Appendix C: Economics and Sustainable Development
Sustainable development is not inherently at variance with economic analysis methods. Sustaining the good life uses resources, affects the environment and has impacts on social and cultural cohesion. Making the best use of available resources is fundamentally an economic problem, the solution to which is to ensure that the incentives that drive behaviour are reflective of the effects on environment and society that commonly fall outside of consideration of those engaged in market transactions.
Government's Goals for Sustainable Development
The Government's Sustainable Development Programme of Action (SDPA) lists 10 guiding principles and four broad dimensions to sustainable development. These dimensions are:
- Looking after people
- Taking a long term view
- Taking account of social, economic, environmental and cultural effects
- Encouraging participation and partnerships.
These stated aims of Government and those of the Growth and Innovation Framework are summarised in Figure 7.
Figure 7: Principles and Objectives for Sustainable Development| SD Injunctions | SDPOA Principles | Public Sector goals to achieve SD | GIF Fundamentals |
| Taking the long-term view | Consider long-term implications of decisions | | |
| | Use best information available to support decisions | | An open and competitive micor-economy |
| | Address risks and uncertainty, take precautionary approach | | A stable macro-economic framework |
| Taking account of social, economic, environmental and cultural effects of decisions | Decouple economic growth from pressures on environment | Grown an inclusive innovative economy for the benefit of all | Solid research, development and innovation framework |
| | Respect environmental limites with integrated management | Protect and enhance the environment | Sound environmental management |
| Encouraging participation and partnerships | Consider global implications (global connections, multilateral agreements) | | A globally connected economy |
| | Transparent and participatory partnership with local govt and others | Maintain trust in government and provide strong social services | A healthy population |
| | Seek innovative mutually-reinforcing solutions | Improve New Zealander's skills | A highly skilled population |
| Looking after people | Empower Māori in development decisions affecting them | Strengthen national identity and uphold Treaty principles | A modern cohesive society (adequacy of income, skills to participate) |
| | Respect human rights, rule of law and cultural diversity | Reduce inequalities in health, education, employment and housing | |
| Growth and Innovation Framework | | | |
| Objective: | Return NZ to top half of the OECD rankings | GIF Innovation building | Enhancing innovations framework (venture funds, centres of excellence) |
| | | | Developing skills and talents (education, industry training, ICT pilots) |
| | | | Increasing global connecedness (FDI, trade initiatives, branding NZ) |
Source: Sustainable Development for New Zealand - Programme of Action 2003; Growing an Innovative New Zealand 2003
The figure shows broad correspondence between the four dimensions of sustainable development, the ten principles and six public sector goals specified in the Sustainable Development Programme of Action; and also with the eight GIF fundamentals.
Effective infrastructure is explicit in a number of GIF components, and it affects global connections, a stable macro-economic framework (in which infrastructure prices do not unduly exacerbate uncertainty) and an open and competitive micro-economic setting (with wide access to services provided by infrastructure). It can also contribute to sound environmental management, a healthy population and social cohesion.
More recently sustainable development has been described as seeking progress across quadruple bottom lines - economic, social, cultural and environmental - in which none takes precedence over any other.16 What those bottom lines might be needs to be interpreted from broad policy directives issued by Government. These tend to stipulate desired outcomes rather than the policy settings needed to achieve them. Some examples with respect to the infrastructure sectors are briefly outlined below.
The SDPA targets water, energy and sustainable cities as action programmes with direct relevance to infrastructure. On water it stipulates an overarching goal of "adequate, clean freshwater available for all," with three specific desired outcomes: freshwater is allocated and used in a sustainable, efficient and equitable way; freshwater quality is maintained to meet all appropriate needs; and water bodies with nationally significant natural, social or cultural value are protected. Specific components in the programme then pursue particular sub-objectives, such as finding ways to improve allocation and conservation of water, address water shortages, and optimise the economic and social outcomes from freshwater at regional and national level.
