What are the challenges faced to maintain the prosperity of the country for the sake of future generations
Answers
Answer:
The concept of sustainability has become increasingly popular in international and domestic debate on social progress; it is also a key dimension of the Treasury wellbeing framework. However, confusion surrounds the concept, its measurement and its application in decision-making. Defined as maintaining or increasing wellbeing between generations, sustainability requires a focus on aggregate stocks of capital. Key features of the sustainability problem are uncertainty about the future, thresholds and substitutability between capital stocks. It is these issues, rather than theoretical paradigms, that are of practical importance to decision-makers.
Introduction
‘Because we can expect future generations to be richer than we are, no matter what we do about resources, asking us to refrain from using resources now so that future generations can have them later is like asking the poor to make gifts to the rich.’
Julian Simon
An assumption that future generations will be always better off has permeated economic thinking since the work of Adam Smith and David Hume. It has been used to justify arguments that society need only worry about today because the future will take care of itself. If we begin to consider whether we owe the future something, then, as Abraham Lincoln has said, ‘posterity has done nothing for us’.
Such arguments hold only if actions today do not harm future generations; however, this cannot be known with certainty. It is possible that future generations can be made worse off by inheriting fewer resources from the current generation than they need to match our standard of living (Anand and Sen 2000).
Treasury’s mission is to improve the wellbeing of the Australian people, and the Treasury wellbeing framework identifies the sustainability of the opportunities available to Australians over time as relevant to that objective (Gorecki and Kelly 2012). In recent years, calls for inclusion of sustainability principles within policy-making and alternatives to Gross Domestic Product (GDP) as a measure of social progress have also increased. If there are reasons to consider future generations, how should this be conceptualised, measured and implemented?
A large literature on intergenerational equity and sustainable development has sought to answer these questions, with significant contributions from the fields of economics, philosophy and environmental science. In economics, it has been part of the economic growth literature since the work of Frank Ramsey (Ramsey 1928).
This literature continues to influence the international and domestic policy dialogue, including the G20 policy agenda;2 the recent Rio+20 United Nations Conference on Sustainable Development; the work of the Organisation for Economic Cooperation and Development, World Bank and International Monetary Fund; international action on climate change; and the Australian Government’s Intergenerational Reports and Measuring Sustainability program. It is linked to ongoing efforts to improve measures of social progress, examples of which include the Australian Bureau of Statistics Measures of Australia’s Progress and the United Nations-adopted System of Environmental-Economic Accounts.3 It underpins cost-benefit analysis and discounting that are widely used to assess the future impacts of current actions. The related theories of Hotelling and Hartwick are also standard elements of many natural resource management textbooks and are embedded in efforts to measure and apply sustainability concepts.
However, techniques and policy prescriptions derived from this literature are based on particular theoretical models of economic development whose underlying assumptions greatly simplify reality. Applying them without appreciating the consequences of these assumptions — or being aware of the range of alternatives — can lead to false confidence that we understand and are able to manage the impacts of our actions on future generations.
This paper distils the economics literature on sustainability and intergenerational equity concepts and offers insights relevant to their practical application in policy-making. After reviewing the assumption that future generations will always be better off, it offers a simple but broad definition of sustainability that addresses confusion about the concept. Different theoretical constructs for sustainability are then briefly presented and their assumptions contrasted. The consequences of these assumptions for sustainability measurement are explored, revealing complex implications for discounting. The fact that information about the future is lacking is a common theme throughout, and underpins concluding suggestions for improving decision-making in the face of uncertainty.