received a fair amount of attention in the blogosphere recently by attacking our fixation with "sustainability". Without trying to paraphrase too loosely, he essentially argues that the concept of sustainability is mostly vacuous and -- to the extent that it does contribute anything original to discussions of how humankind might plan for the future -- this new contribution could only result in some "indefensible" policy decisions if taken seriously. A paragraph to illustrate:
Making sure we can continue our present activities into the indefinite future makes sense only if we believe that we will be doing those things into the indefinite future. Judged by what we have seen in the past and can guess about the future, that is very unlikely. [Note: In an earlier paragraph, Friedman cites the futility of preserving pasture land in the early 20th century for horses that were ultimately replaced by automobiles.] We do not know what the world of forty or fifty years hence will be like, but it will not be the same as the present world, hence it is very unlikely that we will be doing the same things in the same way and requiring the same resources to do them with.
I agree with many of the points that Friedman makes. In fact, I'd go so far as to suggest that most development and environmental economists (say nothing of practitioners in related fields) have conceded these issues long ago. For example, the first time I ever came across the famous Brundlant Commission's definition of "sustainable development" -- i.e. "development that meets the needs of the present without compromising the ability of future generations to meet their own needs" -- was in an undergraduate class on environmental economics. I recall my lecturer saying something along the lines of: "Nice concept. Pity that it's too vague to be of any real use." Similarly, here's a fable about sustainability from a more recent class that I took on energy economics:
Some two centuries ago, a farmer in Ireland calculated how much peat he and his family needed to subsist. He then marked out fields for a maximum number of generations that could subsist from the peat available on his land and made a vow not to take more than his share. His son did the same, as did his grandson, and his grandson's son. But one day there was no more peat dug up and, yet, there was still plenty left.
It wasn't only peat farmers that were caught out this way. William Stanley Jevons, the pioneering co-founder of the "marginal revolution" in economics, pondered how Britain might best use its precious, yet limited, coal resources in his 1865 treatise, The Coal Question. At the end of his book, Jevons confronted the fact that Britain's use of coal was on an unsustainable path relative to its supplies. Given coal's central importance to the British economy, he was left to conclude that the country faced an uncomfortable choice in prolonging the lifespan of its reserves: "We have to make the momentous choice between brief greatness and longer continued mediocrity."

Of course, looking at these two stories, we can now see that two key components were missing from the analysis, namely: i) Substitution, and ii) Innovation. I won't comment in-depth on either of these aspects, except to say that, yes, they have absolutely and continually expanded the boundaries of our horizons.

Now, going back to Friedman's posts, it should be clear from what I've already written that I and (I believe) many others are already largely in agreement with him. But not completely. I have some nagging issues with his criticism, which might explain why I don't think that the ideal of sustainability should be discarded...

1) The historical precedent of technological innovation and/or new resource discoveries in some cases offers no guarantees that resource limitations will be overcome as easily (or fortuitously) in the future. The peat farmer would have appeared more sage in hindsight had he lived, say, 500 years earlier. It might not be that -- as Friedman says perfectly reasonably -- that we should expect to be doing the same things indefinitely into the future. However, that is a very poor argument for unchecked profligacy. It's clear that we live in an age of increased technological breakthrough and, yet, not every generation can simply rely on the timely discovery of fossil fuels, or whatever the relevant equivalent is. Actually, if we're talking historical precedent, then I should say that the historical record makes this rather clear... Take a look at Jared Diamond's Collapse to get an idea of how societies through the ages have brought about their own downfall by failing to adequately respect (and adjust to) their natural environment. Similarly, this post discusses what imperfect substitutability between different goods might mean in the context of climate change.

2) Since I don't believe that sustainability is about us "doing the same activities into the indefinite future", let me briefly explain what I think it should be about. To the extent that substitution between goods is possible, sustainability is concerned with the transformation of wealth into... well, sustainable forms of wealth. A famous example from own my specialisation of resource economics is the so-called Hartwick Rule. Put simply, this is an investment rule that says you should invest the profits from non-renewable resources into renewable forms of capital. At its heart, the Hartwick Rule is thus about preserving some form of intergenerational equity. The sovereign wealth funds of many resource rich countries are based on this logic... For example, Norway's "Global" Government Pension Fund, which invests the country's petroleum income in equity shares and stocks around the world.

