human development and economic sustainability

Human Development and Economic Sustainability*

SUDHIR ANANDSt. Catherine's College, Oxford, UK

and

AMARTYA SENTrinity College, Cambridge, UK

Summary. Ð This paper attempts to integrate the concern for human development in the presentwith that in the future. In arguing for sustainable human development, it appeals to the notion ofethical `ùniversalism''Ðan elementary demand for impartiality of claimsÐapplied within andbetween generations. Economic sustainability is often seen as a matter of intergenerational equity,but the speci®cation of what is to be sustained is not always straightforward. The addendumexplores the relationship between distributional equity, sustainable development, optimal growth,and pure time preference. Ó 2000 Elsevier Science Ltd. All rights reserved.

1. FUTURE PROSPECTS AND PRESENTLIVES

`Ìt is justice, not charity, that is wanting inthe world,'' wrote Mary Wollstonecraft, thepioneering feminist, in A Vindication of theRights of Woman, published in 1792, the sameyear in which her friend Thomas Painepublished the second part of the Rights of Man.Both were concerned with giving everyoneÐwomen and menÐpower over their own livesand opportunities to live the way they hadreasons to value. One particular feature of theircommon approach is particularly worthemphasizing in the context of policy discussionstoday, viz. the implicit `ùniversalism'' thatcharacterizes both the approaches. The domainof concern is not arbitrarily restricted to, say,men, or men of a certain class or background.This shared aspect of the original contributorsto the human rights approach is of speci®cinterest in interpreting the task of ``humandevelopment'' in a world that is marked, on theone hand, by enormous inequities in contem-porary living conditions, and on the other, byreal threats to the prospects of human life in thefuture.

Appeals to rights and entitlements that havemoved the world forcefully have often tendedto ignore the freedoms of particular groups.

For example, while ancient Greek philosopherspresented some of the most far-reaching ana-lyses of individual independence and auton-omy, they typically did not hesitate to leave outthe slavesÐand often women tooÐfrom thediscourse. The language and the rhetoric as wellas the reality of rights in the contemporaryworld are often characterized by the neglect ofparticular sections of the populationÐlessprivileged ethnic groups, exploited classes,sequestered women.

The basic idea of expanding ``human capa-bility,'' or of ``human development,'' which hasbeen pursued in di�erent forms in recent years,involves the assertion of the unacceptability ofsuch biases and discrimination. 1 We shall notspend any time here on the issue of whetherformalisms used in successive Human Develop-

World Development Vol. 28, No. 12, pp. 2029±2049, 2000Ó 2000 Elsevier Science Ltd. All rights reserved

Printed in Great Britain0305-750X/00/$ - see front matter

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* This paper draws on an earlier discussion paper

``Sustainable Human Development: Concepts and Prior-

ities'' prepared by the authors for the United Nations

Development Programme (Anand & Sen, 1996). For

helpful conversations and suggestions, we thank Sissela

Bok, Robert Dorfman, Mahbub ul Haq, Robert Solow,

Paul Streeten, and the referees of this journal. Research

support from the John D. and Catherine T. MacArthur

Foundation is gratefully acknowledged. Final revision

accepted: 5 May 2000.

2029

ment Reports do full justice to the idea. But itsfocus on universalism is something of impor-tance for contemporary debates on publicpolicy. The growing concern with ``sustainabledevelopment'' re¯ects a basic belief that theinterests of future generations should receivethe same kind of attention that those in thepresent generation get. 2

We cannot abuse and plunder our commonstock of natural assets and resources leaving thefuture generations unable to enjoy the oppor-tunities we take for granted today. We cannotuse up, or contaminate, our environment as wewish, violating the rights and the interests ofthe future generations. The demand of``sustainability'' is, in fact, a particular re¯ec-tion of universality of claimsÐapplied to thefuture generations vis-�a-vis us.

That universalism also requires that in ouranxiety to protect the future generations, wemust not overlook the pressing claims of theless privileged today. A universalist approachcannot ignore the deprived people today intrying to prevent deprivation in the future.

One of the strongest arguments in favor ofgiving priority to the protection of the envi-ronment is the ethical need for guaranteeingthat future generations would continue to enjoysimilar opportunities of leading worthwhilelives that are enjoyed by generations thatprecede them. This, as we discuss in Section 3of this paper, is the central idea underlying thedemand for ``sustainable development,'' and ithas many important implications. But this goalof sustainabilityÐincreasingly recognized to belegitimateÐwould make little sense if thepresent life opportunities that are to be ``sus-tained'' in the future were miserable and indi-gent. Sustaining deprivation cannot be ourgoal, nor should we deny the less privilegedtoday the attention that we bestow on genera-tions in the future.

The living standard of a substantial part ofhumanity has radically moved forward in a waythat would have been hard to anticipate inPaine's or Wollstonecraft's time. While itwould have been, then, di�cult to dispute thathuman life everywhere was ``nasty, brutish andshort'' (as Thomas Hobbes had put it in Levi-athan), people today in many countries inEurope, North America and elsewhere havelives that are much longer, less miserable, andfar less battered by forces beyond the person'scontrol. Yet a great many people in the worldcontinue to su�er from the absence of funda-mental opportunities to lead decent and satis-

fying lives. The continued high incidence ofpremature mortality, ill-health, undernourish-ment, illiteracy, poverty, insecurity, and otherforms of deprivation indicate the failure of themodern world to bring even the most basiccapabilities within the reach of all. A newbornchild may be doomed to a life of extremebrevity or intense misery if that child happensto be born in a ``wrong class,'' in a ``wrongcountry,'' or to be of the ``wrong sex.''

Ethical universalism is basically an elemen-tary demand for impartialityÐapplied withingenerations and between them. It is, in thepresent context, the recognition of a sharedclaim of all to the basic capability to leadworthwhile lives. Not working toward guaran-teeing the basic capabilities to the futuregenerations would be scandalous, but in thesame way, not working toward bringing thoseelementary capabilities within the reach of thedeprived in the present generation would alsobe outrageous. Given the implicit biases inmany policy debates, there is a real need forjealously guarding that universalist perspective.

As the full signi®cance of the issues forcefullydiscussed in the environmental conference(UNCED) in Rio in 1992 begins to be morefully understood, the integration of humanprogress and environmental conservation hasemerged as one of the central challenges facedby the modern world (Pronk & Haq, 1992;Speth, 1992; Brundtland, 1993). The moralvalue of sustaining what we now have dependson the quality of what we have, and the entireapproach of sustainable development directs usas much toward the present as toward thefuture. There is, in principle, no basic di�cultyin broadening the concept of human develop-ment to accommodate the claims of the futuregenerations and the urgency of environmentalprotection.

2. ALTERNATIVE DEVELOPMENTAPPROACHES

(a) Human development and wealth

The foundational task of scrutinizing thedemands of sustainable human developmentalso provides an appropriate occasion to seehow the ``human development'' approachrelates to the more conventional analyses to befound in the standard economic literatureÐfrom Adam Smith (1776, 1790) onwards.Interest in human development is not new in

WORLD DEVELOPMENT2030

economics. Indeed, this motivating concern isexplicitly present in the writings of the earlyfounders of quantitative economics (such asWilliam Petty, Gregory King, Francßois Ques-nay, Antoine Lavoisier, and Joseph Lagrange)as well as the pioneers of political economy(such as Adam Smith, David Ricardo, RobertMalthus, Karl Marx, and John Stuart Mill). 3

There is, in this sense, no foundational depar-ture in making economic analysis and policytake extensive note of the demands of humandevelopment. The approach reclaims an oldand established heritage, rather than importingor implanting a new diversion.

Economics has never been a subject of onetradition only. The interest in human develop-ment has had to compete with other prioritiesand pursuits within the same body of main-stream economics. The preoccupation withcommodity production, opulence and ®nancialsuccess can also be traced in professionaleconomics through several centuriesÐinvolv-ing many leading economists as well as busi-nessmen and bureaucrats, who have preferredto concentrate more on the characteristics ofoverall material success than on the deprivationand development of human lives. Indeed, thedominant contemporary tradition of focusingon such variables as per capita gross nationalproduct or national wealth is a continuationÐperhaps even an intensi®cationÐof the oldopulence-oriented approach.

The focus on wealth maximization can betaken at di�erent levels, and at the commonaggregative level, the spotlight is put entirely onmaking the community as a whole as opulent aspossible, irrespective of distribution and irre-spective of what that wealth does to humanlives. It is, of course, true that being rich,wealthy and a�uent can be among the mostimportant contributory factors in generatingwell-being, and the opulence-oriented approachto economic progress certainly cannot be criti-cized for being irrelevant to the success ofhuman living. On the other hand, insofar as itneglects other crucial factors, such as publiccare and social organization, which alsocontribute to the well-being and freedom ofindividuals, the approach is deeply limited anddefective. 4 Insofar as the concern is withoverall wealth maximizationÐirrespective ofdistributionÐthere is a serious disregard ofindividual predicaments in favor of someconglomerative achievement, which can beblind to the most extreme deprivations su�eredby many, while others make useÐpossibly

excellent useÐof the accomplishment of wealthand opulence.

