gNvoo'f THEWORLD BA,NK SECTORPOLICY AND RESEARCH STAFF Public Disclosure Authorized EnvironmentDepartment "EnvironmentallySustainable Public Disclosure Authorized EconomicDevelopment Buildingon Brundtland" Compiledand Edited by Public Disclosure Authorized Robert Goodland,Herman Daly and Salah El Serafy July 1991 EnvironmentWorking Paper No. 46 Public Disclosure Authorized This pape has been preparedfor internaluse. The views and itetpretations herei are those of the authot(s)and shouldnot be atributed to the WorldBank, to its afiliated organizationsOr to any individualcting on their behalf. PREFACE We are delightedto be invitedto prefacethis bookfor four reasons. First,because it sets a realistic and fair stage for the importantUNCED 1992 conference. Second, because it acknowledgesmuch more developmentis needc4 in the South. Third, because that needed developmentand growth must be accommodatedby the North. Fourth,burdensharing or reparation for the North's historicoveruse of globalenvironmental functions - both as source of natural resourcesand sinkfor wastes -- is firmlyaccepted by the almostentirely Northern authors. Ths is refreshing. We havenot been too encouragedby the North'sreaction to the Brundtlandreport overthe four yearssince its publication. Therefore,we warmly endorse the clearthinkdng expressed in this book The fact that two Nobel laureate economistsare amongthe auttors (Haavelmoand Thbergen)raise our hopesthat economistswill raise sustainability higher on their agendasfor serious work in the 1990X We ullyshare the authors'view that the transitionis urgentand we find their suggestionson howto achieveit to be senusble.Now the difficultpart, mustering the politcal will, is up to us and our UNCED'92 colleagues. Emil Salm Jose Lutenberger ILE The Ministerof State for Environmentand Population,The HonorableEmil Salim, Jakarta, Indonesia,and L.E.lThe Secretary of State for Environment,The HonorableJose Lutzenberger, BrasiliaDF, Brazil DepartmentalWorking Papes amenot formalpublications of the World Bank They represent prelminaiyand unpolished tests of counttyanalsil or rsearch that are cirulated to encouragedisuon and comment;dtation and the useof sucha papershould take acwountof its provisionalchamecter. The fings interpretations,and condusionsexpressed in this paper are entirelythose of the authors' and should not be attributedin any manner to the WorldBankl Its affliated orgnizations or to membersof its Board of 13ecutlv Direct or the the countriesthe represent. CONTEN1 Emi Salimand Jose Lutzeberger bmUm 1 Chas 1. The casethat the worldhas reachedlmits S RobertGoodland 2. Fromempty-world to full-worldeconmis: Recogning an historical trnig point in ecomomicdevelopment. 18 HeamanDaly 3. On the strategyof hig to reduceeconomic inequality by pfang the sale of humanacthit. 27 rge Haave}moand SteinHanen 4. GNP and marketprices: wrong signals for sustainableeconomic succes that maskeinn desucon. 36 Jan Tibergen and RoefleHucting 5. Sustainability,income meaurement and growth 43 SalahElSerat 6. ProjectEvaluadon and SustainableDevelopment 54 RaymondMikesell 7. Sustainabledevelopment: the role of investment 61 Berndvon Drste and Peter Dogse & The ecologicaleffects of sustainabilit!r.Investing in naturalcapital 72 Robert Costanza 9. Promgrowth to sustainabledevelopment 80 Lester Brown,Sandra Postel and ChristopherFlavin About tbh Authr Lest R. Bro, Sanda Pstl and ChrisopherFlavin are Presidentand Vice Presidentsfor Research,respectively, of the WorldwatchInstitute, 1776 Massachusetts Avenue NW, Washington DC 20036,USA; Parx 202J7365. Foundedin 1974,Worldwatch, a public policyresearch organztion, is devotedto anabzingglobal trends with the aim of promotinga sustainableworld aconomy. Robcat <t_ Presidentand founder (in 1987)of the InternationalSociety for Ecological Economics,Editor in Chiefof the journalEcological Economics, and editorof the 1991Columbia Universitytext of the samename. PO Box38, SolomonsMD 20688,USA; Fa3011326-342 H~ermai *. Authorof manyworks on ecologicaleconomics including "Steady State Economics' (Freman ;974;second edition 1991); Senior Economist, Environment Department, The WorldBank, WashingtonDC 20433,USA. The mostrecent amplification of his ideasis "Forthe CommonGood" withJohn Cobb,Beacon Press 1989; Fax: 202V477-0565. Slah El Serfy EconomicAdviser, Economic Advisory Staff, The WorldBank, Washington DC 20433,USA; awardedan Oxforddoctorate under EconomicsNobellist the late ProfessorSir John Hicks;led the Bankinto EnvironmentalAccounting and published the bookof the sametitle in 1989; Fax 202/477-1569. Robet Goodamd:Environmental Advisor, Environment Department, World Bank, Washington DC 20433,USA; published 14 books mainly on tropicalecology, the mostrecent being "Race to Savethe