3) Unlike conventional planning (which takes place at the individual, household or firm level), to me "sustainability" confers something on a grander scale. This may seem an amorphous concept, but it needn't be. Looking at things from the societal level means that you are forced to factor in future generations in locations that may be far removed from your home town or area of influence, precisely because these people may still stand to be affected by our actions today. So, it's not that sustainability is about dismissing the fact that people and companies already make important decisions about trade-offs and opportunity costs. Rather, it concerns the fact that we may need to incorporate additional trade-offs, which are easily overlooked simply because they are far-removed from our current circumstances. Sustainability should therefore be about expanding the scope of people's (and society's) immediate concerns to include things like public goods. An obvious candidate is climate change and I think that this is one area where Friedman gets his criticism badly confused.[**] His argument actually fails to acknowledge the fundamental concern of climate change economics, which is to evaluate the costs and benefits in equalised terms, both geographically and inter-temporally. Again, uncertainty about how mankind's future welfare or technology will develop is not a license to profligacy. Yes, we may be wrong in our projections of what the world will look like in a hundred years, but that hardly means that we should abdicate responsibility in making reasonable investments and sacrifices based on our best estimates. I also wonder why people think that we won't be able to shift goal posts as the game changes and new facts emerge? The idea that we might be paralysed by the fear of making mistakes (in our predictions of the future) is analogous in its intellectual poverty to the Luddite idea that we should leave the earth exactly as we found it. These are empty false choices.

THOUGHT FOR THE DAY: I left a comment under Friedman's second sustainability post, concluding somewhat tongue-in-cheek: Given the vagueness of existing definitions of "sustainability", couldn't we just invoke Potter Steward's famous quip about (hard-core) pornography: "We may not be able to define it, but we'll know it when we see it."?

More seriously, sustainability may be hard to pin down and even counter-productive if taken at the absolute literal level, as some have defined it. However, I think that we've long since moved passed the peculiar notion that we should expect to do the same things, or use exactly the same resources, indefinitely into the future. Sustainability will probably remain an inevitably vague concept, but that doesn't mean that is without value. It is about understanding how our actions today may affect those in the far-off future, or in far-off places, and applying equal weight across those dimensions. It is about acknowledging both the possibilities and limits of substitutability or technological innovation. Lastly, being "sustainable" doesn't mean that we must impoverish ourselves today for the benefit of future generations, any more than it means that we can enrich ourselves at the expense of those future generations. We should expect that people will be "wealthier" than us in the future, just as we are largely better off than our forebears. That seems to be a trend worth preserving.

[*] Having said all this, you could argue that Friedman actually draws up a straw man caricature of these what these naive "sustainability-types" believe... However, I think that we would be an uncharitable reading and, to be fair to Friedman, there are a large number of armchair adherents to the sustainability mantra that comfortably fit the mantle as he's described it.
[**] He writes: "[C]onsider the issue of global warming. Assume that it can be slowed or prevented, but at the cost of slowing the development of much of the world. To make the point more precise, suppose that global warming imposes an average cost on future generations of 10 utiles (or whatever unit you prefer to use to measure the ability of future generations to meet their own needs), but the policies that prevent it impose a cost of 20. Is permitting global warming sustainable? Is preventing it?"


  1. "Put simply, this is an investment rule that says you should invest the profits from non-renewable resources into renewable forms of capital. At its heart, the Hartwick Rule is thus about preserving some form of intergenerational equity. "

    It would seem that, by the criterion of intergenerational equity, people have been investing too much for the past century and a half and longer, since real incomes have been rising, meaning that later generations have it better than earlier generations.

    Is that your view? If not, why?

  2. David,

    Thank you for your comment (and for kicking off this discussion in the first place).

    To answer your question, my view is that the increase in real incomes would only "violate" the Hartwick Rule if these incomes were purely derived from finite resources, and their subsequent conversion into renewable capital. (To belabour the point, the Hartwick principle of inter-generational equity applies only to converting finite resources into non-finite forms of wealth.) Since that isn't the case -- incomes have risen from growth in the knowledge stock and human capital, for example -- I wouldn't say that we have de facto over-saved/invested.

    However, you raise an important point that people may still be unduly "depriving" themselves on a relative scale... even by the standards of the Hartwick Rule. For instance, there is some sentiment in Norway that the country's petroleum sovereign wealth fund, which I mentioned above, is too conservative.

    To give some brief background, Norway has a "savings rule", which places a limit on how much petroleum money can be spent by the government to balance the annual budget each year. (In other words, the country is allowed a small non-oil budget deficit equivalent to 4% of petroleum wealth, which the latter will then bring into balance.)

    If I recall correctly, this savings rule currently stipulates that oil spending must be no greater than 4% of what is currently in the petroleum fund. However, critics have argued that this too conservative, since it should rather be 4% of TOTAL petroleum wealth (i.e. both in the fund and the value of oil in the ground).

  3. Some additional information here. The "4%" figure is what the estimated long-run (real) return of the Norwegian sovereign wealth fund is calculated to be.

    They make some additional adjustments for population increase over time, etc...