‘Genuine Savings’ (GS) is one of indicators used to assess the sustainable development of a country. A recent study highlights that GS is an incomplete indicator as it does not account for the impact of sustainable, or unsustainable, practices in trading partners.
A nation’s gross domestic product (GDP) is designed as an indicator of economic production put on the markets and often used as an overall proxy indicator of the state of that country's economy. However, it does not capture social and environmental well-being. For a country to develop in a sustainable manner, where the needs of both present and future generations can be met, alternative indicators of development that measure economic, social and environmental changes, such as Genuine Savings (GS), can be used.
GS reflects changes in the total wealth of a country, including changes in produced, human and natural capital (environmental assets, such as ecosystem services). A negative GS generally implies that the development of a country is unsustainable. GS is an indicator of weak sustainability, as natural capital can be substituted with human or produced capital. This means that GS can have a positive value, even when natural capital is depleted, as long as human and/or produced capital increases to compensate for this loss.
This study uses the GS indicator to explore limitations and correct interpretation when using weak sustainability indicators as a measure of a nation’s sustainable progress and growth when nations are closely linked by trade to other nations. GS is used by a country as an indicator of domestic sustainability which does not take into account the impact of sustainable or unsustainable practices of trading partners.
By including only the value of national resources in a nation’s GS, the effects of changes in its trading partners are ignored and therefore the scope of the GS indicator is limited, the study suggests. For example, countries that rely on imported natural resources could be affected by a major financial crisis in a trading partner that reduces the country's supply of resources through imports. Similarly, the unsustainable management of natural resources in the exporting country could threaten the future supply of resources (and hence sustainability) of the importing country.
Better economic forecasts and assessments of future changes in the value of dwindling exported resources, together with an analysis of a trading partner’s GS, could help importing countries ensure the sustainability of their natural resource supplies. An example is European reliance on agricultural imports from Brazil. Beef and soy production, in particular, are expanding into areas cleared of forests. This is depleting Brazil’s natural capital and causing significant economic loss from deforestation, which is unlikely to be fully compensated for by the value of agricultural exports. Although the GS of Brazil is not negative, in the long-term, the EU countries could be relying on an unsustainable supply model: beef and soy prices could rise to include the cost of social losses through deforestation and it could be difficult to find other exporting countries that meet the health requirements of the EU.
There are also moral concerns. Importing countries may also maintain a positive GS through imports that reduce consumption of domestic natural resources, but which have damaging effects on their suppliers/exporters. Also importing countries may be weakly sustainable through unsustainable practices by its trading partners. This may be when exporting countries do not fully protect the welfare of citizens and future generations and corrupted governments allow the depletion and sale of their natural resources. For example, China’s demand for imported raw materials contributes to deteriorating GS rates in many Sub-Saharan African countries.
Source: Oleson, K.L.L. (2011) Shaky Foundations and Sustainable Exploiters : Problems With National Weak Sustainability Measures in a Global Economy. The Journal of Environment Development. 20: 329–349
Contact: koleson@hawaii.edu


