United Nations Environmental Program’s report titled “UNEP’s Inclusive Wealth Report 2018 is an eye-opener for all of us due to recent Pandemic which has drawn all of us to the study table, visualize what went wrong with us, to verify if there is any future for us or how to correct imbalances, if measurable, on a time-bound scale. Yes, we failed to ignore ecological resilience and benefits from the diversity of life forms, which used to be scorn by politicians of all hue. Luckily, many of them now in hospitals just look at awe the beauty of nature. Let us understand this unusual report “INCLUSIVE WEALTH REPORT 2018,” United Nations Environment Programme. Its web address for instant reference is as under:
https://wedocs.unep.org/bitstream/handle/20.500.11822/26776/Inclusive_Wealth_ES.pdf?sequence=1&isAllowed=y (The whole article is relied upon this report and quotes it extensively, or rather proudly. Please forgive me.)
Let us study the preamble “The term sustainable development was coined in 1987 by a group of economists at the World Commission on Environment and Development. By sustainable development, the commission meant “… development that meets the needs of the present without compromising the ability of future generations to meet their own needs”.
This means that, relative to their respective demographic bases, each generation should bequeath to its successor at least as large a productive base as it had inherited from its predecessor. But how do we measure this?
Rather than emphasizing GDP (Gross Domestic Product), the largest used word in economics, can we measure the inclusive wealth of nations which is the accounting value of its stock of assets,
(i) manufactured capital (roads, buildings, machines, equipment),
(ii) human capital (knowledge, aptitude, education, skills), and
(iii) natural capital (forests, agricultural land, rivers and estuaries, the atmosphere and the oceans – ecosystems more generally – as well as subsoil resources).
The authors of the report feel that 44 out of the 140 countries in their sample have experienced a decline in inclusive wealth per capita since 1998 even though GDP (read, “income”) per capita increased in all but a handful of them. It is clear, then, that GDP is a poor measure of a country’s well-being because a nation’s well-being can decline even though its GDP is rising.
Simply nailing a coffin.
We are informed that the United Nations General Assembly in September 2015 accepted 17 sustainable Development Goals to be achieved by 2030. Some of the goals accepted included poverty eradication, improvements in education, health, and the protection of global assets that include oceans and a stable climate. To measure the growth of sustainable goals, the inclusive Wealth Index was introduced. This will enable us not to compromise the needs of future generations by our present consumption.
But how to calculate IWI of 140 countries that make up the lion’s share of the global economy (56.84 US $ Trillion). IWI looks at each country’s stock of assets-its manufactured, human and natural capital. It reassesses the health of the assets over a period of 25 years and develops a dataset covering a whole generation. While no one dislikes the growth of GDP, it is also expected to be not at the cost of other assets that sustain the earth.
Increasing the tension of mankind, IW report 2018 mentions that growth in inclusive wealth per capita with adjustments (for total factor productivity, carbon damage, and oil capital gains), indicates that only 81 of the 140 countries, or 58%, are on a sustainable path. Let us introspect with the following data indications of IWI.
- The changes in the inclusive wealth of 140 countries are calculated by annual average growth rates over the past 25 years, and 1990 is set as a base year. The results show that the growth of inclusive wealth is positive for a considerable number of countries.
- Top performers included the Republic of Korea, Singapore and Malta, Latvia, Ireland, Moldova, Estonia, Mauritius, Lithuania, and Portugal.
- However, in a significant number of countries, the population is growing more quickly than the inclusive wealth; thus, in these places, we see negative per capita growth of wealth. In addition, some of the negative per capita growth of wealth occurred in countries that experienced absolute gains in wealth.
- The rate of natural capital depreciation has been on average five times larger in developing countries than in the rich OECD economies.
- Sad but true is the information that The IWI 2018 report shows that the global growth rate of inclusive wealth between 1990 and 2014 was 44%, an average growth rate of 1.8% per year.
- However, this rate is almost half the annual average GDP growth rate over the same period, which stood at 3.4%. Overall, natural capital’s share in inclusive wealth has fallen since 1990.
- For the OECD high-income countries, the long-run convergence of adjusted net savings rates with natural capital depreciation rates should raise concerns about overall wealth creation and growing inequality in these economies.
The observation of the report which reads as under is very disturbing:
“Our results show that 135 of 140 countries show growth in inclusive wealth. However, this number drops significantly when adjustments for things like carbon damage and oil capital gains are factored in. With these adjustments, only 96 of the 140 countries (69%) experienced positive IWI growth rates.
Fifteen countries are assessed as unsustainable by IW per capita adjusted: Bulgaria, Congo, Gabon, Gambia, Greece, Croatia, Haiti, Jamaica, Laos, Latvia, Sudan, Serbia, Syria, Ukraine, and Vietnam.
Of the 124 countries with positive growth in adjusted inclusive wealth, 95 countries also experienced a positive trend for the inclusive wealth per capita. The 29 countries had eroded wealth on a per capita basis.”
