Genuine savings: a critical analysis of its policy-guiding value. (1st September 2004) - Dietz, Simon
Genuine savings (GS) is an established measure of weak sustainability (WS). It can be shown, with the help of a dynamic optimisation model, that an economy with persistently negative GS cannot be regarded as weakly sustainable. The main conclusion drawn from the empirical estimates of GS presented in this paper is that many resource intensive, developing economies appear to be weakly unsustainable, whereas developed countries are not. The paper praises the GS concept in terms of the positive contribution it has made to the measurement of WS and to the concept of sustainable development more generally. It then analyses, in some depth, the various criticisms of GS. These include the unrealistic assumption of an inter-temporally efficient economy, the dubious treatment of exogenous shocks and population growth, the inappropriate method for computing natural capital depreciation resulting from resource extraction, and the inadequate accounting for environmental pollution. We conclude that, despite various substantial problems, GS represents the best attempt at measuring WS so far with considerable scope for future development and improvement.