Servizio Comunitario di Informazione in materia di Ricerca e Sviluppo - CORDIS

Cross-cutting paper, stock and flows: Interaction and substitution (Stefan Schleicher)

Despite the well-known definition of sustainability in the Brundtland Report (WVED, 1987) it is still controversial how this quality of an economy could be put into a coherent frame-work of economic analysis.

We attempt, therefore, a rather pragmatic approach, by making the following propositions:
Sustainability is a long-run issue since it is dealing with the state of an economy and a society in the long-run. We are, therefore, interested in the available range of long-run structures of an economy.

The long-run structures of an economy are manly described by a list of stocks, e.g.
- Human capital of different qualifications

- Capital that is reproducible by economic production, as machinery and buildings,

- Capital that is reproducible by biological production, as biomass,

- Capital that is irreproducible at least in non-geological time scales, as fossil fuels,

- Capital that is related to the state of nature, as the atmosphere, water and soil,
But also fauna and flora and

- Knowledge capital is intimately linked to the use of all other types of capital.

Related to the stocks is a list of flows that describe the intensity of economic activ-ity, as production, consumption, investment but also emissions.

These flows are linked to stocks either as complements or substitutes.

Given the wide range of choices for economic structures that are described by flows and stocks there is a need for evaluating different flow-stock structures.

I coin this approach to sustainability the structural approach in contrast to the ecological and the welfare approach, each of which emphasizes only a particular aspect of an economic structure, as the state of the environment or intergenerational distribution of welfare. Daly (1990) and Constanza (1980) are the pioneers of the ecological approach to sustainability, Chichilnisky (1998) and Stavins, Wagner and Wagner (2004) emphasize the welfare implications of different economic structure.

Inherent to the structural approach is the understanding of the long-term dynamics that drive the evolution of economic structures. Surprisingly these drivers are almost only decisions about stocks, as investments in human, reproducible and knowledge capital and decisions about the use of exhaustible stocks and the stocks of the biosphere.

This overview about the use of stocks in TranSust models reveals a number of insights that can be summarized as follows:
- It is surprising that the list of stocks included in the models is rather limited. The ranking of occurrence is reproducible capital for production, human capital, and reproducible capital for consumption.

- Human capital is only in a very few models differentiated according to skills. The formation of human capital by reproduction, migration and participation rates is hardly visible but is an obvious pre-requisite for dealing e.g. with the issues of aging.
- Reproducible capital for production is the dominating capital stock in most models but would de-serve further disaggregation at least into buildings, machinery, and vehicles in order to obtain better evidence as to the opportunities for substitution against flows, in particular energy.

- Only very few models report reproducible capital stocks for consumption. This is a serious drawback since it seriously limits the usefulness of these models for dealing with energy since almost two thirds of energy flows are related to consumption activities.

- Natural capital is dealt with only in terms of the concentration of GHG emissions. This limit’s the usability of models for discussing issues of weak and strong sustainability.

- The explicit formation of human capital in terms of reproduction, migration, and skills should be given high priority for enabling research on issues as aging and competitiveness.

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