Thus, the fundamental di�culty with theapproach of wealth maximization and with thetradition of judging success by overall opulenceof a society is a deep-seated failure to come toterms with the universalist unbiasedness neededfor an adequate understanding of social justiceand human development. In this sense, thewealth-based approach is not, by any means,inconsequential, but it certainly is signi®cantlypartisan. The most basic problem with theopulence view is its comprehensive failure totake note of the need for impartial concern inlooking at the real opportunities individualshave. The exclusive concentration only onincomes at the aggregative or individual levelsignores the plurality of in¯uences that di�er-entiate the real opportunities of people, andimplicitly assumes away the variationsÐrelatedto personal characteristics as well as the socialand physical environmentÐin the possibility ofconverting the means of income into the ends ofgood and livable lives which people have reasonto value.

(b) Objectives and instruments

How illuminating is the di�erence betweenthe two traditions of focusing respectively on (i)development of human capability, or humandevelopment, and (ii) overall wealth and opu-lence? These traditions can be seen as di�ering,directly or indirectly, in two distinct respects.The ®rst concerns divergences in the ultimateobjectives, and the second relates to di�erencesin the e�ectiveness of distinct instruments.

While the human development approach hasconformed broadly to the line of reasoningenunciated by Aristotle more than twomillennia ago (``wealth is evidently not thegood we are seeking, for it is merely useful andfor the sake of something else''), there havebeen many professional experts who have seentheir task as being con®ned to the maximiza-tion of opulence (an old illustration is the 17thcentury monograph by the pioneeringmercantilist author, Thomas Mun, England'sTreasure by Foreign Trade, or the Balance ofOur Foreign Trade is the Rule of Our Treasure).That division about our basic objectives stillsurfaces in the debates on current policies indi�erent parts of the world, and also indiscussions about what importance to attach tovarious indicators and criteria of progress(such as GNP per capita). 5

HUMAN DEVELOPMENT AND ECONOMIC SUSTAINABILITY 2031

At the level of objectives, the case forfollowing Aristotle rather than Mun is not hardto appreciate. How can we possibly givepriority to the means of living, which is whattreasures and wealths are, over the ends ofgood and free human lives? While much ofeconomic and ®nancial writing proceeds as ifthere is nothing beyond opulence with whichwe need be concerned, it is fair to see that as aproblem of presentation, rather than a re¯ec-tion of some deep-seated eccentricity aboutends and means. The really interesting debatesmust relate to instrumental e�ectiveness ofoverall wealth and opulence in promotingthose things for which wealth and opulence aresought.

There is, in fact, much more substance in theopulence-centered approach than the implau-sible view that opulence is an end in itself. Thistakes us to the second di�erence, which relatesto the cause±e�ect relationships in the pursuitof the deeper objectives. Some have taken theview that while opulence is not to be valued atall for its own sake, it still is the most importantinstrument in promoting the more basic objec-tivesÐeven the Aristotelian one of rich andful®lling lives.

To take a prominent example, W. ArthurLewis, one of the leading modern developmenteconomists, did not entertain much doubt thatthe appropriate objective to pursue is increas-ing ``the range of human choice.'' He alsoacknowledged the causal role of many factorsin advancing the freedom to choose. Butnevertheless he decided to concentrate speci®-cally on ``the growth of output per head,''because it ``gives man greater control over hisenvironment, and thereby increases his free-dom'' (Lewis, 1955, pp. 9±10, 420±421). Indeed,the focus of his classic book was su�cientlyprecise to permit him to assert: ``Our subjectmatter is growth, and not distribution.''

Lewis's faith in the instrumental e�cacy oftotal growth has proved to be quite disputablein terms of the experiences observed in theactual world. Many countries have grown fastwithout a commensurate impact on livingconditions, and more importantly, some coun-tries have achieved high quality of life despiterelatively moderate growth of GNP or GDPper head. It has also been observed that evenwhen there is a generally positive and statisti-cally signi®cant relationship between GNP perhead and indicators of quality of life in thegross intercountry data, much of that rela-tionship turns on the use of extra income in the

speci®c ®elds of public education and health,and in reducing absolute poverty.

It is certainly true that the higher the averageincome of a country, the more likely it isÐgiven other thingsÐthat it will tend to have ahigher average life expectancy, lower infant andchild mortality rates, higher literacy, and infact, a higher value of the ``human developmentindex.'' A number of recent studies havecon®rmed this general pattern. The associa-tions are, however, far from perfect. Forexample, in intercountry comparisons, incomedi�erences tend to explain not much more thanhalf the variations in life expectancy, or ininfant or child mortality, and they explain asmaller proportion of variation in adult literacyrates. 6 Many countries, such as Sri Lanka,China, Jamaica, Costa Rica, and the state ofKerala in India, have achieved levels of humandevelopment that are enormously higher thanwhat would be expected on the basis of theirGNP or real income per head.

What is also of importanceÐperhaps evenmore soÐis the route through which growth ofGNP most e�ectively in¯uences human devel-opment. Economic growth not only involvesincrease in private incomes, it can also signi®-cantly contribute to generating resources thatcan be marshalled to improve social services(such as public healthcare, epidemiologicalprotection, basic education, safe drinking water,etc.). In some cases such marshalling is e�ec-tively done, while in other cases, the fruits ofgrowth are put to little use of this kind. 7 Thiscan make a big di�erence to the outcome interms of the expansion of basic human capa-bilities. Similarly, while the expansion of privateincome certainly is of instrumental importancein enhancing basic capabilities, the e�ectivenessof that impact depends much on the distributionof the newly generated incomes. In particular,the biggest impact may be expected to occur ifthe rise in average GNP per head goes with asharp reduction in the poverty of the worst-o�people, rather than going in other directions. Towhat extent this will happen depends on avariety of economic and social circumstancesrelated to the labor-intensive nature of tech-niques of production, the sharing of educationand skills across the population, the success ofland reforms and the sharing of rural resources,and so on. Here again the experiences ofdi�erent countries and of di�erent policyregimes have been quite divergent.

There is signi®cant evidence that the statis-tical correlation between GNP per head and


human development tends to work through theimpact of GNP expansion on higher publicexpenditure and lower poverty. For example, itis found in Anand and Ravallion (1993) thatwhen life expectancy variations are linked withpublic health spending per person and an indexof poverty, the addition of GNP per person as afurther explanatory variable yields a coe�cientthat is not signi®cantly di�erent from zero. 8

ThisÐand related results that focus on othercharacteristics of quality of lifeÐmust not, ofcourse, be interpreted to imply that economicgrowth does not matter in expanding thequality of life. Rather, what they indicate isthat the connections are seriously contingent,and much depends on how the fruits ofeconomic growth are shared (in particular whatthe poor get) and how far the additionalresources are used to support public services(for example, public spending on health servi-ces, which are particularly crucial in in¯uencinglife expectancy).

Thus the opulence-oriented view of progress,which has little intrinsic merit (as was discussedearlier), has a conditionally important instru-mental roleÐand that conditionality relatesspeci®cally to features on which the humandevelopment approach has tended to focus, towit, public action and poverty reduction. Thereis no basic con¯ict between regarding economicgrowth to be very important, and taking it to bein itself an insu�cient basis of human devel-opment. Insofar as growth of GNP or GDPpromotes enhancement of living conditions, itsbiggest impact comes through the expandedability to undertake public action to promotehuman development, and the share of theadditional income that is enjoyed by the poor.In recognizing the importance of economicgrowth as a means for human development, wemust also take full note of (i) the contingentnature of its e�ectiveness as means (dependingon the use of the means for promoting humandevelopment), and (ii) its nonuniqueness asmeans (there are other means as well, includingsocial organization).

3. THE ENVIRONMENT ANDSUSTAINABLE DEVELOPMENT

(a) The environmental challenge

The idea of sustainable development aroseessentially from concerns relating to the over-exploitation of natural and environmental

resources. Early discussions stressed the limitsto economic activity imposed by the physicalenvironment, and concluded that species andecosystems should be utilized in ways that allowthem to go on renewing themselves inde®nitely(IUCN, 1980). The anxieties expressed byenvironmental scientists and ecologists wererecognized by policymakers and economists,who attempted to formulate concepts of ``sus-tainable development.'' An early formulationby Robert Repetto (1985, p. 10) was as follows:

At the core of the idea of sustainability, then, is the con-cept that current decisions should not damage the pros-pects for maintaining or improving living standards inthe future...This implies that our economic systemsshould be managed so that we live o� the dividend ofour resources, maintaining and improving the assetbase so that the generations that follow will be ableto live equally well or better. This principle also hasmuch in common with the ideal concept of income thataccountants seek to determine: the greatest amountthat can be consumed in the current period withoutreducing prospects for consumption in the future.

As we shall presently argue, this connectionbetween the ideal of sustainable developmentand the economic accountant's concept ofmaintaining the income level (discussed, inparticular, by Hicks, 1946) is an important oneto explore.

