A Conceptual and Theoretical Framework for Sustainable Development Statistics Thorvald Moe, Ph.D.

Finansdepartementet INTRODUCTION 1.The main task of this working group is to arrive at a theoretical and conceptual framework for SD statistics. This is needed for a more coherent and holistic approach to measuring SD, and it is a necessary condition for making the concept an important one for long term policies. Today SD remains far from the center of policy making, partially because of lack of coherence and an agreed framework. 2.In my paper which you have all received I elaborate on this theme, and I would appreciate your written comments. In my oral presentation I will: 2.1 Sketch a framework for the forces driving development; 2.2 Show how this leads to a framework for measurement or statistics for SD; and 2.3 Briefly illustrate how we applied this to measurement and policies for SD in Norway.

Finansdepartementet FORCES DRIVING DEVELOPMENT 3.J.M.Keynes:"General Theory of Employment, Interest and Money" (1935) provided a conceptual or theoretical framework for constructing a system of national accounts after World War II. SNA 1993 is now the internatinally accepted statistical base for short term (macroeconomic) policies. 4.SD is a matter of long term development and its challenges. We therefore need a theory or a conceptual base to understand the forces driving long term development. 5.Adam Smith "Wealth of Nations" (1776) is the starting point of classical theory which was developed further by Ricardo. Robert M. Solow (Nobel Prize winner in 1987) sums up neoclassical theory in:"Growth Theory:An Exposition" (1970). 6.Environmental and natural resource aspects of development have been developed both by natural scientists and economists since the late 1960s. See e.g. Smith et.al (2001) and SEEA The importance of human capital for development was introduced in so called endogenous growth theory by Romer in the 1980s. For an recent overview of the iportance of human capital for development with detailed empirical estimates, see:The OECD Growth Study (2003). These and social and institutional (governnance) forces together with technological progress drive development and should be the basis for measurement and policies.

Finansdepartementet A CONCEPTUAL FRAMEWORK FOR SD, MEASUREMENT AND POLICIES 8.The main threat to SD globally is to be found in the uneven distribution between poor (developing) and rich (developed) countries. Key global challenges are poverty and the global (environmental) commons. I refer to the Millenium Development Goals (MGDs) and The World Bank:"Where is the Wealth of Nations? Measuring capital for the 21st Century" (2005). 9.We, however, are to arrive at a conceptual/theoretical framework for developed (OECD/CES) countries. 10.Our welfare is produced by nature and human beings using services from a resource or capital base. A key SD question is thus what resources we have at our disposal today, and what policies are needed to manage this resource base over time so as to maintain and enhance it for our children and grandchildren. 11.Resources must be understood in a broad sence: -Traditional economic resources (financial capital and produced capital goods); -Natural resources (non-renewable and renewable); -Environmental resources (cleaning services, our basic ecological/biological system etc.); -Human resources (Human capital provided by labour, competence and knowledge etc.); -Social and institutional conditions. This total resource base is defined by statisticians, accountants and economists as our National Wealth (NW). As showed above, NW and technological developments are the main drivers of, and thus a consistant conceptual/theoretical framework, for SD.

Finansdepartementet THE NORWEGIAN APPLICATION: Some Examples. 12.The Norwegian model of SD takes as a point of departure: 12.1 The total resouce or capital framework and the forces driving technologies; 12.2 Seven main Policy areas for long term developments and its sustainability. See table 1. It is thus a policy driven capital approach to SD. To try to differentiate between so called policy oriented approaches and capital approaches is rather meaningless. The resource approach is by definition policy relevant because it, to repeat, provides us with a consistent analytical famework for understanding and measuring the forces drivig development, and thus for policies to make developments sustaiable in the longer term. Some of the so called policy oriented approaches represent largely measurement without theory and lack in my view an analytical base to underpin both measurement and policy analyses. 13.As you can see from Table 1, it is not sufficient to measure only NW because, inter alia: 13.1 The various components of NW cannot easily be substiuted or replaced by oneanother. Thus we have to measure each component; 13.2 Practical challenges of measuring NW. I elaborate on these themes in my paper. 14.SD Policies in Norway: An Example. Petroleum (oil and gas) is some 25 per cent of our total GDP. These are non-renewable resources which are registered as increases in GDP when extracted. But if consumed, our NW and thus resource base for future generations is reduced which is not sustainable in the longer term. Thus the revenues are put into a Petroleum Fund (now called The Pension Fund-Global) and invested in foreign bonds and stocks. Thus, as our natural resources are drawn down, our financial capital is increased so as to maintain NW for future generations. Only the rate of return, estimated at some four percent,of the capital stock is consumed for domestic purposes. This is the Hartwig rule for managing natural resources sustainably (Hartwig 1977). The capital stock itself belongs to future generations of Norwegians.

Finansdepartementet CONCLUSIONS 15.Long term developments are driven by our total resource base or capital stock broadly defined:National Wealth, and technological developments. 16.This is a consistant and theoretically and empirically based framework for SD developed by economists and natural scientist for more than 200 years. Statistical agencies produce NW estimates. Thus I see this framework as key for fullfilling our mandate.