Tropics"(Island Press, DC 1990);Fax: 2021477-0565. TtygveHaaelmo andStein Hme Respectively,the 1989Economics Nobellist, partly for founding econometrics,Institute of Economics,University of Oslo;and Director, Nordic Consulting Group A.S. Oslo,Omev 46A, N-1340 Bekkestua, Norway, Fx: 472-247-856,Consultant to NORAD,The World Bank, Asian DevelopmentBank, UNESCO and others, latest amplificationof ideas:"Economic policiesfor sustainabledevelopment." ADB, Manila, 1990. RaymondMleV: Professorof Economicsat the Universityof Oregon,Dr Mikesellassisted Harry DexterWhite from 1942to 1946during the furmaiiknuJf 'lle 'WouiddBanu and IM1paricpated in the 1944Bretton WoodsConference. He has publishedextensively on trade and development economicsand on the economicsof natural resources. He has publishedtwenty-fours books, includingfour publishedby Resourcesfor the Future,Inc., and one by the NationalBureau of EconomicResearch. Jan Thbrge and RoefieHueting Jan Tinbergenwas awardedthe firstNobel Memorial Prize in economicsin 1969,and was electedthe first Chairmanof the UN Committeeon Development Planning,of hismany works,especiafly relevant here are his 1968"Development Planningn, and his 1968"Income Distnbution". Roefie Hueting, Head, Environmental Statistics, Netherlands Bureau of Statistics,hasbeen publishingon ecologicaleconomics since the 1060s;main work "New Scarcity and EconomicGrowth" 1980, North-Holland Publishing Co. Fax:31170/3877-42. in BRen4v Dr1te and Pet Dop: Respectvely,Director of UNESCO'sDision of Eoological Siences and Seetary of the UN Manand BiosphereProgramme, Associate Eport UNESCOs Divisionof E3cologcalSciences. Among their moxt recnt publicationsI the 1991"Debt-for-Natwe Exchangesand BiospheroResr . 7 Placede Fontenoy,75700 Pars, Fax:331/4065-9897. Fax 331/4065-9897. hv INThODUCIION This book is our contributionto the United NationsConference on Environmentand Developmentto be heldin Rio de Janeiroin June 1992,and which builds on the trailblazingwork of the Brndtlani Commission.Right at the outset,we want to acknowledgeour majordebt to the BrundtlandCommission's 1987 report, "Our Common Future". In particular,we greatly admire the Commission'sachievement in garneringpolitical consensus on the needfor sustainabledevelopment. We use this report as our springboard,although we are far less comprehensive.Of the four elemeatsof environmentalsustainability -- poverty,population, technology, and lifestyle-- we focus on only lifestyle,technology and population,with that order of emphasisreflecting our skills. Povertyis onlydealt with via our suggestionsfor a moreequitable intemational income distribution. We acknowledge,however, that povertyand alrs debt are for somecountries more pressingthan environment. Our aim is to followBrundtland's lead on the need for a rapid transitionto sustainability. We bolsterBrundtland's case for the transition,because we feel that the need for this transitionis not yet adequatelyrecognized. We thengo on to suggestspecifics of whatis neededto achievethe transition. We eaveto othtersthe more importanttask, namely how to implementthe transition; how to muster the politicalwill for changeswhich will be painful,but essential. We feel that understandingthe necessityand general direction of the transitionis a preconditionfor musteringthe politicalwilL All authorshave read and discussedeach other's chapters and havereached consensus that the contributionsincluded in thisvolume are not onlycompatible with each other, but alsomutually reinforcing. We collaboratedfist becausewe felt that we wereall alreadythinking along similar lines,judging from our previouswriting Andsecond, because we all feel stronglythat the nextstep for the transitionto sustainabilityis agreementon the implicationsof what Brundtlandadvocated. We have deliberatelyretained a certainoverlap between some chapters in an effort to stressthe notion that, irrespectiveof the directionfrom which the subjectis approached,the sameconclusion is reached. The conclusionis that economicactivity cannot proceed any longerunder the banner of "businessas usual." Specificallyit is no longertenable to makeeconomic growth, as conventionally nerceivedand measured,the unquestionedobjective of economicdevelopment policy. The old conceptof growth,which we designate"throughput growth", with it- relianceon an everincreasing throughputof energy and other natural materals cannot be sustained,and must yield to an imaginativepursuit of economicends that are lessresource intensive. The waywe undervaluenatural capital servicesand fail to account for natural asset degradation often means that we are impoverishingourselves while imagining that our economiesare growing. The new approach requiresa concertedeffort at remoldingconsumer's preferences, and steeringwants