A more recent characterization has beensuggested by Robert Solow (1992, p. 15):

The duty imposed by sustainability is to bequeath toposterity not any particular thingÐwith rare excep-tions such as Yosemite, for exampleÐbut rather toendow them with whatever it takes to achieve a stan-dard of living at least as good as our own and to lookafter their next generation similarly. We are not toconsume humanity's capital, in the broadest sense.

In this section and the next, we follow thischaracterization, but we subject it to criticalscrutiny in Section 3(c).

The term ``sustainable development,'' in fact,owes its widespread usage to the BrundtlandCommission Report (WCED, 1987), OurCommon Future, which de®ned it as ``develop-ment that meets the needs of the present with-out compromising the ability of futuregenerations to meet their own needs. It containswithin it two key concepts:

Ðthe concept of `needs,' in particular theessential needs of the world's poor, to whichoverriding priority should be given; andÐthe idea of limitations imposed by thestate of technology and social organization


on the environment's ability to meet presentand future needs'' (WCED, 1987, p. 43).

The Brundtland Commission de®nition isoften cited and has become very in¯uential. 9

As a general statement, it reminds us thatsustainability is about an obligation to futuregenerations (toward meeting their ``needs''),and thus it is necessarily about intergenera-tional allocation. Unlike some earlier state-ments, it also helpfully shifts attention awayfrom conserving speci®c resources and ``leavingthe world as we found it'' in every particular.The latter would appear to be neither feasiblenor necessarily sensible: resources are basicallyfungible and can be substituted for oneanother. The Brundtland Commission's notionof sustainable development is indeed broaderand invites examination even independently ofenvironmental concerns.

Moreover, the obligation of sustainabilitycannot be left entirely to the market. The futureis not adequately represented in the marketÐatleast not the distant futureÐand there is noreason that ordinary market behavior will takecare of whatever obligation we have to thefuture. Universalism demands that the stateshould serve as a trustee for the interests offuture generations. Government policies suchas Pigouvian taxes, subsidies, and regulationcan adapt the incentive structure in ways thatprotect the global environment and resourcebase for people yet to be born. As Pigou (1932,pp. 29±30) had noted,

there is wide agreement that the State should protectthe interests of the future in some degree against thee�ects of our irrational discounting and of our prefer-ence for ourselves over our descendants. The wholemovement for `conservation' in the United States isbased on this conviction. It is the clear duty ofGovernment, which is the trustee for unborn genera-tions as well as for its present citizens, to watch over,and, if need be, by legislative enactment, to defend,the exhaustible natural resources of the country fromrash and reckless spoliation.

(b) Intergenerational equity and sustainabledevelopment

What are our obligations to future genera-tions? Joseph Addison, writing in The Spectatorof 1714 was dismissive of any duty to posterity:

Most people are of the humour of an old fellow of acollege, who, when he was pressed by the Society tocome into something that might redound to the goodof their successors, grew very peevish; `We are always

doing,' says he, `something for posterity, but I wouldfain see posterity do something for us.' 10

Yet, of course, there is something posteritycan do for us: it can inherit less physical andnatural capital, and thus allow us to achieveÐthough not out of its choiceÐa higher standardof living at its expense.

How much capital should the future inheritfrom us? This has been the subject matter ofoptimal growth theory since the pioneeringarticle of Frank Ramsey (1928). The theory hasformed the basis of development policy andsocial cost-bene®t analysis in the less-developedcountries. In Section 5 we present a simple two-period model which captures the centralfeatures of intergenerational allocation as seenin this approach.

This framework is founded on the essentiallyutilitarian criterion of maximizing the sum totalof welfare of di�erent generations. It allows thewelfare of one generation to be traded o� one-for-one against that of another generation. Ifthe bene®t to us from economic activities whichcontinue to emit greenhouse gases at thepresent rates outweighs the harm done to futuregenerations from global warming, then thecriterion would recommend no change in ouractivities. Other ethical notions of the total``good'' may allow for di�erent tradeo�sÐforexample, those that take account of welfareinequality between generations (see Section5(a)). Yet others may allow no tradeo� incertain rangesÐfor example, those based onthe ``rights'' of future generations to the samequality of environment and levels of clean air asthe present generation has. This latter view ofjustice would give priority to speci®c rights thatgenerations have over decisions based on acalculation of aggregate welfare (Rawls, 1971;Dworkin, 1978; Sen, 1982a,b).

Within the broadly welfarist framework ofoptimal growth theoryÐby far the maineconomic approach used to analyze questionsof intergenerational justiceÐit is relevant toenquire whether sustainable development isnecessarily a consequence of growth beingoptimal. If it were, then a (derived) justi®cationfor sustainability could be found in maximizingthe total good. Let us take sustainable devel-opment to mean nondeclining welfare overtimeÐalthough other de®nitions are formu-lated in terms of nondeclining income,consumption, or capital stock.

Even though Ramsey (1928) had argued fortreating the welfare of di�erent generations


impartially, much of the subsequent literatureassumes a positive rate of pure time preferenceaccording to which well-being at a later timecounts for less than well-being at an earlier time(see Section 5(b)). 11 Now if the social rate ofreturn to investing in environmental capital(protection) is not large, and in particular it issmaller than the rate of pure time discount, it isnot worthwhile for the present generation toreduce its consumption and increase invest-ment: the gain in well-being to the futuregeneration will not compensate for the sacri®cein well-being of the present generation. Thiscan lead to a decline in well-being over time. 12

Moreover, a similar result obtains with apositive rate of pure time preference even in aneconomy with exhaustible resources (see Solow,1974b; Dasgupta & Heal, 1979). On the otherhand, universalism in the space of generationalwelfaresÐin the special form of no pure timediscountÐwill typically lead to rising welfareover time in such models.

Yet there is no general presumption thatsustainability will be implied by optimality inmodels of intertemporal allocation. It becomesan even less likely consequence once we incor-porate environmental productivity and qualityinto production and welfare, respectively(Pezzey, 1992). Hence a justi®cation forsustainability will have to be sought outside theframework of maximizing aggregate intergen-erational well-being.

For Robert Solow (1974b, 1991), sustain-ability is simply a matter of distributionalequity, about sharing the capacity for well-being between present people and futurepeople:

[It is] an obligation to conduct ourselves so that weleave to the future the option or the capacity to beas well o� as we are. It is not clear [to me] that onecan be more precise than that. Sustainability is aninjunction not to satisfy ourselves by impoverishingour successors. (Solow, 1991, p. 3)

The notion appears to be founded on aforward-looking application of Rawls's Di�er-ence Principle, even though Solow (1974b)recognizes the di�culties of applying thisprinciple to the problem of saving (see Section5(a)). Still, his concern for intergenerationalequity leads him to the view that we have donerather well at the hands of our ancestors, whowere much poorer than we are and hence mightproperly have saved less and consumed more.According to Solow (1991, p. 7):

You could make a good case that our ancestors, whowere considerably poorer than we are, whose standardof living was considerably less than our own, wereprobably excessively generous in providing for us.They cut down a lot of trees, but they saved a lotand they built a lot of railroad rights-of-way. Bothprivately and publicly they probably did better by usthan a sort of fair minded judge in thinking aboutthe equity (whether they got their share and we gotour share or whether we pro®ted at their expense)would have required. It would have been okay forthem to save a little less, to enjoy a little more and giveus a little less of a start than our generation has had.

For Solow, then, sustainability would appearto be an obligation to preserve the present-dayeconomic opportunities (such as productivecapacity) for the future, not necessarily toincrease them. This can be seen as an inter-pretation of the demands of ``universalism''applied to intergenerational equity, and as suchhas much intuitive appeal.

The principle of preserving productivecapacity, or society's broad ``stock of capital,''can also be defended in deontological termswithout a direct appeal to distributional equity.The relevant notion here is that of usufructrights. We may enjoy the fruits of the accu-mulated capital and environmental resourcesthat we inherit (in the form of the income andamenities to which they give rise), but we maynot deplete the total stock. This principlerequires us to pass on to future generationswhat we have inherited from past generationsÐsince we did not accumulate or produce itourselves. It is not based on a claim of equalwell-being for the next generation.

Preserving productive capacity intact is not,however, an obligation to leave the world as wefound it in every detail. What needs to beconserved are the opportunities of futuregenerations to lead worthwhile lives. The factof substitutability (in both production andconsumption) implies that what we are obli-gated to leave behind is a generalized capacityto create well-being, not any particular thing orany particular resource. Since we do not knowwhat the tastes and preferences of futuregenerations will be, and what they will do, wecan talk of sustainability only in terms ofconserving a capacity to produce well-being. AsSolow (1991, p. 13) again emphasizes:

Sustainability as a moral obligation is a general obli-gation not a speci®c one. It is not an obligation to pre-serve this or preserve that. It is an obligation, if youwant to make sense out of it, to preserve the capacityto be well o�, to be as well o� as we. That does not


preclude preserving speci®c resources, if they have anindependent value and no good substitutes. But weshouldn't kid ourselves, that is part of the value ofspeci®c resources. It is not a consequence of any inter-est in sustainability.