On sustainable cities the SDPA has an overarching goal of cities being "healthy , safe and attractive places where business, social and cultural life can flourish". Its two desired outcomes are: cities as centres of innovation and economic growth; and liveable cities that support social well-being, quality of life and cultural identities. Improved provision of infrastructure and services (including housing) is one component of sustainable cities that is reflected in the action programme for cities as centres of economic growth. This programme also identifies a key role for central Government co-ordination, both between central government agencies and between central government and local government.
On energy the SDPA overarching goal is "delivery of energy services to all classes of consumer in an efficient, fair, reliable and sustainable manner". The specific outcomes are: energy use becomes progressively more efficient and less wasteful; renewable energy sources are developed and maximised; and New Zealand consumers have a secure supply of electricity. The energy outcomes picture differs from the other outcome areas in that it has specific targets drawn from the National Energy Efficiency and Conservation Strategy (a 20% increase in energy efficiency, and a 30 PJ increase in annual renewable energy supply, by 2012). It also reflects an underlying set of objectives from the Energy Policy Framework (2000):
- Environmental sustainability (supported by increased energy efficiency and renewables uptake);
- Costs and prices to consumers are as low as possible while reflecting full costs of supply (including environmental costs);
- Supply of essential energy services is reliable and secure;
- Fairness in pricing, so the least advantaged have access to energy at reasonable prices;
- Continued ownership of publicly owned assets.
The Transport Strategy has a slightly different structure, in that it has a vision that "by 2010, New Zealand will have an affordable, integrated, safe, responsive and sustainable transport system". Its stipulated objectives for policy are that is should assist economic development; assist safety and personal security; improve access and mobility; protect and promote public health; ensure environmental sustainability.
These policy statements are similar in broad direction, but they are unspecific about the particular policy settings to achieve their desired outcomes. For instance, accessibility and affordability of services is a recurring theme, but there is no indication of what affordability may mean: is it just prices as low as possible, or is it aiming to restrain prices for services to some ceiling proportion of household expenditure, as some other countries have done in defining inability to afford heating as energy poverty? To progress infrastructure policy on a consistent and effective manner will require some narrowing down of such settings, so as to enable prioritisation of different policy choices.
A Practical Approach to Sustainable Development
Monitoring achievement of the GIF objective of returning New Zealand to the top half of the OECD rankings requires monitoring GDP, as this is the basis of those rankings. Focusing on infrastructure's contribution to economic welfare is informative about effects on people, as the GDP measure reflects incomes to labour and capital-owners and, in consequence, the consumption possibilities for people of both private goods and tax-funded public goods. However, the GDP measure refers to a single period of time and obscures changes in activity that may be enhancing or inhibiting welfare to varying degree. Monitoring GDP is necessary but insufficient for policy to reflect sustainable development principles.
A sustainability reflective policy framework could be guided by the expected value of welfare enhancement caused by avoiding likelihood of failures in infrastructure service. Such potential failures include disruptions caused by shocks to the system, gradual failures to serve demand (as manifested in rising prices in the absence of competitive alternatives arising) and deferred entry of new technologies that depend on infrastructure capacity. The policy framework would supplement monitoring of GDP components with the following extensions.
- Monitoring the stock of economic capital and its rate of depreciation, renewal and upgrade, to explicitly show long term sustainability of infrastructure services.
- Monitoring supplementary indicators of unpriced externality effects that fall on the natural environment or on society generally, to explicitly take account of environmental, social and cultural impacts and assist in keeping them within prescribed limits of acceptability for sustainability.
- Orienting macro- and micro-policies towards ensuring an open and competitive economy that allows efficient resource allocation, specialisation and contractual agreements, so as to encourage free association and partnerships in economic activity.
Infrastructure-specific aspects of policy are broadly about monitoring the state of infrastructure, the pressures acting upon it, and its performance in ensuring sustained supply of services under these conditions. Further aspects of investigating problems, designing remedies, testing proposals through public consultation and evaluating the effectiveness of remedies both before and after they are in place, follow the processes common to all government policy development.
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