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Summary grand challenges of sustainability
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Grand Challenges for SustainabilityHC 1 Economic Growth
- Introduction
➢ Crowed planet: 7,8 billion people-> 90 trillion
dollars-> both will keep growing
➢ Unequal: billions enjoy longevity and good health
but more than a billion abject poverty-> rich 50
times more rich than poorest
➢ Degraded: Anthropocene (human activity drives
earths physical change)-> humanity threatening the
earth-> dangerous and unprecedented
- SDGs help guide future course of development:
Economic growth (8,9,10)
- Role of economic growth:
➢ Economic growth as the cause of sustainability problems
➢ Economic growth as the key to eradicating poverty
➢ Economic growth as part of the solution? Are there limits to growth?
➢ We first need to understand where growth comes from: how to grow sustainable over time
- Big questions:
➢ Why are we so rich and they so poor? What is the engine of economic growth? Is our standard of living
sustainable?
- Measuring economic development
➢ Gross Domestic Product: Market value of total production of goods and services within a country in a
given year -> doesn’t say much in it self
➢ Three corrections are needed
1. Divide by population (GDP per capita) -> consumption per person available
2. Correct for inflation (real versus nominal GDP) -> different moments in time-> fix prices
3. Correct for international differences in price levels (PPP)-> to correct biased comparison in price
levels
Preferred measure: GDP per capita at PPP in constant prices
Example: PPP: Big Mac Index
➔ Price of a Big Mac in The Netherlands: 3.75 euro-> Price of a Big Mac in the US: 5.51 dollar -> PPP
exchange rate: 5.51/3.75=1.47 dollar/euro -> purchasing power of one unit of the currency is the same
everywhere in the world for a basket of goods
➔ Market exchange rate: 1.20 dollar/euro-> undervalues Euro because price level is higher in US thus
use PPP exchange rates
- We are interested in GDP/capita (PPP) and Growth real GDP/capita
- Preferred measure: GDP per capita at constant PPP prices-> Still: only a rough indicator of true ‘wellbeing’ /
‘life satisfaction’ / ‘happiness’...but it is highly (though imperfectly) correlated with broader measures->
Hence, we will use GDP per capita as a useful summary statistic for wellbeing
- History of economic growth
➢ After industrialisation major rise in Gross World Output-> also major rise in population -> GDP per
capital: 0,04 before industrialization then 0,20 until about 1950s then above 1,10 until 2,26
➢ For most of human history: no growth, output at subsistence level
➢ From the end of the 18th century: sustained economic growth
➢ Industrial Revolution
Watt’s improved steam engine (1776)
Started in England and spread (unequally) around the world
➢ Gross World Product (GWP) per capita increased by a factor 30 over 250 years
➢ Similarly: unprecedented, sustained population growth since the Industrial Revolution
Until 10.000 B.C. population was well below 100 million
In 1 AD around 225 million
In 1820 around 1 billion
Currently 7.8 billion Projection: 9 billion by the early 2040s
➢ The sustained economic growth since the Industrial Revolution... ...has brought us unimaginable
prosperity ...but also has become a threat to the Earth and to our wellbeing
➢ Large-scale economic activity is changing the Earth
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, - Sustainable development: Development that meets the needs of the present generation without compromising
the ability of future generations to meet their own needs. Brundtland report (1987)
- Questions: Will our grandchildren be as rich as we are compared to our grandparents? What is the engine of
growth? Are there ‘limits to growth’ on our finite planet? How does our use of natural resources affect future
generation’s welfare? Why are ‘we’ so rich and ‘they’ so poor?
- Marshall Lecture 1985, Cambridge University ‘The consequences for human welfare involved in questions
like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.’
- Stylized facts of economic growth (so constant that they are accepted as the truth)
1. There is enormous variation in per capita income across economies. The poorest countries have per
capita incomes that are less than 5 percent of per capita incomes in the richest countries.
2. Rates of growth vary substantially across countries.
3. A country’s relative position in the world distribution of per capita incomes is not immutable.
Countries can move from being “poor” to being “rich,” and vice versa
- Difference in income and growth: 1. Poor are 50 times smaller than rich 2. Growth disasters negative growth
rates whereas growth miracles are incredible 3. Singapore is now one of the richest country in the world but
wasn’t always, also china
- World relative income distribution:
➢ Graph: compared to US so 0,5 means half of GDP per capita in US-> see not so equal distribution
➢ Change: low income level compared to US has declined significantly after 1960s
- Stylized facts
4. Growth rates are not generally constant over time. For the world as a whole, growth rates were close
to zero over most of history but have increased sharply in the twentieth century. For individual
countries, growth rates also change over time.-> see graphs
5. In the United States over the last century,
a. the average growth rate of output (GDP) per capita has been positive and relatively constant over
time;
b. the shares of income devoted to capital, rK/Y, and labor, wL/Y, show no trend; (r is interest rate,
K capital, Y GDP, w wage rate, L labour)
c. the real rate of return to capital, r, shows no trend;
d. the average growth rate of the real wage, w, has been equal to the average growth rate of output
per capita.