The idea that ``income'' is what can be spentwhile leaving the asset base intact is preciselythe concept of sustainable income establishedby John Hicks (1946, p. 172) more than 50years ago:

The purpose of income calculations in practical a�airsis to give people an indication of the amount whichthey can consume without impoverishing themselves.Following out this idea, it would seem that we oughtto de®ne a man's income as the maximum value whichhe can consume during a week, and still expect to beas well o� at the end of the week as he was at thebeginning. Thus, when a person saves, he plans tobe better o� in the future; when he lives beyond his in-come, he plans to be worse o�. Remembering that thepractical purpose of income is to serve as a guide forprudent conduct, I think it is fairly clear that this iswhat the central meaning must be.

It is easily seen why Repetto (1985) saw ananalogy between the idea of sustainable devel-opment and the economic accountant's notionof what spendable income is.

Preservation of the resource base does notimply that all exhaustible (e.g., mineral andfossil fuel) resources must be conserved; 13

that is likely to be unfeasible. But if society'sbroad stock of capital is to be maintained, wehave to replace the nonrenewable resourcesthat are used up with something else. Thathas to be reproducible capital, whether phys-ical or human. The idea that the proceedsfrom a ``wasting asset'' should be set asideand reinvested so that the yield from theseinvestments compensates for the dwindlingresource is also traceable to Hicks (1946,p. 187). He argued:

If a person's receipts are derived from the exploitationof a wasting asset, liable to give out at some futuredate, we should say that his receipts are in excess ofhis income, the di�erence between them being reck-oned as an allowance for depreciation. In this case,if he is to consume no more than his income, he mustre-lend some part of his receipts; and the lower therate of interest is, the greater the sum he will have tore-lend in order for the interest on it to make up forthe expected failure of receipts from his wasting assetin the future.

It is essentially this Hicksian logic which liesbehind Hartwick's (1977) ruleÐa rule that has

become, justly, much used in the recent envi-ronmental literature. He showed exactly howmuch from the use of a depletable resourceshould be set aside and invested in reproduc-ible capital so that the total return (i.e.income) could be sustained over time. Hart-wick's rule says that if the entire competitiverents from an economy's use of a wastingresource are invested in reproducible capital,then it will be able perpetually to maintain aconstant level of consumption. The competi-tive rents, or pure return to the nonrenewableresource, are given by Hotelling's (1931) clas-sic result that the shadow value of the resourcerises at a rate equal to the current marginalproduct of reproducible capital. 14 The accu-mulation of reproducible capital throughinvestment of the Hotelling rents exactlyo�sets the (e�cient) depletion of the exhaust-ible resource.

Although Hartwick's original rule applied torather simple economies (with constant returnsto scale, a given stock of exhaustible resources,no technical progress, and no populationgrowth), there have been signi®cant general-izations and elaborations of it, including theincorporation of resource amenities (see Dixit,Hammond, & Hoel, 1980). 15 Solow (1986)suggests that Hartwick's rule can be given theinterpretation that an appropriately de®nedstock of capital is being maintained intact, andthat income is the interest on that patrimony.The broad notion of the stock of capital allowsfor exhaustible and renewable resources, forhuman capital, for freedom from pollution, andfor other suitable forms of ``environmentalcapital.'' 16 Moreover, the rule has considerableintuitive appeal within the general frameworkof universalist ethics. It seems appropriateenough to meet our obligation to the future bychannelling the rents on our use of nonrenew-able resources into capital formation, any kindof capital formationÐphysical or human. Thepolicy allows future generations to sustaininde®nitely the income, or capacity to consume,of the present generation.

(c) Sustaining what?

The approach of sustainable developmentpresupposes some basic agreement on what isto be sustained. The more speci®c and detailedthe description of what is to be preserved, theharder in general may be the task of guaran-teeing that preservation. There is, thus, thedanger of overspeci®cation. On the other side, if


the thing to be preserved is stated in suchgeneral terms that future generations may havelegitimate reasons to grumble about theirtreatment by us despite the preservation of thisgenerally speci®ed thing, then again theapproach would prove to be seriously defective.There is also, therefore, a danger of underspe-ci®cation. The issue of ®nding an adequatespeci®cation of sustainable development has toface these contrary problems.

The approach that we are following in thispaper is the one outlined by Solow (in thecharacterizations cited earlier), which concen-trates on preserving some generally de®nedunderstanding of the living standard. As Solow(1991, p. 4) puts it:

If you don't eat one species of ®sh, you can eat an-other species of ®sh... That is extremely important be-cause it suggests that we do not owe to the future anyparticular thing. There is no speci®c object that thegoal of sustainability, the obligation of sustainability,requires us to leave untouched.

In the arguments presented in the last twosections which followed that characterization,we used functional relations that link thegeneral notion of living standard to the meansthat provide the basis of such living. Thisapproach can be criticized at two di�erentlevels: (i) in terms of the limitation of themeans-end relations, and (ii) in terms of theinadequacy of the notion of overall livingstandard as the thing to be sustained.

The former line of criticism is easier to dealwith in this paper, since the variations in themeans-end relations have already been discus-sed in the context of the imperatives of humandevelopment, in Section 2. Sustaining a sharedaverage income may be inadequate to provideeveryone with the living standard that wouldhave to be sustained, if the opportunities ofliving are to include components that do not soreadily relate to the means of income. Thecomplex basket of qualities that make up thestandard of living of a person (including health,knowledge, dignity, sense of justice) may not beeasy to relate to the size of capital stock in somejointly measured units, including physical andhuman capital. 17 The causal relations thatwould underlie any practical application of theapproach of sustainable development must takenote of this complexity in the means-end rela-tions. This is not an argument for abandoningthe approach of sustainable developmentde®ned in the last two sections, but certainly a

strong reason for seeing it in more quali®edterms, and for leaving the analysis open tobringing in causal relations that may not havequite the simple capital-theoretic form outlinedthere.

The second line of criticism raises basicdi�culties of a di�erent kind. The ``claims'' ofthe future generations may not be seen only interms of their overall living standards. Equitymay demand more speci®cation than that. Forexample, the right to ``fresh air'' may not beseen as being so conditional that any substi-tution that leaves people equally well o�Ðdespite the absence of fresh airÐmust betaken to be, for that reason, adequate (seeSen, 1995). To consider an analogy, if aperson objects to being drowned in smokeemanating from a neighbor's cigarettes, thejusti®cation of that ``claim'' to fresh air maybe based on an argument that goes beyondequity of living standards. In particular, thepossible fact that the objecting person is verymuch better o� than the smokerÐshe may bericher, happier and fortunate in many otherwaysÐneed not be seen as compromising her``claim'' to a smoke-free surrounding. Simi-larly, the future generations' claims need notbe seen in entirely ``substitutable'' terms, evenif such substitution may be adequate in ananalysis of relative living standards. There is,thus, a nonwelfarist issue underlying theclaims of future generations, which a welfaristconceptualization of sustainable developmentcannot fully capture.

This consideration may take us toward amore complexÐand more contingentÐview ofwhat is to be sustained, and to that extentdetach the analysis from the overarchingpreoccupation only with overall living stan-dards. Again, the simple capital-theoreticformulations used in the last two sections (andin the addendum) may have to be broadened ifadequate attention is to be paid to this moreinclusive approach to sustainability. Such anapproach would require not only that livingstandards in general do not fall, but also thatparticular entitlements (such as havingreasonably fresh air, or being able to be in thesun without any immediate and terribledanger) be taken seriously. The generalformula of nondeclining time pro®les would, ofcourse, apply to these more disaggregatedrequirements as well, but something of thesimplicity of the capital-theoretic forms wouldbe lost. This further exercise is left for adi�erent occasion.


(d) Intragenerational justice and humandevelopment

We have emphasized that sustainability is amatter of distributional equity in a very broadsense, that is, of sharing the capacity for well-being between present people and future peoplein an acceptable wayÐthat is in a way whichneither the present generation nor the futuregenerations can readily reject. This is a criterionof justice that has been forcefully usedÐthoughnot in the context of intergenerational equityÐby Thomas Scanlon (1982) and by John Rawls(1993).

There would, however, be somethingdistinctly odd if we were deeply concerned forthe well-being of the futureÐand as yetunbornÐgenerations while ignoring the plightof the poor today. The moral obligationunderlying sustainability is an injunction topreserve the capacity for future people to be aswell o� as we are. This has a terribly hollowring if it is not accompanied by a moral obli-gation to protect and enhance the well-being ofpresent people who are poor and deprived. Ifone thinks that people will be deprived in thefuture unless di�erent policies are followed,then one is morally obliged to ask whetherpeople are deprived right now. It would be agross violation of the universalist principle if wewere to be obsessed about intergenerationalequity without at the same seizing the problemof intragenerational equity: the ethic ofuniversalism certainly demands such impar-tiality.

A concern for equity right now, and notmerely for equity between periods of time,requires redistribution to the deprivedcontemporaries. 18 But redistribution to poorpeople today might be felt to be disadvanta-geous from the standpoint of sustainability. Itmight be interpreted as leading to an increase incurrent consumption, not to an increase ininvestment. Much depends, however, on whatform that redistribution takes.

