4. Economic growth and sustainability.

The article deals with problems which for many years to come will excite people in cen­tral and eastern Europe more than any other political or envi­ronmental issue.

Economic growth is a major concern for the states in transition from centrally planned to market economy in central and eastern Europe. However environmental protection needs to go hand in hand with economic growth if the development is to be sustainable.

For most economists (as well as for a public at large) 'sustainability' (see folia 3) typically refers to a much shorter time horizon than implied by the definition adopted in the Brundtland report. A proc­ess such as Gross Domestic Prod­uct (GDP)⁴ growth would be con­sidered sustainable by many, if it could be sustained for a genera­tion, that is, two or three decades.

GDP is an aggregate measure of final goods and services produced by an economy in a given year.

In fact, by the very nature of con­stant-rate growth of throughput, this process cannot last forever because sooner or later it would hit a constraint of physical avail­ability of resources and environ­mental capacity. So such a proc­ess may contradict the definition given in section 1.

'Sustainable growth in GDP' or a 'sustainable macroeconomic stabilization' is useful as they re­flect actual concerns of millions of citizens in economies in tran­sition. They are aware of a dras­tic welfare gap that separates them from developed market economies. For example, measured in nominal GDP per capita, the gap is illus­trated by the Swedish GDP of $17800 versus the Polish one of $1900 (see tables_8_figures). Even when substantial differences in the purchasing-power of national currencies in various countries are taken into account, the gap remains and it is measured by the ratio of almost 4:1. It puts extra pressures on governments to compromise longer-term objectives by surren­dering to the demands of those who are frustrated by the differ­ence in living standards. Therefore the gap contradicts both strong and weak sustainability.

5. Equity within and between generations.

Intergenerational equity is an important issue in economies which like Poland and Sweden. Whereas in Sweden it is the younger generation that is worse off than the older one, in Poland it is the other way round, since the young generation does and will benefit from the transition more than their parents. In either case the state will have to provide for some intergenerational wealth transfers in order to ease social tensions.

The main idea is to let representatives of various generations meet at a hypothetical convention to agree on an intergenerational distribu­tion of wealth. The key element of the idea is that the representa­tives do not know which genera­tion they belong to, that is, they act behind the veil of ignorance (see folia 3). But practical arrangement for parties to act impartially can ever be set up. It is just a theoretical concept since actual decision makers can never disso­ciate from their personalities.

There are some circumstances where an agreement may in fact be negotiated from behind the veil of igno­rance. An example of such a case is to draft and approve a conven­tion on preventing climate change before parties know with some certainty who will lose more and who less from climate dete­rioration. As a rule, however, par­ties are aware of their positions and particular interests, so that sustainability instruments are rather unlikely to be imple­mented on an efficient scale.

One of the key problems in intergenerational equity is how to measure the wealth to be inher­ited by one generation from an­other (see folia 4). In the theorem just men­tioned above, it is assumed that decision-makers know the math­ematical relationship between possible consumption patterns in one period versus another period. To be more precise, consumption in period 1 cannot be increased but, by decreasing consumption in period 2 and vice versa, there is a concave monotonic function which characterizes this relation­ship. In order to model such a link, one needs to estimate nu­merically how increased present consumption subtracts from the wealth that future consumption depends on.