The World Bank recently released its report, The Changing Wealth of Nations 2018, where it suggested that GDP was an incomplete indicator of a nation’s economic health and development. Instead, the report argues, a nation’s development should be seen as the astute management of its broad portfolio of assets or its “wealth,” which includes produced, human, and natural capital. Similar to how a company judges its prospects via its income statement and balance sheet, a nation should therefore monitor its GDP (“its income”) alongside its management of its wealth (“its balance sheet”).
Using this framework, the World Bank found that global wealth has in fact significantly grown between 1995 and 2014. Middle-income countries, specifically those going through rapid growth in Asia, were mainly responsible for this explosion of wealth.
Unfortunately, wealth per capita did not grow during this period, pointing again to the persistent global problem of inequality. In fact, several low-income countries, mostly in Sub-Saharan Africa, experienced declines in their wealth per capita.
The report further found that in all countries, human capital—measured as a person’s projected earnings throughout their lifetime—is the “most important component to wealth globally.”
Hence, a wise leader will and must pour more money into human capital development—training, retraining in new skills, research and development (R&D), information and communications technology (ICT)—to provide solutions to social and ecological problems. Japan achieved first-world class status because the Japanese working class acquired and imbibed a culture of learning, despite Japan’s sparse natural wealth.
But a country’s true economic well-being lies in its natural endowments, with its growth coming from the sustainable development of these endowments. If its forests, rivers and lakes, and mineral and precious gems are gone—or used irresponsibly, then a country would have deprived itself of the sources of its future growth. Yes, its population will continue to increase. But its capacity to feed, teach, and shelter them is disabled if it does not manage its natural wealth sustainably.
