Sustainable Development

(by Dr. Suvendu Barik)

• Sustainable development is a concept and method that aims to
https://en.wikipedia.org/wiki/Sustainable_development

balance economic growth, social progress, and environmental

protection in a way that serves the demands of the current
generation without jeopardizing future generations’ ability to
satisfy their own needs. To create a more sustainable and resilient
future entails merging economic development, social fairness, and
environmental stewardship.
• The United Nations World Commission on Environment and
Development published the Brundtland Report, popularly known
as “Our Common Future,” in 1987, which popularized the
concept of sustainable development. According to the report,
sustainable development is “development that meets the needs of
the present without compromising future generations’ ability to
meet their own needs.”
 Need for Sustainable Development
• Well, the entire past is a living example of the
degradation of environmental health for tapping into
economic growth.
• All of this has resulted in the earth facing the
consequences of climate change, global warming, all
sorts of pollution etc.
• Consequently, if nothing is done to check this, the
earth will be left to burn due to the irreversible
damages.
• Hence, it is important to look forward to sustainable
development as it is the need of an hour. By
gradually modifying the methods in which we
produce and use technologies, it conserves and
strengthens our resource base.
 Sustainable Development Principles:
The principles of sustainable development are :
1. Environmental protection entails conserving and responsibly
managing natural resources, protecting ecosystems, and reducing
the negative environmental impact of human activities.
2. Social equity is concerned with ensuring that development
benefits all members of society, promotes social inclusion,
decreases inequities, and upholds human rights.
3. Economic Development: Sustainable development emphasizes
long-term inclusive economic growth, job creation, and
innovation, while simultaneously considering resource efficiency
and minimizing negative environmental repercussions.
4. Intergenerational Equity: It emphasizes the current generation’s
responsibility to consider the needs and well-being of future
generations.
 Indicators of Sustainable Development
• In 2015, Member States of the United Nations adopted the 2030 Agenda for Sustainable
Development, containing 17 Sustainable Development Goals (SDGs) and 169 targets.
• SDG 12 Sustainable Consumption and Production in its Target 12.6 explicitly
encourages companies to adopt sustainable practices and to integrate sustainability
information into their reporting cycles. Indicator 12.6.1 requires data on the number of
companies publishing sustainability reports.
• Since 2015 UNCTAD has been working to enable further advancements on SDG
sustainability reporting by companies. Specifically, focusing efforts to support
governments in measuring the contribution of the private sector to the implementation
of the SDGs.
• UNCTAD developed its Guidance on core indicators for entity reporting on
contribution towards implementation of the Sustainable Development Goals (GCI).
• This Training Manual has been updated based on the changes included in the second
edition of the Guidance on Core Indicators for Sustainability and SDG Impact
Reporting.
• The core SDG indicators cover the economic, environmental, social and institutional
areas. They were identified based on key reporting principles, main reporting
frameworks and companies reporting practices.
 Indicators of Sustainable Development
Economic area indicators:
• Revenue
• Value added (gross value added, GVA)
• Net value added (NVA)
• Taxes and other payments to the Government
• Green investment
• Community investment
• Expenditures on research and development
• Share of local procurement
 Indicators of Sustainable Development
Social area indicators:
• Share of women in managerial positions
• Hours of employee training
• Expenditures on employee training
• Employee wages and bene?ts
• Expenditures on employee health and safety
• Incidence rate of occupational injuries
• Share of employees covered by collective agreements
 Indicators of Sustainable Development
Environmental area indicators
• Water recycling and reuse
• Water use efficiency
• Water stress
• Waste generation
• Waste reused, re-manufactured and recycled
• Hazardous waste generation
• Greenhouse gas emissions
• Ozone-depleting substances and chemicals
• Share of renewable energy
• Energy efficiency
• Land used adjacent to biodiversity sensitive areas
• Management training on anti-corruption
 Indicators of Sustainable Development
Institutional area indicators
• Board meetings and attendance
• Share of female board members
• Board members by age range
• Audit committee meetings and attendance
• Compensation per board member
• Corruption incidence
• Management training on anti-corruption
 17 Sustainable Development Goals:
• Global concerns are addressed by sustainability goals, such as
the current UN Sustainable Development Goals. Poverty,
inequality, climate change, environmental degradation, peace,
and justice are among the global concerns.