This is precisely where the signi®cance ofhuman development as a means comes in (onthis see the discussion in Section 4). Redistri-bution to the poor in the form of improvingtheir health, education, and nutrition is notonly intrinsically importantÐin enhancingtheir capabilities to lead more ful®lling livesÐbut it is also instrumentally important inincreasing their ``human capital'' with lastingin¯uence in the future. A general increase ineducational levels, for example, will raise

productivity and the ability to generate higherincomes, now and in the future. The impor-tance of maternal education in raising thequality of life and agency of later generationshas also been well established (see, for example,Summers, 1992). Thus human developmentshould be seen as a major contribution to theachievement of sustainability.

This argument should be contrasted withother arguments that have been proposed in thecontext of sustainable development. Forexample, poverty alleviation has been suggestedas an instrument to protect the environmentfrom degradation (World Bank, 1992). There itis argued that alleviating poverty is a prereq-uisite for environmental conservation:

The poor are both victims and agents of environmen-tal damage. About half of the world's poor live in rur-al areas that are environmentally fragile, and they relyon natural resources over which they have little legalcontrol. Land-hungry farmers resort to cultivatingunsuitable areasÐsteeply sloped, erosion-prone hill-sides; semiarid land where soil degradation is rapid;and tropical forests where crop yields on cleared ®eldsfrequently drop sharply after just a few years.... Poorfamilies often lack the resources to avoid degradingtheir environment. The very poor, struggling at theedge of subsistence, are preoccupied with day-to-daysurvival. It is not that the poor have inherently shorthorizons; poor communities often have a strong ethicof stewardship in managing their traditional lands.But their fragile and limited resources, their oftenpoorly de®ned property rights, and their limited accessto credit and insurance markets prevent them frominvesting as much as they should in environmentalprotection (World Bank, 1992, p. 30). 19

This argument provides an instrumentaljusti®cation for poverty alleviation, as a meansof protecting the environment. There is muchsubstance in this. But the human developmentargument goes beyond that. Human develop-ment is defended as a goal in itself; it directlyenhances the capability of people to leadworthwhile lives, so there are immediate gainsin what is ultimately important, while safe-guarding similar opportunities in the future.There is hardly any example in the world of theexpansion of education and health beinganything other than monotone: good educationand good health seem to generate powerfuldemand for these opportunities (and more) forour children. This is a relationship that goeswell beyond the redistribution of income to thepoor at a given point of timeÐimportantthough that is. It should also be noted that anyinstrumental justi®cation for human develop-


ment is not gripped by some impersonalobjective such as conserving the environment,but relates concretely to people's ability togenerate for themselves the real opportunitiesof good living.

4. PUTTING SUSTAINABLE HUMANDEVELOPMENT IN PERSPECTIVE

We end this critical account of sustainablehuman development with some remarks on therelationship between ends and means. Thebasic rationale of the human developmentapproach, as we have discussed, lies in the factthat the constitutive elements of human devel-opment are closer to the shared human endsthan are some of the more commonly-usedcriteria of progress, such as the growth of GNPper person. In contrast, the importance of GNPgrowth and related achievements in expandingthe means of life lies in their instrumentalrelevance. This thesisÐbased on the signi®-cance of human development as an endÐshould not, however, be construed as a denialof the importance of human development as ameans as well. Human development, in theform of people being better educated, morehealthy, less debilitated, and so on, is not onlyconstitutive of a better quality of life, but it alsocontributes to a person's productivity and herability to make a larger contribution to theprogress of material prosperity.

Indeed, recent works on economic growthhave demonstrated the far-reaching role ofeducation, health, and other human qualities ingenerating economic growth. For example, ininterpreting the causal antecedents of the so-called ``East Asian miracle,'' it has increasinglybecome clear that a foundational and immen-sely far-reaching role has been played by theenhancement of the quality and skill oflabor. 20 This is, in fact, the ``human capital''aspect of human development. The economicroles of better and more widespread schooling,good health and nourishment, learning bydoing, and technical progress all point to theimportance of human agency as a prime moverof material progress. There are many lessons tobe learned from these experiences, and thepowerful instrumental role of human develop-mentÐin addition to its intrinsic importanceÐis certainly quite central to our understandingof the economic and social world.

The human development approach must takefull note of the robust role of human capital,

while at the same time retaining clarity aboutwhat the ends and means respectively are. Whathas to be avoided is seeing human beings asmerely the means of production and materialprosperity, taking the latter to be the end of thecausal analysisÐa strange inversion of objectsand instruments. That is the danger to which anapproach that sees women and men only as``human capital'' is open. Rejecting suchexclusive concentration on people as ``humancapital'' is central to the human developmentapproach. But that disputation does not, in anyway, deny the commanding role of humancapital in enhancing production and materialprosperity as well.

Rather, we have to see human developmentas having both direct and indirect importance.Since education, health, and quality of life haveintrinsic value, human development hasdirectÐand immediateÐimportance. In addi-tion, since the quality of human agency isenhanced by better education, health, etc., it isalso the case that human development has greatindirect importance. The material prosperitythat is advanced by human development can, inits turn, contribute to further increases in thequality of human life. The importance of thisindirect connection adds to the relevance ofhuman development, but does not detract fromits direct importance. The human developmentapproach includes the signi®cance of humancapital without making that perspectivesupplant the view of human beings as the endof the exercise, rather than as means ofproduction and of economic activity.

Immanuel Kant's injunction ``to treathumanity'' ultimately ``as an end withal, neveras means only'' remains just as powerful, evenwhen the great importance of human capital ineconomic growth is appropriately acknowl-edged. Needless to say, this applies to ourobligations to the future generations as well.The importance of human capital indicates thatthe pivotal role of education, health, training,etc., in work and production must be kept®rmly in view in considering alternativescenarios of sustainable development; humanskill and agency would be important not just inraising productivity, but also in devising waysand means of dealing with environmental andother challenges. But, while taking full note ofthis instrumental importance of human qualityin maintaining and expanding the materialbasis of human life, we must not lose sight ofthe central importance of the quality of humanlife as an end in itself. What is to be sustained is


the nature of the lives that people can lead, andthe fact that in that sustaining, human agencywould be pivotal, does not reduce in any waythe signi®cance of human life as an end.

The discipline of universalism requires us toextend the same concern for all humanbeingsÐirrespective of race, class, gender,nationality, or generation. The underlyingethics of it sees di�erent human beings asimportant in the same way. This importancerelates to the personhood of people: humanbeings seen as personsÐnot as means ofproduction. As a matter of fact, human beingsare also superb means of production. But thatis not the most momentous fact about us.

The overarching relevance of sustainablehuman development lies in that basic recogni-tion. In extending the concern for humandevelopment from the present generation tothose in the future, the conceptual issues thatare raised have corresponding atemporal ana-logues. The approach pursued in this paper hastried to draw on that basic similarity betweenthe claims of the present and those of the futuregenerations. The linkage of the two has beenanalyzed in terms of the broad notion ofsustainability, integrating the concerns of thepresent and the future. While many founda-tional problems remain to be further addressed(we have speci®cally identi®ed some of them), itis particularly important to place the concernabout equity in the contemporary world andequity in the future in a generally integratedframework. This paper has been aimed as asmall contribution to that large task of inte-gration.

5. ADDENDUM: OPTIMALITY,SUSTAINABILITY, AND PURE TIME

PREFERENCE

In this addendum we explore the relationshipbetween optimal development and sustainabledevelopment with a view to clarifying the extentto which they are congruent and how theymight con¯ict. For this exercise we use the``welfarist'' framework developed in Sections3(a) and 3(b), some of the limitations of whichare discussed in Section 3(c). Even in a moregeneral nonwelfarist framework, elements ofcon¯ict and congruence would occur in similarways.

A simple two-period model is presented toexamine the central ideas; it is general enoughfor the points we wish to make. The purpose is

not to present a full-blown optimizing modelwhich incorporates capital of di�erent types(physical, natural, etc.) into production, andenvironmental amenities, pollution, etc. intothe utility or well-being function; there aremany such models available in the literature(for example, see Dorfman, 1997; Pearce &Warford, 1993; and the references cited there).Rather, our purpose is a conceptual one: to askwhether in the simplest possible optimizingmodel, sustainability is implied by optimality.If it is not, then by introducing environmentalexternalities and nonrenewable resources intothe model, sustainability will be an even lesslikely consequence of optimality. In otherwords, we will have to look elsewhere for anethical justi®cation of sustainability. It will alsofollow that intertemporal optimization modelswhich incorporate environmental variables arenot necessarily models of sustainable develop-ment. Conceptually, then, a di�erent type ofmodel from those usually adopted for planningpurposes in developing countries will berequired. It is important to recognize thissigni®cant departure from standard practice ifthere is an intrinsic concern with sustainability.

