THE TINBERGEN & H UETING APPROACH IN THE ECONOMICS OF NATIONAL ACCOUNTS AND ECOLOGICAL SURVIVAL 2 DRAFT The Tinbergen & Hueting Approach in the Economics of National Accounts and Ecological Survival Thomas Colignatus Samuel van Houten Genootschap 3 Lawful exceptions excluded, nothing of this publication may be copied or published by means of print, photocopy, microfilm, electronics or otherwise, unless a written permit has been given by the lawful owners of the copyright, and this also holds for whole or partial reworkings. Behoudens uitzondering door de wet gesteld mag zonder schriftelijke toestemming van de rechthebbende(n) op het auteursrecht niets uit deze uitgave worden verveelvoudigd en/of openbaar gemaakt door middel van druk, fotokopie, microfilm, electronica of anderszins, hetgeen ook van toepassing is op gehele of gedeeltelijke bewerking. April 17 2019 & March 6 2020, draft ISBN Published by Copyright © 2019 & 2020 Thomas H.A.M. Cool, and parts Roefie Hueting (Appendix 52), inheritance Salah el Serafy (Appendix 53), and parts from Hueting & De Boer (2019) http://thomascool.eu, cool at dataweb.nl Colignatus is the preferred name of Thomas Cool in science. I thank Roefie Hueting, Bart de Boer, Thea Sigmond and Henk van Tuinen for their comments over some years now. All errors remain mine. Cover © 2020 Thomas H.A.M. Cool. Painting by Hans van den Doel (1937-2012) showing Jan Tinbergen, Pieter Hennipman, Amartya Sen, Roefie Hueting, Van den Doel himself and Jos de Beus. This painting has been donated by his widow Keesjaa Blok to Thomas Cool. Supported by Samuel van Houten Genootschap Wetenschappelijk bureau van het Sociaal Liberaal Forum Scientific bureau of the Social Liberal Forum http://thomascool.eu/SvHG/SvHG.html JEL Journal of Economic Literature codes P16 Political Economy E02 Institutions and the Macroeconomy F55 International Institutional Arrangements D02 Institutions: Design, Formation, Operations, and Impact O43 Institutions and Growth E01 Measurement and Data on National Income and Product Accounts and Wealth • Environmental Accounts O44 Environment and Growth Q01 Sustainable Development Q50 Environmental Economics – General H43 Project Evaluation • Social Discount Rate F64 Economic Impacts of Globalization – Environment E61 Policy Objectives • Policy Designs and Consistency • Policy Coordination H23 Externalities • Redistributive Effects • Environmental Taxes and Subsidies I30 Welfare, Well-Being, and Poverty – General O11 Macroeconomic Analyses of Economic Development A10 General Economics - General NUR 781 Algemene economie 947 Internationale ontwikkelingsstudies 4 Abstract Tinbergen & Hueting (1991) 1 provide an approach to the economics and national accounts of ecological survival that still is unsurpassed. The approach is: (1) rooted in the economic subject matter (scarcity) (2) rooted in fundamentals of ecology (collapse is observed when it is too late) (3) applicable within the statistical framework of national accounting and thus fully practical (4) demanding in economic and environmental expertise but concerning its result easy to understand by policy makers and the general public, for, with standard national income (NI) and environmentally Sustainable National Income (eSNI), then eΔ = NI – eSNI namely gives the distance to environmental sustainability. The "Report of the United Nations Conference on the Human Environment, Stockholm 5-16 June 1972” (United Nations 1973) causes embarrassment: so much was known already so early, and actually so little has been achieved. The IUCN, UNEP and WWF (1980) “ World Conservation Strategy: living resource conservation for sustainable development ” argues “that for development to be sustainable, it should support conservation rather than hinder it”. The Tinbergen & Hueting approach adopts this principle of conservation. The approach is to make the measurement of national income conditional upon assumptions about preferences for environmental sustainability. The statistical measurement of environmentally sustainable national income (eSNI) requires that the vital environmental functions remain available for future generations. This approach puts physical boundaries upon economic welfare optimisation. For statistics it suffices to look at only one year, and not all future generations. The vital environmental functions are conserved, i.e. they should not be less at the end than at the beginning of the year of observation. While the prime result is the distance to environmental sustainability eΔ = NI – eSNI, the method also provides for a rich biotope of indicators at the individual level of resource use. Remarkably, academic economists inverted the conservation strategy. They interpreted the issue of sustainability as a problem of optimising welfare