Sustaining Welfare for Future Generations: A Review Note on the Capital Approach to the Measurement of Sustainable Development

Measuring sustainable development based on analytical models of growth and development and modern methods of growth accounting is an economic approach—often called the capital approach – to establishing sustainable development indicators (SDIs). Ecological approaches may be combined with the capital approach, but there are also other approaches to establishing sustainable development indicators—for example the so-called integrated approach. A recent survey of the various approaches is provided in UNECE, OECD and Eurostat [1]. This review note is not intended to be another survey of the various approaches. Rather the objective of this paper is twofold: to present an update on an economic approach to measuring sustainable development—the capital approach—and how this approach may be combined with the ecological approach; to show how this approach is actually used as a basis for longer-term policies to enhance sustainable development in Norway—a country that relies heavily on non-renewable natural resources. We give a brief review of recent literature and set out a model of development based on produced, human, natural and social capital, and the level of technology. Natural capital is divided into two parts—natural capital produced and sold in markets (oil and gas)—and non-market natural capital such as clean air and biodiversity. Weak sustainable development is defined as non-declining welfare per capita if the total stock of a nation's capital is maintained. Strong sustainable development is if none of the capital stocks, notably non-market natural capital, is reduced below critical or irreversible levels. Within such a framework, and based on Norwegian experience and statistical work, monetary indexes of national wealth and its individual components including real capital, human capital and market natural capital are presented. Limits to this framework and to these calculations are then discussed, and we argue that such monetary indexes should be sustainable development indicators (SDIs) of non-market natural capital, and physical SDIs, health capital and social capital. Thus we agree with the Stiglitz-Sen-Fitoussi Commission [2] that monetary indexes of capital should be combined with physical SDIs of capital that have no market prices. We then illustrate the policy relevance of this framework, and how it is actually being used in long term policy making in Norway—a country that relies heavily on non-renewable resources like oil and gas. A key sustainability rule for Norwegian policies is to maintain the total future capital stocks per capita in real terms as the country draws down its stocks of non-renewable natural capital —applying a fiscal guideline akin to the Hartwick rule

Market Discipline Issues in Cross-Border Banking. A Nordic Perspective

Cross-border banking is on the rise. Large, cross-border banks have been established in the Nordic, Baltic and Benelux countries. Banco Santander’s takeover of Abbey National made headline news last year, and this year the bid by the Dutch bank ABN Amro for the ninth largest Italian bank Antonveneta has been front-page news for months. And just lately, the Benelux group Fortis was reported to have approached the Franco-Belgian group Dexia with a merger proposal. As cross-border banks increase in size, it is relevant to ask if stakeholders in these megamergers banks are exposed to the true risks involved, or if they expect the financial safety net to bail them out – should a crisis occur. National authorities could also be exposed in case of a failure in a cross-border bank, but the potential liability facing taxpayers has so far been masked by unclear home-host responsibilities for cross-border banks. Crisis resolution in a cross-border bank is obviously the responsibility of the bank’s owners and management, but previous banking crises have shown that authorities must also have contingency arrangements in place. Cross-border banks pose new challenges for policy makers. Goodhart (2005) has noted that “the interaction of an internationally inter-penetrated banking system with national regulations and burden allocation could well turn out to be a dangerously weak institutional feature.” The policy response has been to seek greater clarity in roles and responsibilities. Supervisory convergence and coordinated liquidity provision are being discussed among supervisors and central banks. Clarke (2005) even asks if an international liquidity concordat for large cross-border banks should be considered. But is this drive for convergence and agreement on intervention principles realistic? And is it desirable? What if greater clarity about roles and responsibilities were to weaken market discipline? In the following we review some of the issues involved and discuss their possible impact on market discipline. Most of the home-host discussion has so far been centered on supervisory issues. There has been less attention to the role of central banks, especially in cross-border crisis resolution. We refer to some of the issues that have been discussed among the Nordic central banks. We conclude that international agreements on crisis resolution and burden sharing will be hard to achieve. Private sector solutions should therefore be promoted, while public authorities should take measures that will make their non-intervention policy credible

Marriner S. Eccles and the 1951 Treasury–Federal Reserve Accord: Lessons for Central Bank Independence

