Unit 4 Macro: Managing the Global Commons - Limits to GDP

In this excellent 20 minute talk Professor Geoffrey Heal from Columbia University discusses the broad concept of society’s capital including natural capital. He focuses on the limits of GDP as a measure of economic progress in a world that depletes all forms of capital including natural capital. Net Domestic Product (rather than GDP), HDI, HPI and adjusted net savings all get a mention in his talk. Being rich and being sustainable are rarely the same thing.

He defines sustainability as “keeping the total value of a nation’s capital stock in tact” and this definition encompasses all forms of capital (physical, intellectual, social, human, natural). Economic development changes the profile of a nation’s capital stock - for example industrialisation leads to deforestation and a rapid run down of natural capital, replaced often by life-changing physical capital, intellectual capital and human capital.

Living standards have been raised through this substitution process but the fundamental question central to the whole environmental debate is the extent to which the natural stock of capital can continue to be run down at present rates.

The weight of scientific knowledge says that the answer is no - we cannot replace a stable climate by more human and physical capital under a business as usual pathway. Heal argues for strong sustainability - giving bigger emphasis to protecting and maintaining eco-systems.

Geoffrey Heal, Donald C. Waite III Professor of Social Enterprise, Columbia Business School, New York at the panel entitled “Managing the Global Commons: Growth, Inequality, and New Thinking for Sustainable Economics” at the Institute for New Economic Thinking’s (INET) Paradigm Lost Conference in Berlin. April 14, 2012.