➔ These features are general characteristics of most economies “in the long run” (not just US)
➔ Graph: GDP around straight line, growth rate is thus constant-> there is no trend in labour and capital
nor in real interest rate (fluctuates but no trend)-> GDP and growth rate of wages very close together
- Conclusion
➢ We are not on a sustainable development path
➢ Economic growth has brought prosperity, but also threatens the Earth
➢ Stylized facts
1. Economic growth is a recent phenomenon
2. The standard of living differs considerably between countries
3. Economic growth differs considerably between countries
➢ In industrialized economies
➢ Output per capita and wages grow at a fairly constant rate
➢ The capital and labour income shares show no trend
➢ The real interest rate shows no trend
➢ We need a theory to explain these observations
Chapter 1: Introduction to Sustainable Development
- Rise population, interconnected, economic growth, environmental threats caused by humans
- Sustainable development tries to make sense of interaction world economy, global society and Earths physical
environment
- Sustainable development recommends set of goals (normative)-> equal economic growth, social trust,
protection environment (holistic)-> society aims for economic, social and environmental goals
- SDGs: socially inclusive and environmental sustainable economic growth
- Good governance necessary-> social services, infrastructure, protection of individuals, basic science/
technology and regulations to protect environment
- Sustainable development objectives: economic prosperity, social inclusion and cohesion, environmental
sustainability and good governance
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,- History: fishing (to keep stable fish population)-> 1972 Limits of Growth -> 1980 World Conservation
Strategy (conservation of living resources)-> UN Brundtland Commission: Sustainable Development is
development that meets the needs of the present without compromising the ability of the future generations to
meet their own needs-> Rio Declaration: not threaten future generations -> more practical over time: 2002 UN
WSSD economic, social and environment objectives-> Rio+20 summit-> SDGs ‘the future we want’
- Complex systems: economic millions of individuals, business, regulations et. -> more than sum of its parts->
unexpected characteristics, nonlinear responses
- Technological change: driver long term economic growth, negative side effects, human guidance-> what
governments do with it
- Normative approach:
➢ Concerns distribution wellbeing: extreme poverty, inequality, social mobility and discrimination,
social cohesion-> social inclusion
➢ Good steward natural environment
➢ Good governance and rule of law-> trust
➢ Good society: economically prosperous, socially inclusive, environmentally sustainable and well
governed
- Trade-offs vs. Synergies
➢ Income and equality are substitutes-> poor society must choose growth or environment
➢ Efficiency no waste in economy, equity means fairness-> trade off between the two: to be fair is to be
less efficient
➢ Sustainable development offers synergies between those
- GDP per person (capita) to measure growth-> total production in a year divided by the population-> related to
national wellbeing
GNP is without foreign investment
Output at market prices -> careful with this because prices differ between countries
To compare real volume: international prices (GDP at purchasing power parity (PPP)-> equal purchasing
power of 1 dollar in each country
GDP doesn’t measure domestic work (not paid work) nor the harms (so isn’t wellbeing completely)
- Economic growth is change in GDP over period of time (must keep rise in population in mind)-> interested at
constant prices (otherwise no extra production)-> so interesting because tend to have higher material
wellbeing (longer lives, less violence etc.)