This addendum can in some ways be seen asa response to the challenge in Pearce andWarford (1993, p. 36): ``...insofar as pastdevelopment policy has been in¯uenced by thetheory of optimal growthÐand it clearly hasÐthere is a critical need to analyze the conditionsunder which optimal growth is also sustainablegrowth.''

(a) Concepts of optimality and sustainability

The now standard economic literature onoptimal growth goes back to the classic articleof Ramsey (1928) entitled ``A MathematicalTheory of Saving.'' In it, Ramsey solved theproblem of maximizing the sum total of utility(or welfare) over an in®nite time horizonsubject to a given technology and initial capitalstock. Ramsey's seminal paper has spawned avast literature in the 1960s; this is reviewed byKoopmans (1967a,b, 1977). Most of this liter-ature adopts as the objective to be maximizedÐthe optimality criterionÐan integral over timeof the discounted utility ¯ow eÿqtu�ct�, where ctis consumption at time t, u�c� is an increasingand strictly concave function, and q > 0 is therate of pure time discount. Thus the optimalitycriterion is generally taken to be the maximi-zation of


Z 1

0

eÿqtu�ct�dt

subject to given assumptions about the aggre-gate production function, population growth,and technological progress.

This optimal economic growth frameworkallows us to examine many of the questionsinvolving sustainable development. We can, forexample, talk of ``sustaining'' consumption ct,income or output qt, capital stock kt, or well-being xtÐwhich is broader than utility ut.

21

Does intertemporal optimization imply thateach of these variables will be nondecliningover time? If not, optimality and sustainabilitymay be in con¯ict. How might one justify aconcern with sustainability in this case? Woulda greater concern for intergenerational equityin the optimality criterion lead to the stock ofcapital kt or level of welfare xt being main-tained over time? How do the rate of timepreference and technical progress, respectively,a�ect the sustainability of each of the variablesconsidered? Under what assumptions, if any,can sustainability be derived as a consequenceof optimization?

The relationship between sustainability andoptimality of a path of development can beillustrated by means of a simple discrete two-period model. Many of the questions posedabove can be answered in the context of such amodel, without any loss of generality. More-over, the reasons for the outcomes can beexplained just as e�ectively as in a full-blownin®nite time horizon model.

We assume there are just two periods,indexed by 0 and 1, and only one good(``corn''), which can be either consumed orinvested. An amount k0 of the good (the initial``capital stock'') is available for consumption c0

or investment (k0 ÿ c0) in period 0. Theproduction function is q � f �k�, which isincreasing and strictly concave in capital k (i.e.displays positive and diminishing marginalproduct). Since there is no future beyondperiod 1, we assume that all output is consumedin period 1, i.e. c1 � f �k0 ÿ c0�. 22 Our two-period allocation problem is then to maximizethe present discounted value of well-being

x�c0� � 1

1� qx�c1�

subject to the constraint that

c1 � f �k0 ÿ c0�:

Substituting the constraint into the objectivefunction reduces the problem to choosing c0 tomaximize

x�c0� � 1

1� qx�f �k0 ÿ c0��:

This yields the ®rst-order condition

x0�c0� � 1

1� qx0�c1� � f 0�k0 ÿ c0�

or

x0�c0�x0�c1� �

1�MPK

1� q;

where MPK is the marginal product or ``re-turn'' per unit of capital net of the amountinvested.

The standard marginalist reasoning can beinvoked to justify the ®rst-order condition. Theloss in present discounted well-being fromconsuming one unit less in period 0 is x0�c0�.The gain in output next period is �1�MPK�,which is valued at x0�c1�, implying a gain inwell-being in period 1 of x0�c1��1�MPK�. Butwell-being in period 1 is worth only 1=�1� q� interms of well-being in period 0. Hence the gainin present discounted well-being is

x0�c1��1�MPK�=�1� q�:At the optimum, the loss in the objectivefunction (present discounted well-being) fromconsuming one unit less in period 0 must equalthe gain. Hence the above ®rst-order condition.

We can now ask whether the optimum solu-tion to this intertemporal problem impliesnondeclining consumption and well-being.From the optimality condition, it follows that

x0�c0�Tx0�c1�according as

MPKTq:

Hence if the marginal product of capital isgreater than q, then x0�c0� will be greater thanx0�c1�, and c0 will be less than c1 because ofstrict concavity of the function x�c�. In thiscase, sustainability (i.e. rising ct and xt) followsas a consequence of optimization. In particular,if q � 0 and the technology is productive�MPK > 0�, consumption and well-being willrise over time.

What if the technology is not as productiveas q, the rate of pure time discount? If MPK issmaller than q, then x0�c0� will be less than


x0�c1�, and c0 will be greater than c1 (byconcavity). In this case, consumption ct andwell-being x�ct� will fall over time, and theoptimum path will not be sustainable. Thussustainability is not necessarily implied byoptimality. Indeed the higher is the rate of puretime discount q, the less likely it is that theoptimal path will be sustainable. The examplealso demonstrates that requiring a path ofconsumption to be sustainable can be at theexpense of achieving the maximum presentdiscounted value of well-being.

This simple two-period model serves to illus-trate that optimality and sustainability are logi-cally distinct criteria of development. Onecannot be deduced from the other as a neces-sary consequence. It may, however, be objectedthat the model is overly simple: it does not takeaccount of technical progress, populationgrowth, or an intrinsic concern for equitybetween generations. We examine thesefeatures in turn by extending the model whileretaining its two-period assumption.

Technical progress is readily incorporatedinto the model by assuming that the produc-tivity of capital rises exogenously at the rate ofk per period. This implies that consumption inperiod 1 will be c1 � �1� k�f �k0 ÿ c0�, and thenew ®rst-order condition will be

x0�c0�x0�c1� �

�1� k��1�MPK��1� q� :

For sustainability we require x�c0� < x�c1�, orx0�c0� > x0�c1� given strict concavity of thewell-being function x�c�. Thus sustainabilityrequires that �1� k��1�MPK� > �1� q�, andthis condition is more likely to be ful®lled thehigher is the rate of technical progress k (andthe lower is the rate of pure time discount q).Intuitively, the gain from consuming one unitless in period 0 is now higher at

�1� k��1�MPK�;rather than simply �1�MPK�, times x0�c1�.Hence consuming less today relative to to-morrow will yield a higher present discountedvalue of welfare; this makes it more likely thatconsumption and well-being will rise over

time. 23;24

Population growth can also be incorporatedinto the basic model. But we now have toconsider two di�erent forms of the welfarefunction, corresponding respectively to the``average'' and ``total'' forms. In the averageform, we simply maximize the present discoun-

ted value of average well-being over time. If therate of population growth is n per period, thenaverage consumption in period 1 will be

c1 � f �k0 ÿ c0�1� n

because the total output in period 1; f �k0 ÿ c0�,must now be shared by �1� n� times as manypeople as in period 0. The discounted value ofaverage well-being is

x�c0� � 1

�1� q�x�c1�;

where c0 and c1 are average consumption inperiods 0 and 1, respectively. The ®rst-ordercondition for this case is

x0�c0�x0�c1� �

�1�MPK��1� q��1� n� :

Sustainability requires c0 < c1 or x0�c0� >x0�c1�, which implies

�1�MPK� > �1� q��1� n�:The condition for substainability is thus morestringent compared with the no populationgrowth �n � 0� situation, making it less likelyto be achieved.

The ``average'' criterion can, however, becriticized on a number of grounds (Par®t, 1984;Broome, 1992; inter alia). The criterion of``total well-being'' weights average well-being ineach period by the number of people, so thatthe welfare function (present discounted valueof total well-being) becomes

x�c0� � �1� n�x�c1��1� q� ;

where c0 and c1 are average consumption inperiods 0 and 1, respectively. In this case, the®rst-order condition reduces to the earlier zeropopulation growth condition

x0�c0�x0�c1� �

1�MPK

1� q;

and implies the same condition for sustain-ability as before, viz. MPK > q. The reason isthat although the gain in output from a unitsacri®ce in consumption in period 0 is sharedby �1� n� more people in period 1, and istherefore only 1=�1� n� times its former sizeper person, there are now �1� n� times as manypeople enjoying this gain in average consump-tion. These two factors exactly balance out togive the same ®rst-order condition as in the nopopulation growth case.


We can also incorporate a concern for equitybetween generations into the model. Thewelfare function thus far has been the sum totalof discounted well-being over time. Discount-ing implies placing less weight on the well-beingof future generations, not because they arebetter o�Ðbut because their well-beinghappens to arise later. But we might also wishto place less weight on the well-being ofgenerations that are better o�. In other words,the welfare function should re¯ect that a unitincrease in well-being to a worse-o� generationcounts for more than a similar increase to abetter-o� generation. The simplest way ofallowing for both pure time discount and well-being inequality between generations is to takea (quasi-) concave transformation of the well-being values that are comparable over time, viz.x�c0� and x�c1�=�1� q�. A form which isseparable and isoelastic in these numbers is

1

1ÿ e�x�c0�1ÿe � �x�c1�=�1� q��1ÿe�

for e P 0; e 6� 1

and

log�x�c0�� log�x�c1�=�1� q�� for e � 1:

Such a welfare function reduces to the sumtotal of discounted well-being when e � 0; andit tends to the Rawlsian function

Minfx�c0�;x�c1�=�1� q�gwhen e tends to 1. 25 For e > 0 it embodies aconcern for inequality in the discounted well-being of di�erent generations. The parameter eis a measure of aversion to inequality in levelsof ``comparable'' well-being across generations.

