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Economists Find New Measures of Wealth

Home Archived Economists Find New Measures of Wealth

By Emma Kakololo

WINDHOEK

Tangible goods such as diamonds, gold, copper, oil, houses and roads do not constitute the greater part of a nation’s wealth as most people tend to believe, according to a recent study by the World Bank.

World Bank environmental economist Kirk Hamilton and his team in the bank’s environment department have found that most of humanity’s wealth does not come from physical goods.

They found that most wealth is in fact derived from intangibles – mainly in the form of “human capital and the value of institutions”.
“It is striking that natural capital constitutes a quarter of total wealth in low-income countries, greater than the share of produced capital,” Hamilton said last week during a lecture at the Polytechnic of Namibia.

This, he said, suggests that better management of ecosystems and natural resources are key to sustaining development while these countries build their infrastructure, and human and institutional capital.

Particularly noteworthy is the significant share of cropland and pastureland that makes up the natural wealth of poor countries. At nearly 70 percent, this argues for a strong focus on efforts to sustain soil quality.

The report entitled: “Where Is The Wealth Of Nations: Measuring Capital for the 21st Century”, defines natural capital as the sum of cropland, pastureland, forested areas, protected areas, and non-renewable resources (including oil, natural gas, coal, and minerals). Produced capital is what most people think of when they think of capital: machinery, equipment, structures (including infrastructure), and urban land.

This new approach to capital also provides a comprehensive measure of changes in wealth, a key indicator of sustainability, he said.

“There are important examples of resource-dependent countries, such as Botswana, that have used their natural resources to underpin impressive rates of growth.

“In addition, the research finds that the value of natural capital per person actually tends to rise with income when we look across countries. This contradicts the received wisdom that development necessarily entails the depletion of the environment.”

“However, the figures suggest that, per capita, most low-income countries have experienced declines in both total and natural capital. This is bad news not only from an environmental point of view, but also from a broader development perspective.”

Therefore, he said, for developing countries to meet the Millennium Development Goals by 2015, donors and countries should support improved natural resource management.

This includes maintaining soil quality, reducing incentives to over-exploit natural resources – particularly living resources.

They should further help build human capital and stronger institutional capacity; and assist the poorest countries with economic reforms, with increased efficiency boosting both the Gross Domestic Product (GDP) and saving resources for the future.