• The Brundtland Report of 1987 is largely responsible for the
present notion of sustainable development. However, as the
notion of sustainable development has evolved, it has shifted
its focus to include economic, social, and environmental
development for future generations.
• The Sustainable Development Goals (SDGs) are a series of 17
interconnected global goals established by the United Nations
General Assembly (UN-GA) in 2015 and targeted to be
realised by 2030.
• These 17 interconnected global goals, known as the
Sustainable Development Goals, are contained in an UN-GA
Resolution known as the 2030 Agenda, or Agenda 2030.
 17 Sustainable Development Goals:
The Sustainable Development Goals include: https://en.wikipedia.org/wiki/Sustainable_Development_Goals
1. No Poverty
2. Zero Hunger
3. Good Health and Well-Being
4. Quality Education
5. Gender Equality
6. Clean Water and Sanitation
7. Affordable and Clean Energy
8. Decent Work and Economic Growth
9. Industry, Innovation, and Infrastructure
10. Inequality Reduction
11. Sustainable Cities and Communities
12. Responsible Consumption and Production
13. Partnerships for the Goals
14. Climate Action
15. Life Below Water
16. Life On Land, and 17. Peace, Justice, and Strong Institutions.
 What prevents sustainable development from happening?
There are barriers to combating the implementation of sustainable development.
These barriers are, according to a UK essay and other materials, the following:
1) Economic and financial barriers: Economists have noted that the dominant
development model prioritises economic expansion over people’s rights and
welfare, as well as environmental processes and restrictions. This necessitates a
paradigm shift from treating the environment as a component of the economy to
treating the economy as a component of the environment; strategically, this
means the economy must be changed to ensure that environmental services are
preserved.
2) Innovational Barriers: There is a scarcity of innovation-oriented research in the
educational sector. This indicates that there has to be a stronger link between
research institutes and the economy, which would also help to solve the problem
of knowledge transfer to real-world applications.
3) Social Barriers: The world’s largest societal hurdles to attaining sustainable
development are population increase and unsustainable consumption and
production practices among the wealthy. Sustainability will not be possible
without a fundamental shift in human behaviour. Other societal hurdles include
the following:
• The poor’s marginalisation and entrenched disparities, there is a lack of
understanding regarding sustainable development. Environmental challenges
have fractured civil society among politicians and the general population.
Inadequate interaction between the government and civil society. Incentives for
the business sector to achieve sustainable development are insufficient.
 What prevents sustainable development from happening?
5) Political Barriers: Inadequate economic, social, and environmental
methodologies for policies, programmes, and projects are the main
impediment to sustainable development implementation.
• Poor monitoring and evaluation systems: A fundamental issue is a
lack of specified targets (globally, nationally, and locally),
measurement, and data to assess progress, resulting in a scarcity of
information for decision-makers.
• It is recommended that the monitoring and assessment of
sustainable development strategies be strengthened to generate a
dynamic improvement process that will improve their effectiveness.
Governments should dig deeper and analyse the socioeconomic
implications of development programmes rather than focusing
solely on the result.
6) Institutional Barriers: Institutional hurdles, resulting from a lack
of institutional expertise in operating all of the democratic system’s
mechanisms, have hampered long-term progress in many
developing countries.
 Pigovian Welfare Economics And
Externalities
(by Dr. Suvendu Barik)
1. INTRODUCTION:
• The first standard work on welfare economics is
A.C.Pigou’s Economics of welfare. The Pigovian
welfare economics can be conveniently divided
into :
(1) the meaning of welfare,
(2) the welfare conditions, and
(3) the analysis of the divergence between marginal
private and marginal social costs and returns.