Substituting c1 � f �k0 ÿ c0� into this welfarefunction, and maximizing it with respect to c0

yields the ®rst-order condition

x0�c0�=x�c0�ex0�c1�=�x�c1�=�1� q��e �

1�MPK

1� q:

Now the function x0�c�=x�c�e is decreasing in cfor eP 0. Hence the condition for sustainabilityin this case is

�1�MPK� > �1� q�1ÿe:

This is more likely to be satis®ed the larger is e,ceteris paribus. Moreover, if eP 1, the condi-tion is assured with a positive MPK. As e tendsto in®nity, the optimum solution tends toequality of x�c0� and x�c1�=�1� q�. For q > 0,this of course implies that x�c1� > x�c0� or, inother words, c1 > c0. 26 But if q � 0, then the

Rawlsian solution is equality of x�c0� andx�c1�, i.e. consumption is constant over time.

A rigid egalitarianism is implied in Rawls'Di�erence Principle, interpreted by economistsas the Maximin Rule in the space of utilities. Indiscussing the application of this rule in anintertemporal context, we shall henceforth takeq to be 0, and will attempt to justify thisassumption later. Although Rawls objects toutilitarianism applied between generations onthe grounds that it will demand too muchsacri®ce by some generations for the sake of agreater gain by other (richer) ones, he is reluc-tant to apply his Di�erence Principle betweengenerations. Thus, on the problem of optimumsavings, Rawls (1971, pp. 284±293) states:

...the question of justice between generations...subjectsany ethical theory to severe if not impossible tests...Ibelieve that it is not possible, at present anyway, to de-®ne precise limits on what the rate of savings shouldbe. How the burden of capital accumulation and ofraising the standard of civilization is to be shared be-tween generations seems to admit of no de®nite an-swer. It does not follow, however, that certainbounds which impose signi®cant ethical constraintscannot be formulated...Thus it seems evident, forexample, that the classical principle of utility leadsin the wrong direction for questions of justice betweengenerations...Thus the utilitarian doctrine may directus to demand heavy sacri®ces of the poorer genera-tions for the sake of greater advantages for later onesthat are far better o�. But this calculus of advantageswhich balances the losses of some against bene®ts toothers appears even less justi®ed in the case of gener-ations than among contemporaries...It is a naturalfact that generations are spread out in time and actualexchanges can take place between them in only onedirection. We can do something for posterity but itcan do nothing for us. This situation is unalterable,and so the question of justice does not arise...It isnow clear why the (max±min criterion) does not applyto the savings problem. There is no way for the latergeneration to improve the situation of the least fortu-nate ®rst generation. The principle is inapplicable andit would seem to imply, if anything, that there be nosaving at all. Thus, the problem of saving must betreated in another fashion.

In one of the earliest contributions to theeconomic literature on intergenerational equity(in the presence of exhaustible resources),Solow (1974b) explores the implications ofadopting the Maximin RuleÐeven though heconcedes he is being ``plus Rawlsien que leRawls.'' The solution is as obtained in theabove two-period model with q set at 0 and emade inde®nitely large. Consumption and thestandard of living will be constant over time: it


is not desirable for any generation to sacri®ceconsumption for the sake of greater consump-tion by a better-o� generation. 27 The problemwith this solution, as hinted above by Rawlshimself, is that it is too much at the mercy ofthe initial conditions. If the initial capital stockk0 is small, then no more will be accumulated,and the standard of living will be low forever.As Solow (1986, p. 144) put it, ``a societystarting out poor would ®nd no justi®cation forthe initial accumulation that could provide ahigher standard of consumption in the future.''

Considerations of this sort suggest aconstraint on the ¯oor level of consumption orwell-being. Apart from the criteria of optimal-ity and sustainability (the latter being aconstraint on the time derivative of consump-tion or well-being), we can incorporate aconstraint in terms of a minimum desirablestandard of living. This can be speci®ed as alower bound on the level of consumption, c, orof well-being, x, or of output, q, at all times. Itcan be justi®ed in terms of notions of ``basicneeds'' ful®llment or ``subsistence'' which alsounderlie the Brundtland Commission Report(meeting the needs of the present withoutcompromising the ability of future generationsto meet their own needs).

There are three distinct criteria we havediscussed in relation to intertemporal alloca-tion: optimality, sustainability, and a minimumstandard of living. They are characterized inTable 1 (Pezzey, 1992).

We have seen in the context of the two-pe-riod model that a path of development can beoptimal but not sustainable, and can besustainable but not optimal. Moreover, it ispossible to set the minimum standard of livingconstraint at a level which violates either orboth of optimality and sustainability. In otherwords, the three criteria of development arelogically independent: all three, any two, justone, or none, may be satis®ed. It follows, inparticular, that the concept of sustainabilitycannot be derived from either of the other twocriteria.

(b) The rate of pure time preference

One of the main reasons why sustainabilitydoes not follow from intertemporal optimiza-tion (in the broadly welfarist framework of thetwo-period model above) is that future gener-ations' well-being is discounted at a positiverate. 28 What is the justi®cation for such anassumption? Ramsey (1928, p. 543) had himself``...assumed that we do not discount laterenjoyments in comparison with earlier ones, apractice which is ethically indefensible andarises merely from the weakness of the imagi-nation.'' Pigou (1932, pp. 24±25) felt thatalthough ``everybody prefers present pleasuresor satisfactions of given magnitude to futurepleasures or satisfactions of equal magnitude,even when the latter are perfectly certain tooccur,'' ``...this preference for present plea-sures...implies only that our telescopic faculty isdefective.''

Harrod (1948, pp. 37±40) went even further,and suggested that:

Time preference in this sense is a human in®rmity,probably stronger in primitive than in civilized man...On the assumption...that a government is capable ofplanning what is best for its subjects, it will pay noattention to pure time preference, a polite expressionfor rapacity and the conquest of reason by passion.

Finally, Solow (1974a, p. 9) argues that:

In social decision-making, however, there is no excusefor treating generations unequally, and the time-hori-zon is, or should be, very long. In solemn conclaveassembled, so to speak, we ought to act as if the socialrate of time preference were zero (though we wouldsimultaneously discount future consumption if we ex-pect the future to be richer than the present). I confessI ®nd that reasoning persuasive, and it provides an-other reason for expecting that the market will ex-haust resources too fast.

These are arguments about impartiality withrespect to time: well-being at one point in timeshould not count for more than well-being atanother. They do not a�ect the case fordiscounting future consumption if consumptionis expected to grow over time. The consump-tion discount rate re¯ects both the higher levelof consumption in the future and the decreasein the marginal value of consumption: it issimply the growth rate of consumption percapita times the elasticity of the marginal well-being function. The marginal well-being func-tion x0�c� represents a distributional weightingsystem between generations attaining di�erent

Table 1. Criteria for intertemporal allocation

Criterion Characterization

Optimality MaximizeR10

eÿqtx�ct�dt

Sustainability _ct P 0, _xt P 0, _kt P 0,_qt P 0 for all t

Minimum standard ofliving

ct P c, xt Px, qt P qfor all t


levels of consumption. 29 The weights x0�c�ignore the time at which a generation lives.

Assuming a pure time preference rate ofq � 0 (applied to well-being) raises a technicalproblem for the intertemporal optimalitycriterionZ 1

0

eÿqtx�ct�dt:

Without a positive discount factor �q > 0�, thisintegral will not converge over an in®nitehorizon for all paths of interest. 30 Ramsey(1928) got around this di�culty through hisingenious device of a ``bliss'' level of con-sumption c at which, in his formulation,marginal utility falls to zero. Instead of maxi-mizing the above integral, Ramsey minimizedthe integral of the excess of bliss utility overattained utility:Z 1

0

�u�c� ÿ u�ct��dt:

This is equivalent to maximizingZ 1

0

�u�ct� ÿ u�c��dt:

A modern variant of Ramsey's device, whichserves the same purpose, is the so-called over-taking criterion proposed by von Weizs�acker(1965). This criterion achieves comparisons ofconsumption paths over an in®nite future whilecomparing integrals over ®nite horizons only.A path ct is declared better than an alternativepath c0t if there exists a time T 0 such thatZ T

0

x�ct�dt >Z T

0

x�c0t�dt for all T P T 0:

From time T 0 onward, the (®nite) utility inte-gral for path ct has overtaken that for pathc0t.

31 Although the overtaking criterion doesnot choose between every possible pair ofpaths, the partial ordering de®ned by it su�cesto determine a unique optimal path in thecircumstances assumed by Ramsey.