- In the world global growth accompanied by improved health, education and food security
- Rule of 70: 70/ growth rate= years to double economy
- Global growth started around 1750, before not so much just surviving-> industrial revolution-> growth in
population: more food -> expansion total economic activity -> wellbeing, industrialisation, urbanization and
environmental threats
- China: doubling GDP every 7 years-> rural to urban-> industrial and service oriented -> life expectancy
soared etc. -> downsides: mass migration disturbed families, inequality of income, physical environment
devastated
- Improvements in global health: lower infant mortality rate, longer live expectancies at birth
- Still some stuck in extreme poverty: even in urban lives-> unable to secure basic human needs
- Poverty multidimensional: inability to meet basic human needs for food, water, sanitation, safe energy,
education and livelihood -> lack meeting basic needs-> survival/ struggle
➢ Tropical sub-Saharan Africa and South-Asia -> also other landlocked countries
➢ Tropical Africa and South Asia also higher child mortality
- Even in countries that escaped extreme poverty still significant poverty (e.g. Brazil)
- Geography also plays a role
- Humans own threat to well-being -> both rich and poor feel environmental threats-> climate disasters new
normal: Anthropocene-> human age of the world
- Humans are driving this climate change-> leaders unaware
➢ CO2 levels have surged after 800 000 years-> CO2 positive feedback: change warms planets, CO2 in
atmosphere which rises temperature even further-> cause is fossil fuels
- Cities, crops and technologies are based on climate pattern that will disappear -> also depletion freshwater
sources, pollution, change ocean chemistry, acidity in ocean etc.-> there are safe operation conditions for the
planet that we have been ignoring : planetary boundaries -> need a new strategy
- Pathways
➢ Good governance by state and business
➢ Business as usual versus sustainable development
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, ➢ Problem solving morally and scientifically
➢ Coordinated global effort
Chapter 2: An Unequal World
- Economic development usually GDP used: Gross (every market transaction), Domestic (within boundaries),
Production (new output, not existing trade)-> per capita (per person)
➢ More indicators of wellbeing-> this one the first indicator
➢ Used by UN and World Bank
- World bank uses three categories: high-income (+12,615), middle-income (high 4,085 and low 1,035-4,084)
and low-income (-1,035) -> low income countries: tropical Africa and south Asia
- UN: subgroup in low-income countries-> least-developed countries (LDCs): Asia, Africa and landlocked
(harder to develop especially if surrounding countries aren’t rich either) -> also small islands (climate
catastrophes, isolated and high shipping costs)
- GDP per person converted to common currency (dollar)-> but need to take into account price differences
across countries for living standards -> have to take price-level differences in account
- GDP per person usually measured using common standard of international prices-> purchasing power parity
(PPP)-> so differences not always as large as they seem
- GDP per person, adjusting for population, currency and price level
- Not only difference between country but also within: urban versus rural
➢ Urban: at least several thousand people living in a relative densely settled area (threshold varies)
➢ Differences:
What people do to earn a living: agriculture versus industry and services -> more people in
industry/service with rising GDP per capita -> more people to urban
Location of the areas: rural good-food growing areas and urban at coasts or rivers
Population density: low in rural areas and high in urban
Quality of public services: better in urban than rural because of density
Fertility rates: higher in rural areas (cheap workers)-> higher income in urban, education, family planning
etc. and child survival all contribute to lower levels
- Global trends in urbanisation:
➢ Richer countries more urban -> critical part economic development process
➢ Trend towards urbanisation-> growth of population urban, rural remains somewhat the same
➢ Rural area transforms with larger lands per household
➢ Divided in societies and cultures between rural and urban interests, politics and ways of life
- Within countries there can still be large inequalities in income-> even when on average rich country ->
measure GDP per person also within countries
➢ Top 20% versus low 20%, Gini coefficient (0,00 equal versus 1,00 inequal)
➢ Economic development doesn’t mean more equality -> different paths
➢ Reasons: history, geography, government etc. but today also education (service and industry)-> rich
get education making them more rich -> rural/ urban also inequality: urban more prospects-> also
discrimination, women, minorities etc. -> government can favour inequality or due to revenues but
also equalizers if revenues are used right -> equality pillar of sustainable development
- Wellbeing goes beyond material needs thus beyond GDP per capita-> Human Development Index (HDI):
logarithm of income per capita, educational attainment, health and life expectancy-> similar map to GDP but
differences
Some high GDP but low HDI or low GDP but high HDI: Equatorial Guinea high GDP but low HDI
versus South Korea relatively high GDP but very high HDI
- Subjective wellbeing: measuring via Survey-> Cantril ladder (ten rungs): affective happiness (smiling today
etc.) and evaluative happiness (life overall)-> richer countries more happier overall
- Also social capital or quality of social environment matters-> mental and physical health plays a role so does
health care
- Values also important: more materialist less life satisfaction
- So less focus on materialism can gain more happiness-> sustainable development holistic perspective
- Close gap with rich countries by the poor
➢ Convergence: proportionate gap closing
➢ Divergence: poorer country is becoming poorer
1750-1950 divergence now more convergence -> end of imperial rule
Goals of sustainable development is convergence of all today’s low income countries to at least middle
income countries -> however for some countries a lot of obstacles
HC 2 Why Are We So Rich and They So Poor?
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