 2. MEANING OF WELFARE
• According to Pigou, welfare resides in a man's state of mind
consciousness which is made up of his satisfactions or utilities.
The basis of welfare, therefore, is necessarily the extent to which
an individual’s desires are met.
• Social welfare is regarded as the summation of all individual
welfare in a society. Since general welfare is a very wide,
complicated and impracticable notion, Pigou delimits the range
of his study in economic welfare.
• As he himself observes, economic welfares is by no means an
index of total welfare because many other elements in the latter,
like the quality of work, one's environment, human relationships,
status, housing and public security are absent from economic
welfare.
• He, therefore, defines economic welfare as "that part of
social(general) welfare that can be brought directly or indirectly
relation with the measuring rod of money”. Thus economic well
in the Pigovian sense, implies the satisfaction of utility derived
by an individual.
 3. PIGOVIAN WELFARE CONDITIONS
• Pigou regard economic welfare and nationalincome as
essentially coordinate. It is on the basis that he lays downs
two conditions for maximization of welfare.
• The first condition states that welfare is said to increase
when national income increases. Given the same tastes
and income distribution, an increase in the national
income represents an increase in welfare. Pigou contends
that in most cases the national income would increase
even though the dis-utility of work also increases.
• Second for welfare maximization the distribution of the
national income is equally important. If national income
remains constant, transfers of income from the rich to the
poor would improve welfare.
 3. PIGOVIAN WELFARE CONDITIONS
• This welfare condition is based on the dual Pigovian
postulates of equal capacity for satisfaction and diminishing
marginal utility of income.
• Pigou argues that different people derive the same satisfaction
out of the same real income and that "people now rich are
different in kind from the people now poor having in their
fundamental nature greater capacities for enjoyment.
• With income subject to diminishing marginal utility, transfers
of income from the rich to the poor will increase social
welfare by satisfying the more intense wants of the latter at the
expense of the less intense wants of the former.
• This it is economic equality that maximizes welfare.
 Pigou’s Dual Criterion
To find out improvements in social welfare, Pigou
adopts a dual criterion:
• First an increase in the national income 'brought
about either by increasing some goods without
diminishing others or by transferring factors to
activities in which their social value is higher, is
regarded an improvement in welfare without
reducing the share of the poor.
• Second any reorganization of the economy which
increases the share of the poor without reducing
the national income is also considered an
improvement in social welfare.
 Assumptions of Pigovian Conditions
The Pigovian welfare conditions and the dual criterion pre-suppose the
existence of the following assumptions:
(1)Each individual tries to maximize his satisfaction from his
expenditure on different goods and services.
(2)Satisfactions are comparable both intrapersonally and inter-
personally.
(3)The law of diminishing marginal utility of income applies. It means
that the marginal utility of income falls, as income increases. As a
result, the gain in utility of an additional amount of income to a
poor man is greater than the loss of utility to a rich man from the
same amount of income.
(4)There is equal capacity for satisfaction. It implies that different
people derive the same satisfaction out of the same real income.
Given these assumptions, it is possible to satisfy the Pigovian
conditions of maximum social welfare on the basis of
his dual criterion.
 Its Criticism
• Though, Pigou Economics of Welfare is the first clear analysis of welfare economics, yet the
Pigovian conditions of welfare' have been criticized on the following grounds:
1) The Notion of Maximization is not Clear. Pigou lays emphasis on the maximization of welfare, but he
does not clarify the notion of maximization. His maximum' is in fact the optimum', but it is a stable
point. But this is not a correct view because the 'optimum' is not stable. It changes with the increase
or decrease of national income.
2) Pigou Measures 'Welfare’ Cardinally. According to Pigou, welfare is measured in terms of utility or
satisfaction. He regards social welfare as the summation of utilities of exchangeable goods and
services to individuals. Economists do not agree with this view because quantitative measurement of
utility is not possible. It is for this reason that modern economists measure utility ordinally.
