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16 August 2005 Sustainability In 2001, the Danish academic and former Greenpeace member Bjorn Lomborg published his acclaimed book The Skeptical Environmentalist: Measuring the Real State of the World. In it he exposed the litany of environmental myths of the last 30 years and painstakingly documented the evidence that environmental quality has generally been steadily improving, at least in the developed world. In Lomborg's own words, the message of his book is that:
I know of no one who favours unsustainable
development. But Lomborg's argument is that development is sustainable.
Indeed, more often than not, economic progress and environmental
improvement go hand in hand. It is sometimes suggested that
New Zealanders value quality of life ahead of economic growth and
higher incomes. But this is a confusing statement. Decent incomes,
along with a good environment and other things like leisure and
safe communities, are part of the quality of life. As New Zealanders, we greatly value
the quality of our environment but that does not mean we are unconcerned
about our material well-being. Indeed, surveys seem to suggest that
New Zealanders are no more 'green' than people in comparable countries;
where we differ most is in our desire for higher incomes. This should
be no surprise: our average incomes declined for a long period relative
to those in other advanced countries, and we have only begun to
catch up again in the last decade. In my view, it is better to talk
directly about what constitutes good economic and environmental
policy than to invoke the language of 'sustainability'. Sustainable
development is a problematical term. The common definition is development
that "meets the needs of the present without compromising the
ability of future generations to meet their own needs." But how do we know what the needs
of future generations will be? A hundred years ago many people were
worried about running out of whale oil for lighting, firewood for
heating and horses for transportation. With changing technology,
what will people need in 2100? Moreover, a concern for intergenerational
equity needs to take account of the fact that future generations
will almost certainly be far better off than present generations.
How much should relatively poor people today be asked to sacrifice
to benefit future generations whose living standards may be equivalent
to those of today's mega-wealthy? The most important things to leave
future generations are a growing capital stock, technology, sound
institutions and, above all, a capacity to innovate. Much of the concern about sustainability
focuses on depletion of natural resources. But natural resources
are generally becoming more plentiful, not less - prices have been
in long-term decline in real terms. In 1970, global reserves of
copper were estimated at 280 million tonnes. During the next 30
years about 270 million tonnes were consumed. Yet at the turn of
the century estimated reserves stood at 340 million tonnes, not
10 million. Available supplies have surged, and at the same time
substitutes for copper such as fibre optics have come into widespread
use. The same is true even for oil.
Global reserves of oil in 2000, at 1,050 billion barrels, compared
with 580 billion barrels in 1970. Sheik Yamani, founder of the Organisation
of Petroleum Exporting Countries, has often pointed out that the
oil age will come to an end but not for a lack of oil (oil will
be displaced by other fuels, especially renewables), just as the
Stone Age came to an end but not for a lack of stones. While some
natural resources may be finite, human ingenuity is not. What about pollution? On the whole,
rich countries are less polluted than poor countries, not more.
As Indian prime minister Indira Gandhi put it, "poverty is
the worst polluter". Richer countries employ cleaner technologies
and have more resources to devote to environmental protection. The
main safeguards against pollution (including global warming, if
concerted international action to combat it turns out to be warranted)
are secure property rights (so that people take care of what they
own), free markets (so that resources go to their most highly valued
uses), and economic prices (which reflect the true cost of resources).
However, sound environmental regulations, particularly those targeted
at negative external effects of economic activity, also have a role
to play. The concept of a 'triple bottom
line' that is sometimes invoked in the name of 'sustainability'
is even more problematical. Its advocates want businesses to pursue
not just a financial bottom line but social and environmental bottom
lines as well. There are several problems with
this concept. First, few would argue that companies
should not be socially and environmentally responsible, but that
does not exhaust their responsibilities. Why not add other "bottom
lines", such as an ethical bottom line and a corporate governance
bottom line? The concept is arbitrary. Second, as The Economist
noted in an article earlier this year:
Third, as The Economist
went on to point out, the problem is not just that there is no one
yardstick allowing the three measures to be compared with each other.
It is also that there is no agreement on what progress on the environment,
or progress in the social sphere, actually mean - not, at least,
if you are trying to be precise about it. In other words, there
are no yardsticks by which different aspects of environmental protection
can be compared even with each other, let alone with other criteria.
And the same goes for social justice. Fourth, the great virtue of the
single bottom line is that it holds managers to account for something.
Triple bottom line objectives blur the accountability of boards
and managements for performance. There can be no objection to firms
choosing to report on environmental or social aspects of their operations
to their shareholders or wider stakeholders. Doing so according
to some triple bottom line metric, however, is unlikely to be meaningful.
It should also be for companies themselves to decide voluntarily
what reporting (beyond legal requirements) is in the best interests
of their shareholders, having regard to costs. The taskforce set
up by the Institute of Chartered Accountants of New Zealand to examine
sustainable development reporting was right to come down in its
2003 report against mandatory reporting. In passing, it should be noted
that proclamations of corporate virtue and dedication to notions
such as sustainability should not be taken at face value. Sometimes
what is involved is little more than self-serving public relations
or a strategy to buy favours. Enron was America's triple bottom
line company par excellence, but it came up several bottom lines
short. There is no need for those in business
to be defensive about its social role. Serving the material needs
of fellow human beings is a noble vocation. Profit-oriented enterprise
in competitive markets is the best system we know for creating wealth
and lifting living standards. Profits are a prima facie signal that
society's resources are being put to good use. Other institutions
(like charities) cater for other needs. We should allow businesses
to perform their prime social role and not burden them with other,
inappropriate, ones. In summary, sustainable development stems from the same kind of institutions we need to advance other social goals, in particular political and economic systems based on secure property rights and the rule of law. As more and more countries are appreciating, these are the basis of economic prosperity, but economic prosperity also leads to improved environmental quality by raising demands for it and providing the wherewithal to meet those demands. Concepts like sustainability and the triple bottom line are well-intentioned, but they tend not to lead to clear thinking about what constitutes sound public policies. We have better analytical tools at hand for meeting both economic and environmental challenges. Roger Kerr is the executive director of the New Zealand Business Roundtable. For more information, contact: Roger Kerr Web: www.nzbr.org.nz |