The circumstances assumed by Ramsey wereno population growth and a constant technol-ogy. Koopmans (1965, p. 239) also admits to``an ethical preference for neutrality as between

the welfare of di�erent generations,'' andgeneralizes Ramsey's results to a situation ofexponential population growth and technicalprogress. The device he uses is not Ramsey'sbliss level of consumption, but a di�erentasymptote from which he subtracts attainedutility. This is the so-called Golden Rule level ofconsumption (Phelps, 1966), de®ned as themaximum level of consumption (and utility)per head that can be maintained inde®nitely.Note that the Golden Rule of accumulation is aconcept of sustainability, but at a level thatachieves the highest constant consumption perhead over time. Phelps (1966, p. 5) christened ita golden rule because then ``...each generationsaves (for future generations) that fraction ofincome which it would have past generationssave for it.''

We can incorporate a concern for equitybetween generations into the overtaking crite-rion in much the same way as before. Instead oftaking the integral (i.e. sum total) of well-beingover time, we can take the integral of a concave(isoelastic) transform of the numbers xt. Thusin the criterion, we simply substitute x�c�1ÿe

=�1ÿ e� for x�c�, where e P 0 (and e 6� 1).

An alternative approach to equity betweengenerations has been suggested by Asheim(1993). Essentially, he proposes a combinationof the overtaking criterion and generalizedLorenz dominance in the space of ``quality oflife,'' i.e., well-being. He de®nes a path ct to beas ``just'' as an alternative path c0t if there existsa T 0 such that for all T P T 0Z T

0

x�ct�dt PZ T

0

x�c0t�dt

and fx�ct� j t 2 �0; T �g Lorenz dominatesfx�c0t� j t 2 �0; T �g.

This criterion of justice requires x�ct� both tocatch up with x�c0t� in ®nite time and to be asegalitarian in the Lorenz sense. Thus preferredpaths are those that both increase the total sumto be shared between generations and share itin a more egalitarian way. In a productivetechnology, this leads to the result that a path isjust if and only if it is dynamically e�cient andnondecreasing (i.e., sustainable).

NOTES

1. The basic approach goes back to earlier works of

Aristotle (Nicomachean Ethics and Politics), Adam

Smith (Theory of Moral Sentiments and Wealth of

Nations), and others. In the modern literature, this

approach has been pursued and developed in Sen (1980,

1985a,b, 1987), Dr�eze and Sen (1989), Gri�n and


Knight (1989), Desai (1991), Anand (1994), and Haq

(1995).

2. While neither Paine (1792) nor Wollstonecraft

(1792) were particularly concerned with future genera-

tions, in addition to the present, the universalist

approach underlying their justi®catory arguments can

be readily extended to the future generations as well. On

this general interconnection, see Rawls (1971).

3. See Sen (1988).

4. On the constitutive and causal aspects of ``living

standards'' and ``the quality of life,'' see Sen (1987, 1993).

5. For critiques of GNP-based judgements and explo-

rations of alternatives, see Streeten, Burki, Haq, Hicks,

and Stewart (1981), Streeten (1984), Stewart (1985),

Desai (1991), Gri�n and Knight (1989), Desai, Boltvin-

nik, and Sen (1991), and Anand and Ravallion (1993),

among other contributions.

6. See Anand (1991). See also Anand and Ravallion

(1993), where an R2 of 0.45 is obtained in regressing the

logarithm of shortfall of life expectancy (from a postu-

lated maximum of 80 years) against the logarithm of

GNP per person. The exact ®tted equation is, in fact:ÿ log�80ÿ L� � ÿ6:15

�2:07�� 0:45�4:00�

log�Y �; with R2 � 0:45;

where L is the life expectancy at birth in years, and Y is

GNP per person (in PPP$).

7. The distinction corresponds to what Dr�eze and Sen

(1989) have called ``growth-mediated security'' and

`ùnaimed opulence;'' there are many empirical examples

of each.

8. More exactly, the statistical ®t obtained by Anand

and Ravallion, based on comparable data for 22

developing countries for which the relevant statistics

were available, is:ÿ log�80ÿ L� � ÿ1:08

�2:34�ÿ 0:28�1:34�

log�Y � ÿ 0:21�2:36�

log�P�

� 0:30�3:02�

log�H�;with R2 � 0:71, where L stands for life expectancy in

years, Y for GNP per person (in PPP$), P for the

proportion of people in poverty (consuming less than

PPP$1 per day in 1985), and H for public spending on

health per person. For more detailed explanations and

related results, see Anand and Ravallion (1993).

9. For example, it is strongly endorsed in World Bank

(1992, Box 2, p. 8).

10. The Spectator, Vol. VIII, No. 583, August 20, 1714.

11. As Sidgwick (1907, p. 414) had argued, this is

incompatible with universalism within the context of

utilitarianism: `Ìt seems...clear that the time at which a

man exists cannot a�ect the value of his happiness from

a universal point of view; and that the interests of

posterity must concern a Utilitarian as much as those of

his contemporaries, except in so far as the e�ect of his

actions on posterityÐand even the existence of human

beings to be a�ectedÐmust necessarily be more uncer-

tain.''

12. Section 5(a) discusses extensions of this result to

situations involving technical progress, population

growth, and a concern for well-being equality between

generations.

13. See, however, Pearce, Barbier, and Markandya

(1988, p. 6).

14. See Anand and Nalebu� (1987) for further discus-

sion of Hotelling's rule.

15. See also Hammond (1993), Hartwick (1978), Solow

(1986), Ahmad, El Serafy, and Lutz (1989), El Serafy

(1991), Lutz (1993), Bartelmus (1993) among others.

16. What is maintained constant in Hartwick's rule is a

chain (or Divisia) index of the combined value of

resource and capital stocks.

17. On this general question, see Dorfman (1997).

18. There are few models of intertemporal allocation

which incorporate a concern for distribution among

contemporaries. Anand and Joshi (1979) present one,

and derive the optimum solution for extreme values of

the `àversion'' to well-being inequalityÐboth inter and

intragenerational. With no pure time discount, as this

inequality aversion parameter tends to in®nity, the

entire surplus from production is redistributed to the

poor of today, and there is no capital accumulation.

This is like the Rawlsian solution derived by Solow

(1974b).

19. This view of the poverty-environment nexus is also

prominent in Mink (1993) and Pearce and Warford

(1993). See also Repetto (1987).

20. See particularly World Bank (1993), and the

extensive literature cited there. See also Birdsall's

(1993) forceful exposition of the accumulated evidence

in favor of the view that ``social development is

economic development.'' For a classic contribution to

the importance of education as a prime mover of

progress, see Schultz (1980).


21. With x�:� an increasing function solely of consump-

tion ct, sustaining xt and sustaining c will be equivalent.

But our well-being function x�:� can also depend on

pollution, environmental amenities, etc., so that sustain-

ing ct and sustaining xt could in general be di�erent.

22. In this or any ®nite time horizon model, we cannot

solve for the optimal capital stock to bequeath to the

future since the welfare of future generations (beyond

the time horizon of the model) does enter into the model.

Finite time horizon models arbitrarily specify a terminal

capital stock, which in our case we specify as 0.

23. It does not, however, follow that the capital stock

kt is also more likely to rise over time. The same amount

of physical capital is now more productive over time and

less of it is required to produce any given level of output.

24. Solow (1992, p. 15) points out that: ``Sustainability

is not always compatible with discounting the well-being

of future generations if there is no continuing techno-

logical progress. But I will slide over this potential

contradiction because discount rates should be small

and, after all, there is technological progress.''

25. With pure time discount q, the Rawlsian welfare

function corresponds to maximizing the smallest value

of xt=�1� q�t for t � 0; 1; 2; . . . :

26. Note that sustainability has been made more likely

here by specifying a concern for inequality in discounted

well-being rather than in the actual level of well-being of

di�erent generations. In the extreme (the Rawlsian case),

this leads to equality of discounted well-being, which

(with a positive pure time preference rate) implies a

rising level of well-being over time.

27. In a multiperiod model, this implies zero net saving

with a stationary technology, and negative net saving

with advancing technology �k > 0�. In this case, the

capital stock kt will decline over time.

28. Pigou (1932, p. 25) felt such discounting revealed

``...a far-reaching economic disharmony. For it implies

that people distribute their resources between the

present, the near future and the remote future on the

basis of a wholly irrational preference. When they have

a choice between two satisfactions, they will not

necessarily choose the larger of the two, but will often

devote themselves to producing or obtaining a small

one now in preference to a much larger one some years

hence. The inevitable result is that e�orts directed

towards the remote future are starved relatively to those

directed to the near future, while these in turn are

starved relatively to e�orts directed towards the

present.''

29. Distribution problems between individuals living at

the same time are ignored by assuming there is equal

distribution among contemporaries. See, however,

Anand (1981) and Anand and Joshi (1979), where

distribution both among contemporaries and over time

are incorporated in a dynamic model.

30. For some authors this appears to be a su�cient

reason for assuming a positive pure time preference rate.

This is, however, more a matter of convenience than of

re¯ection.

31. When the discount rate q is positive, the overtaking

criterion is equivalent to the maximization of discounted

utility over in®nite time.

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