3) National Income is not an Accurate Measure of Welfare. Pigou's welfare conditions are related to the
national income. But it is not easy to calculate national income. Again, social welfare does not
increase by a mere increase in national income. It is possible that national income may increase due
to inflationary rise in prices and the poor may become worse-off than before.
4) According to Professor Robbins, Pigou's assumption of "man's equal capacity for satisfaction" does
not make his notion of welfare a positive study. In his words, "This assumption rests on ethical
principle rather than upon scientific demonstration; it is not a judgement of value."
5) Pigou does not Clarify the Ethical Relation of Welfare. Welfare economics is closely related to ethics
but Pigou does not clarify it. Welfare economics is essentially a normative study in which value
judgments and interpersonal comparisons are made.
• Conclusion. These drawbacks in the Pigovian analysis have led modern economists to expound the
‘compensation principle' and the 'social welfare function' which are attempts at giving a new inge to
welfare economics
Analysis of Externalities or Divergences between Private
and Social Costs and Returns (benefits)
• Divergences between private and social costs and returns
(benefits) are known as externalities, external effects or
external economies and dis-economies.
• Another term is spillovers or "neighbourhood effect”. An
external effect is assumed to exist whenever the production
by a firm or the utility of an individual depends on some
activity of another firm or individual through a means
which is not bought and sold, such a means is not
marketable, at least at present“.
• In other words, externalities may run from production to
production and from production to consumption. They may
also run from consumption to consumption and
from consumption to production. There are positive and
negative externalities.
Analysis of Externalities or Divergences between Private
and Social Costs and Returns (benefits)
• The beneficial externalities are called positive externalities.
The costly externalities are called negative externalities.
• In other words, if social benefits Exceed private benefits, it
is a positive externality or external economy. If social
costs exceed private costs, it is a negative externality or
external dis economy.
• Externalities are, in fact, market imperfections where the
market offers no price for service or disservice. These
externalities lead to misallocation of resources and cause
production or consumption to fall short of an optimum
level. Thus they do not lead to maximum social welfare.
• Pigou's major contribution lies sin studying the main causes
leading to divergences between private and social costs and
returns and in suggesting measures for removing
these divergences.
 Causes of Divergences between Private
and Social Costs and Returns
• According to Pigou, it is self-interest, that leads to the
equality between private and social costs and returns.
But certain business practices tend to foster rigidities
and create divergences between private and social
costs and returns which can be widened by variations
in demand, tastes, cyclical fluctuations, war and the
rise of new industries.
• The private product diverges from the social product
due to the existence of external economies or dis-
economies thereby leading to divergences between
private and social costs and benefits. We analyse these
external economies and dis-economies.
 Causes of Divergences between Private
and Social Costs and Returns
(1) External Economies of Production. When some firm renders a
benefit or cost of a service to other firms without appropriating
to itself all the benefit or cost of the service, it is an external
economy of production.
• External economies of production accrue to one or more firms in
the form of reduced average costs as a result of the activities of
another firm.
• External economies of production may arise when the expansion
of a firm makes it possible for other firms in the industry to
obtain their inputs like rained labour for, raw materials, etc. at
low rates.
• In all such cases, social marginal benefits exceed the private
marginal benefits, and the private costs exceed the social costs.
For the expanding firm does not receive any remuneration for
the costs incurred by it and the benefits which it has conferred on
others.
 Causes of Divergences between Private
and Social Costs and Returns
(2) External Dis-economies of Production. External
dis-economies of production also lead to divergences
between private and social costs and returns when
the production of a commodity or service by a firm
affects adversely other firms in the industry.
Professor Pigou's example of air pollution explains
these divergences.
The private costs are thus less than the social costs, and
the private benefits to the factory are higher than the
social benefits because the factory-owner escapes
costs incurred by the inhabitants of the area and
thereby gets private benefits.
 Causes of Divergences between Private
and Social Costs and Returns
(3) External Economies of Consumption: External economies of
consumption arise form non-market inter-dependencies of the
satisfactions enjoyed by different consumers.
• An increase in the consumption of a good or service which affects
favorably the consumption patterns and desires of other consumers
is an external economy of consumption.
