2. Economic Growth vs Economic Development
◦ Economic growth – reflected by GDP (quantity) indicator
◦ Economic development – qualitative aspects (e.g income per capita, quality
of life indicators)
Sustainable Development
◦ Development that meets the needs of the present generation as well as the
needs of future generation
◦ Such a development requires the balanced treatment/consideration of
social, ecological and economic dimensions
◦ No one dimension is more important than the other
Background of Sustainable Development concept
◦ Development experiences of countries - high economic growth does not
always lead to trickle down effects in terms of poverty and income gap
reduction
◦ High economic growth that leads to ecological and social degradation will
not be sustainable
◦ Importance of ecological resiliency – to provide inputs for economic
processes, waste sink and natural amenities
◦ Sustainomics – sustainable economics and business (coined by Prof Mohan
Munasinghe)
3. Prof. Mohan Munasinghe:
Adopt the balanced development concept—“Integrated
Solutions for Sustainomics”, i.e. apply “Sustainomics”
framework for more sustainable economic development--
combination of sound economic policy management to address
vulnerabilities and risks for stability in economic growth, social
framework of governance, inclusion and institutional values,
and building environmental resilience through adopting
concepts on bio-diversity, optimizing rewards from natural
resources and eliminating pollution.
SUSTAINOMICS - Proposed Approach
for Malaysia
4. Herman E. Daly
David W. Pearce
Karl-Goran Maler
Partha Dasgupta
Jeffery Vincent
Mohan Munasinghe
6. Interlinkages:
1. Intragenerational Equity
2. IntergenerationalEquity
3. InternalizingEnvironmental
Externalities
* EnvironmentalPolicies
* EconomywidePolicies
* EnvironmentalValuation
Economy
Environment
Social
1
2
3
Submission
to God
Efficient Monetary/Financial
System, Good Governance,
Politics, Institutions, Knowledge,
Technology
Enablers of SD
7. Agriculture Multi-functionality
Food and Fiber (marketed
benefits)
Multi-functionality (non
marketed benefits)
Farmers/
Consumers
Society at large
Environmental Function
Education Function
Social Function
Food Security Function
Cultural Function
Biodiversity
SYSTEMS APPROACH TO AGRICULTURE –
implication of Sustainomics
8. Mindset change is paramount – from partial (self-assertive) to
system-wide thinking and values (integrative)
9. If you live within your means, you plan to be better off in
the future
Similarly, to maintain future well being, countries must
operate within her means
Fallacy of GDP measure?
– Does not reflect welfare or true performance of an
economy
– It measures only the benefits of resource use
– Depletion of natural and man made capital ignored.
Likewise, environmental impacts
– Does not reflect whether our economy is growing
sustainably
Appropriate national income (GDP) - the level of income
that can be consumed without depleting our capital assets
(natural + man made) -> Green GDP
LIVING BEYOND OUR MEANS?
10. Green GDP = GDP - Dm - Dn - E;
where;
Dm = depreciation of man-made capital
Dn = Depletion of natural capital
E = environmental costs
Formally known as Adjusted Net Domestic Product
(ANDP)
Gross Savings –> GDP minus public and private consumption. How much
income we set aside for future use? Does this tell anything about
sustainability of economic growth? How about Genuine Savings?
11. Conventional vs Extended Social BCA
Decision rules in CBA
Notion of Environmental Values
◦ Use Values (UV)
Direct Use Values
Indirect Use Values
◦ Option Values (OV)
◦ Bequest Values (BV)
◦ Quasi Option Values (QOV)
◦ Existence Values (EV)
Total Economic Values (TEV) = UV + OV +BV
+QOV +EV
12. EXTENDED SOCIAL BENEFIT COST ANALYSIS
n n
NPV = [(Bt - Ct)/(1+r)t] + [(Dt - Et)/(1+r)t]
t=0 t=0
NPV = Net Present Value
Bt = Marketed (financial) benefits in year t
Ct = Financial Costs in year t
Dt = Non-marketed benefits in year t
Et = Non-marketed costs in year t
r = social discount rate
t = time (year)
• Project desirable economically if NPV > 0.
• If Dt and Et are ignored, with NPV >0, only desirable from the
market/financial perspective -> not consistent with sustainability
• Conventionally, Bt and Ct are mainly Direct Use Values
13. (1) Shift towards more localized approaches
(2) Addresses inequalities and social needs
(3) Promote more competition, innovation,
entrepreneurship and private sector-led
development
(4) Strengthening regional and cultural links
especially with India, China and the Gulf
(5) Make better use of the existing production base
in manufacturing and natural resources
(6) Measures of macro sustainability
Emerging Macroeconomic
issues in Malaysia