over an infinite horizon of generations, while neglecting the boundary condition, regarding the boundary as not very relevant if their models gave solutions anyway. They started discussing whether “sustainability” meant equal consumption over the generations, or equal welfare, or discounted forms, or integral value vs per capita, and so on. All this distracts from ecological survival. In practical calculation, various “green GDPs / indicators” have been proposed such as MEW, ISEW, Ecological Footprint, Adjusted Net Savings / Genuine Savings and Genuine Progress Indicator, and lately there is an increased interest in happiness as a re-interpretation of economic utility and social welfare. With respect to both ecological survival and requirements of economic theory these alternatives however fail. 1 http://www.sni-hueting.info/EN/Publications/1991-Tinbergen-Hueting-GNP-and-market- prices.pdf and in this book highlighted in Appendix 50. 5 David Pearce (1941-2005) apparently dominated the discussion and managed to get his view adopted by UNEP / Worldbank in the “Genuine Savings” indicator, nowadays “Adjusted Net Savings”, see Chapters 30 and 43. Pearce had a background in Cost-Benefit Analysis (CBA) that has a tradition of looking at substitutions and trade-offs. Pearce suggested that there would be trade-offs in the environmental issue and between the generations, and he regarded sustainability as relying upon such trade-offs. If a current generation destroyed resources then a next generation might be “compensated” by e.g. more man- made capital like human capital. In this manner he created a discussion about the distinction between “weak” (trade-offs) and “strong” (conservation) sustainability. He portrayed the issue as if the proper notion of sustainability within economics would be the “weak” one, while the original proposal of conservation was marginalised and no longer called “conservation” but “strong sustainability”. He stated that the Tinbergen and Hueting approach provided an “inverted” solution, while it was actually he himself who had inverted the IUCN, UNEP and WWF (1980) World conservation strategy . Potentially his wish to join in the abstraction of mathematical economics suggested to him that such boundary issues could also be neglected. His inversion was actually a category mistake, since boundary conditions for an optimisation problem would have no trade-offs for themselves. Currently, statistical offices and economic advisory and planning agencies over the world are implementing UN SEEA systems for national accounting and derived indicators both for statistical observation and projections for the future. These satellite accounts put the environment outside of the realm of economics, and do not provide for an integration of decision making about scarce resources for alternative ends. Policy discussions on ecological survival will be much served when researchers study in detail what Tinbergen & Hueting have wrought. When an economist hasn’t read Tinbergen & Hueting (1991) and now Hueting & De Boer (2019b), 2 then an advice on “economic growth” and ecological survival is at risk of being misguided – as indeed is shown in various cases. Tinbergen (1903-1994) was one of the pioneers in the 1930s for what became the UN System of National Accounts (SNA) and thus was in a firm position on this issue. In 1990-1991 he accepted Hueting’s revolutionary diagnosis that the very measurement of national income was conditional, namely on assumptions on preferences. The main author of Tinbergen & Hueting (1991) is actually Hueting (born 1929). The two authors decided that Tinbergen would be the first author, based upon the international recognition that he had, as recipient – jointly with Ragnar Frisch (1895-1973) – of the Nobel Prize in economics 1969. By this gesture, Tinbergen expressed that he fully supported the findings by Hueting. Tinbergen however also had a wider vision than Hueting, namely on the need of international co-operation. This volume contains a tentative Chapter 2 on Tinbergen’s Theorem holding that World governance will become more involved. PM. Some caveats. 3 4 2 http://www.sni-hueting.info/ 3 Earlier drafts of this book in 2009 and 2015: https://mpra.ub.uni-muenchen.de/63904/ 4 Parts of the texts in this book have also been used to provide for assistance for Hueting & De Boer (2019b) and re-edited by them. http://www.sni-hueting.info/EN/NA-eSNI/index.html 6 Contents in Brief Part 1. Introduction 23 1. Introduction 25 2. Tinbergen’s theorem on world governance 33 3. Roefie Hueting: Defining a statistical figure with a model 35 4. Concept of eSNI and proof of concept for the Netherlands 1990-2015 39 5. A change in national accounting from certainty to uncertainty 47 6. Environmentally sustainable