• When an individual installs a TV set, the satisfaction of his
neighbour increases when they and their children view the various
programs.
• This is a case of external economy in consumption in which social
benefit is larger and social cost is lower than private benefit and
cost, because the TV-owner does not receive any money in return as
the neighbours are not asked not asked to pay anything for seeing
TV programs.
 Causes of Divergences between Private and
Social Costs and Returns
(4) External Dis-economies of Consumption: When the consumption of a
good or service by one consumer confers a disadvantage or affects
adversely the consumption patterns and desires of other consumers, it is
an external dis-economy of consumption.
• Dis-economies of consumption especially arise in the case of dress
fashions and articles of conspicuous consumption. When a rich lady in a
particular locality adopts a new style of dress, it leads to the discarding of
clothes already in use not only by her but by other women who emulate
her.
• This results in higher social costs and lower social benefits than private
costs and benefits. Individuals who are hot in a position to emulate the
consumption patterns of their rich neighbors feel dissatisfied and jealous.
As a result, their productive efficiency falls and serious divergences
emerge between social and private costs and benefits.
• Other instances are of noise nuisance from loudspeakers to neighbors for
which the individuals using the loudspeaker does not pay anything to
neighbors.
 Causes of Divergences between Private and
Social Costs and Returns
(5) The Case of Public Goods: Another cause of divergence between private and
social benefits is the case of public goods which Pigou completely ignored.
• Prof. Baumol defines a public good as "one whose consumption by one
individual does not reduce its utility to any other individual." The consumption of
public goods is joint and equal, Certain services provided by the government are
public goods such, as national defence, public safety, courts for the
administration of justice, disease control etc.
• The benefits of public goods are indivisible. They are available to every body
whether a person pays for them or not. Thus they are not subject to the exclusion
principle.
• Another characteristic of public goods is that their benefits are provided at zero
marginal cost. In other words, their benefits can be provided to an additional user
without any additional cost. For example, the cost of providing justice does not
increase when one additional person seeks justice from the court.
• A third characteristic of public goods is that they create externalities or
divergences between social and private benefits. Externalities arise when one
individual arranges for a public good, he confers a benefit on some individuals
and thereby creates a social benefit that is higher than his own private benefit.
 Remedial Measures
• To bring about the equality of private and social
costs and benefits, Pigou favours state
interference rather than self-interest.
• He, therefore, suggests the use of taxes, subsidies
and other social control measures to close the gap
between private and social costs and benefits
arising from externalities in production and
consumption. However, a number of other
measures have also been suggested. We discuss
the various remedial measures below-
 Remedial Measures
• 1) Social Control Measures. First, Pigou suggest social control
measures to attain the "ideal output" or optimum welfare. National
dividend would be the maximum, according to Pigou, when the values of
the social net product are equal in all possible uses.
• If the value of the social net product or resources is less in any one use
than in any other, the national dividend can be increased by transferring
resources to more fruitful modes of production. This can be achieved by
social control.
• The state can ask the factory-owner to move out of the residential area by
providing appropriate facilities to the smoke emitting factory.
• It can interfere in all cases of external dis-economies of production to
remove the divergences between private and social costs and benefits. in
the case of external dis-economies of consumption, the state can put an
end to noise-nuisance by banning the use of loud speakers except for
special occasions with prior permission.
• In situations of oligopoly or imperfect competition, Pigou favors state
regulation of some type or even nationalization.
 Remedial Measures
2) Taxes and Subsidies. Pigou further suggest the use of taxes or subsidies
to bridge the gap between private and social costs and benefits.
• The state can impose taxes in all cases of external dis economies in
production and consumption. For instance, the state can levy a tax on
every family and pay the sum so collected to the smoke factory to move
away.
• In the case of external economics of production, the state can give
subsidies to producers so that national dividend increases and the ideal
output is attained. While tax concessions to consumers can help them in
maximizing their satisfactions by consuming more commodities.
3) Public Goods. If the number of potential consumers of a public good is
very large, it can only be supplied with the help of some public authority.
