The World Commission on Environment and Development defines sustainable development as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. A state is developing sustainably if its wealth and welfare does not diminish over time but either stays the same or increases. The Gross Domestic Product, which is usually cited as a measure of the level of development, is mainly concerned with the revenue generated from the consumption of services and products and thus, it measures only one aspect of development (i.e. the economy’s aggregate income) but it does distinguish whether the society’s welfare is actually increasing or decreasing.
The World Bank has formulated the national wealth concept for measuring whether a society’s development is balanced and sustainable. This measure includes in addition to the production of traditional capital also the creation of natural and human capital. For assessing the development of a state’s welfare and national wealth over time the World Bank has invented a concept Genuine Saving, which expresses the factors fuelling the state’s economic growth (i.e. foreign loans, exploitation of mineral reserves etc) and what is the opportunity cost of economic growth (environmental pollution, depletion of natural resources etc).
The concept of national wealth, Genuine Saving rate and the factors influencing them enable to construct a logical and a systematic framework for understanding the connections between different spheres and evaluating the impact of compromises made in the formulation and implementation of policies. Also, the concept of national wealth provides a framework for valuing the importance of alternative capitals in ensuring sustainable development and creating national wealth, which can establish a basis for formulating more diverse and goal-oriented fiscal policies.
The results of the analysis conducted during the project ‘Alternative Assessment of Estonia’s Development: Indicators of Sustainability’ found that Estonia’s Genuine Saving rate peaked in 1997 when it reached 5.9% of GDP and it has been decreasing since. This researchers argue that this has occurred because domestic consumption, depreciation of produced assets, and exhaustion of non-renewable natural resources tend to outweigh government investments into productive assets and human capital. These results are worrisome because if these trends continue Estonia’s development is not sustainable in the long run, which eventually decreases the standard of living.
The authors of this study emphasise that in order to improve the sustainability of Estonia’s development it is especially important to compile an overview of the state of human capital and the costs and investments associated with it. They also argue that in addition to GDP as measure of progress other alternative indicators, which conceive development in a broader and more diverse manner should be regularly mentioned and measured in public debates.