The 1951 Treasury–Federal Reserve Accord is an important milestone in central bank history. It led to a lasting separation between monetary policy and the Treasury's debtmanagement powers and established an independent central bank focused on price and macroeconomic stability. This paper revisits the history of the Accord and elaborates on the role played by Marriner Eccles in the events leading up to the Accord. As chairman of the Board of Governors since 1934, Eccles was also instrumental in drafting key banking legislation that enabled the Federal Reserve System to assume a more independent role following the Accord. The global financial crisis has generated renewed interest in the Accord and its lessons for central bank independence. This paper shows that Eccles' support for the Accord—and central bank independence—was clearly linked to the strong inflationary pressures in the US economy at the time, and that he was equally supportive of deficit financing in the 1930s. This broader interpretation of the Accord holds the key to a more balanced view of Eccles's role at the Federal Reserve, where his contributions from the mid-1930s up to the Accord are seen as equally important. Accordingly, the Accord should not be viewed as the final triumph of central bank independence, but rather as an enlightened vision for a more symmetric policy role for central banks, with equal weight given to fighting inflation and preventing depressions.publishedVersio

Management of Financial Crises in Cross-Border Banks

Financial integration in Europe is increasing. The emergence of large, cross-border banks poses new challenges to the authorities. The management of financial crises in such banks will involve a number of authorities in many countries. Conflicts of interest between the authorities in different countries may hinder effective crisis solutions. Crisis management agreements between supervisory authorities and central banks aim to clarify the division of responsibilities and facilitate the exchange of relevant information. The Nordic central bank governors signed an agreement in 2003. This article provides an overview of developments and discusses the challenges facing the authorities

Norwegian Climate Policies 1990-2010: Principles, Policy Instruments and Political Economy Aspects

Norwegian climate policies with a focus on the mitigation of Green House Gas (GHG) emissions over the last twenty years, the period of the existence of CICERO, is critically reviewed and analysed in this policy paper. Best practice principles and policy instruments as recently set forth by the IEA, the OECD and the Stern Review are reviewed along with political economy aspects of the structural social and economic changes caused by ambitious climate policies. Important Norwegian Official Research Papers and independent foreign Peer Review of Norwegian climate policies are reviewed over the period 1991-2009 and compared with the recent international best practice guidelines. The Norwegian analyses and policy recommendations compares fairly well. Cost-efficiency and effectiveness are main policy principles, but policy instruments should also be assessed on the basis of adaption and compliance, their ability to cope with uncertainty, their effectiveness in stimulating the innovation of climate-friendly technologies, and the facilitation of international cooperation. Norwegian GHG-emissions increased by some 2 per cent from 1990 to 2009 while GDP per capita grew by more than 52 per cent over the same period, implying significant improvements in emission intensities. Some 70 per cent of Norwegian emissions are now covered by CO2-taxes and an Emission Trading System (ETS), the two main market based policy instruments, but policies are not cost-efficient across economic sectors du to political economy concerns. Lessons for future policies are set forth at the end of the paper, and three of these are: -They should be presented more clearly as measures to buy insurance against the risks of climate change in an uncertain world; -One should identify more precisely the structural consequences of ambitious climate policies, but also the future possibilities for "green growth"; -Assess policy instruments in terms of cost-efficiency and effectiveness, but also their potential to minimize political resistance so as to give clear and credible future signals to the household and business sectors

Innskuddsikring i Norge – i et internasjonalt perspektiv

Innskuddsikringen er en viktig del av bankenes rammebetingelser. Den skal både beskytte forbrukerne og sikre finansiell stabilitet. Utformingen av innskuddsikringen drøftes for tiden i mange land. EU kommisjonen har nylig vurdert behovet for endringer i innskuddsdirektivet. Krisen i den engelske banken Northern Rock illustrerer godt problemene som kan oppstå ved en innskuddsikring som ikke er optimalt utformet. Fremveksten av grensekryssende banker har dessuten økt oppmerksomheten om hvem som har ansvaret for innskuddsikringen. Her gjennomgås først hovedtrekkene i den norske innskuddsikringen, som så sammenlignes med tilsvarende systemer i andre land og med internasjonale anbefalinger om hvordan slike systemer bør utformes. Det norske systemet følger langt på vei internasjonale anbefalinger, men på enkelte områder er det behov for endringer, som å klargjøre sikringsfondets mandat, å vurdere størrelsen på fondet i forhold til de garanterte innskuddene, samt å etablere bedre rutiner for rask utbetaling av garanterte innskudd etter en krise