• How- ever the benefits of public gods are indivisible. Therefore, the state
should make people share the costs of public goods so that everyone
is made better-off.
 PIGOU'S IDEAL OUTPUT
• Pigou's concept of ideal output is related to the optimum
welfare of the economic system. Pigou uses the size of the
national dividend as an indicator of welfare. According to
Pigou, national dividend is maximised when the value of
the marginal social product of all resources is equal in all
possible uses.
• Under perfect competition, this optimum or ideal output is
reached automatically. If, however, the value of the social
marginal product of resources is less in any one use than in
any other, the ideal output is attained by transferring
resources to more fruitful modes of production by social
control or by a tax or bounty.
• Prof. Baumol defines the ideal output as that output at
which no reallocation of the economy's resources among
various uses would make the society better-off than before.
 Assumptions
• His analysis is based on the following assumptions:
• There is perfect competition on the demand side of the
market for finished goods.
• All goods are uniquely distributed in society.
• 3) Tastes and technology remain unchanged in society.
• 4) Every member of the society prefers more rather than
less of each good.
• 5) There is a given level of employment of resources.
• 6) There are no external effects in consumption and
production.
• 7) Community indifference curves do not intersect each
other.
• (8) The economy produces only two goods, say X and Y.
 Explanation
• Given these assumptions, Baumol demonstrates diagrammatically how society
reaches the ideal output-position.
• Consider Figure 3 where the output of good X is measured along the horizontal
axis and of good Y along the vertical axis. I, I1 , and I2 are the community
indifference curves showing various possible combinations of these goods
available to the society. The slope of an indifference curve at any point shows
the marginal rate of substitution (MRS) between the two goods X and Y (MRS).
• TC is the transformation curve showing various output combinations possible
with the given resources and technology. The slope of the transformation curve
at any point measures the ratio of the marginal social cost (MSC) of X to that of
Y. The slope of the transformation curve is the marginal rate of transformation
(MRT) between two goods X and Y in our case.
• Thus MRT MSC MSC PL. is the price line whose slope shows P/P.
• The society attains the ideal output position E where the transformation curve
TC touches the highest possible community indifference curve I1. At this
optimum level, the society produces and consumes OX, of good X and OY, of
good Y. Any movement along the TC curve away from point E brings the
community to a lower indifference curve, such as the curve I and to a lower
level of welfare.
It can be shown that this ideal output is, in fact, the competitive output. Since it is assumed that there
is perfect competition and absence of external effects, prices of the two goods remain uniform
throughout the market. Thus, from the demand side, equilibrium is established at point E where the
price line PL is tangent to the indifference curve I1. Thus at point E, MRSxy = Px / Py ……..(1)
- In the absence of external effects, E is the point of ideal output
where the indifference curve I1, and the transformation curve TC are
tangent to each.
- This is also the position of competitive output because the price
line ee, the indifference curve I1, and the transformation curve TC
are tangent to cach other.
- If good X is produced under conditions of external economies of
production, the point of equilibrium will be at B to the left of E.
Here the price line bb is tangent to the indifference curve I at point B
where the output OX1 of good X is very small as compared to the
ideal output OX.
- If good X is produced under conditions of external diseconomies,
the point of equilibrium will be D to the right of E. Here the price
line dd is tangent to the indifference curve I at point D where the
output OX2, of good X is very large as compared to the ideal output
OX. Points B and D cannot be of ideal output because they lie on a
lower indifference curve I while point E is on a higher indifference
curve I1.
Like Pigou, Baumol suggests that the external effects can be corrected and ideal
output obtained by a system of taxes and bounties. If the production of good X is in
excess of the ideal output as at point D, it can be reduced by imposing a heavy tax
on each unit of output. On the contrary, if the output of X is less than the ideal
output as at point B, output can be increased by a large bounty per unit of output.
The position of ideal output can be attained if the amount collected by tax equals the
amount paid by the government as bounty.
 Thank You All
for
Your Patience to Listen me