The report further adds that of 121 countries, 47 averaged negative rates of per capita inclusive wealth between 1990 and 2010, placing these countries on an unsustainable path which is very sad.
We are informed that the United Nations General Assembly in September 2015 accepted 17 sustainable Development Goals to be achieved by 2030. Some of the goals accepted included poverty eradication, improvements in education, health, and the protection of global assets that include oceans and a stable climate. To measure the growth of sustainable goals, the inclusive Wealth Index was introduced. This way will enable us not to compromise the needs of future generations by our present consumption.
But how to calculate IWI of 140 countries that make up the lion’s share of the global economy (56.84 US $ Trillion). IWI looks at each country’s stock of assets-its manufactured, human and natural capital. It reassesses the health of the assets over a period of 25 years and develops a dataset covering a whole generation. While no one dislikes the growth of GDP, it is also expected to be not at the cost of other assets that sustain the earth.
Increasing the tension of mankind, IW report 2018 mentions that growth in inclusive wealth per capita with adjustments (for total factor productivity, carbon damage, and oil capital gains), indicates that only 81 of the 140 countries, or 58%, are on a sustainable path.
Let us introspect with the following data indications of IWI.
- The changes in the inclusive wealth of 140 countries are calculated by annual average growth rates over the past 25 years, and 1990 is set as a base year. The results show that the growth of inclusive wealth is positive for a considerable number of countries.
- Top performers included the Republic of Korea, Singapore and Malta, Latvia, Ireland, Moldova, Estonia, Mauritius, Lithuania, and Portugal.
- However, in a significant number of countries, the population is growing more quickly than the inclusive wealth; thus, in these places, we see negative per capita growth of wealth. In addition, some of the negative per capita growth of wealth occurred in countries that experienced absolute gains in wealth.
- The rate of natural capital depreciation has been on average five times larger in developing countries than in the rich OECD economies.
- Sad but true is the information that The IWI 2018 report shows that the global growth rate of inclusive wealth between 1990 and 2014 was 44%, an average growth rate of 1.8% per year.
- However, this rate is almost half the annual average GDP growth rate over the same period, which stood at 3.4%. Overall, natural capital’s share in inclusive wealth has fallen since 1990.
- For the OECD high-income countries, the long-run convergence of adjusted net savings rates with natural capital depreciation rates should raise concerns about overall wealth creation and growing inequality in these economies.
The observation of the report which reads as under is very disturbing:
“Our results show that 135 of 140 countries show growth in inclusive wealth. However, this number drops significantly when adjustments for things like carbon damage and oil capital gains are factored in. With these adjustments, only 96 of the 140 countries (69%) experienced positive IWI growth rates.
Fifteen countries are assessed as unsustainable by IW per capita adjusted: Bulgaria, Congo, Gabon, Gambia, Greece, Croatia, Haiti, Jamaica, Laos, Latvia, Sudan, Serbia, Syria, Ukraine, and Vietnam.
Of the 124 countries with positive growth in adjusted inclusive wealth, 95 countries also experienced a positive trend for the inclusive wealth per capita. The 29 countries had eroded wealth on a per capita basis.”
The report further adds that of 121 countries, 47 averaged negative rates of per capita inclusive wealth between 1990 and 2010, placing these countries on an unsustainable path which is very sad.
Let us study the case of China whose economic growth has been the envy of the whole world.
Of the 74 countries that witnessed a rise in per capita inclusive wealth, we find that even if a country’s natural capital stocks are falling these countries have offset the fall by reinvesting in physical and human capital, placing them on a sustainable path.
China, for example, begins with a natural capital share of 42% in 1990, which falls to 21% by 2010, showing a major loss of natural capital. However, the rates of growth in China’s human and physical capital stocks (relative to its decline in natural capital stocks) have offset these losses. This reinvestment in human and physical capital is one of the reasons China’s inclusive wealth index has outperformed all other countries. China has achieved this over a period of 20 years which is inspirational for other developing countries.
What about fishery which appears in the title of the article?
Overall, we find that only 15 countries have increased their fishery wealth. A worrying 92 countries reported a decline in fishery wealth (33 countries reported no fishery wealth). Only Canada and some European countries have seen their fish stock increase in the past 25 years. Worryingly, only 15 countries have witnessed a positive growth rate in cropland per capita.
India unfortunately does figure very well in developing its IWI though frequently one hears sustainable goals as attainable by our people.
Conclusion
Inclusive wealth looks as a new or better way of looking growth incorporating manufactured capital, human capital, and natural capital. The culture of India always stressed on growth with the sustainability of nature. The history of India bears witness to this fact during the last span of 30 years. By using the report of the august body of the United Nations as an energizing tool, we may further make up where we lack in improving Inclusive Wealth of India.
This will be the only way to leave a better India to our younger generation in a holistic way.
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