In this paper, we analyse genuine saving, the net saving rate in an extended accounting framework, using a consistent growth theoretic model. These findings are used to assess the role of measures of net saving as practical indicators of sustainability to guide decision-makers. We begin with a synopsis of an argument from growth theory, namely that measuring negative genuine saving at a point in time is an indicator that the optimal path is not a sustainable path. This result is then extended to the case of economies that are not currently on the optimal path and appropriate caveats discussed. We argue that, while imprecise, estimated rates of genuine saving will tend to be biased downwards such that if a country were on an unsustainable path, this indicator should give policy-makers warning of this and are therefore provide useful albeit one-sided tests of sustainability.

A number of extensions of the basic framework are possible. Here we investigate technological change, human capital, exhaustible resource exports, resource discoveries and critical natural capital. Our results are presented in terms of NNP (net national product) interpreted as the maximum amount of produced output that may be consumed at a point in time while leaving wealth (the present value of welfare) instantaneously constant. Genuine savings is then the difference between NNP and consumption. Our extensions indicate a range of potential upward and downward revisions of the concept of genuine saving. The balance of these adjustments is ultimately an empirical question and we attempt to speculate on possible magnitudes in our discussion. Crucially, this balance will depend on the treatment of technological progress and the magnitude of losses associated with drawing down critical assets toward threshold levels.

That technological change and/or growth in human capital is a prerequisite for sustainability is supported by the finding that if exhaustible resources are essential for production and produced assets wear out sustainability is impossible in a fixed-technology world. The key question we examine is then whether technological change is exogenous or endogenous. Other extensions yield ambiguous signals for the direction of the adjustment, for example with regard to external resource trade which suggests that resource exporters should include forecasts of international prices and interest rates in deciding upon their savings-consumption preferences. Finally, we examine issues of strong sustainability and critical natural resources in the context of rainforest preservation. Assuming a global willingness to pay (WTP) for preservation, an approximate expression for the deduction from genuine saving for ‘excess deforestation’ can be derived: this consists of the present value of annual per-hectare figures for global WTP, plus the value of net natural growth, minus the marginal returns to agriculture, all times the number of hectares on which this figure is positive. However, in order to better assess the magnitude of this extension there is a critical need for better science to tell us how much rainforest needs to be preserved, thereby informing the process of preference formation.