The case for the hybrid capital approach for the measurement of the welfare and sustainability

This paper provides an overview of the plethora of approaches that are available to measure welfare and sustainable development. Many methods exist but there is no consensus on the 'correct' approach. Furthermore, we also show that the wide variety of sustainable development indictor (SDI) sets which have been adopted also show significant differences. We argue that this is mostly because many of these studies do not use a theoretical approach. We argue that the 'capital approach', which is used in the sustainability debate, is the most promising method to enhance international harmonization. Support is mounting in the scientific, policy and statistical communities for this approach in which economic capital, human capital, natural capital and social capital are distinguished. Many applications of this method express these capital stocks in monetary units (the 'monetary capital approach'). This paper argues that the 'hybrid capital approach', in which the capital stocks can also be measured in non-monetary units, is probably more likely to achieve consensus over a large number of countries and institutes. Also a number of challenges remain for the capital approach. We argue that ideally the indicators should be based on satellite accounts of the national accounting framework. Also the capital approach could be further expanded to current welfare, progress of societies, inequality, and the international dimension of sustainability. We conclude that if the hybrid capital approach is adopted it may become easier to make consistent, theoretically sound and policy relevant comparisons between countries.