The Changing Wealth of Nations 2018 : Building a Sustainable Future
A decade ago, the World Bank launched the book "Where Is the Wealth of Nations?", which first introduced the concept of wealth as a complementary indicator to gross domestic product (GDP) for monitoring sustainable development in a country. For the first time, we showed that development is about managing a broad portfolio of assets—produced, human, and natural capital. Just as a company measures its value by looking at both its income statement and balance sheet, a look at comprehensive national wealth signals if GDP growth can be sustained over the long run.
There is some good news from the analysis presented in The Changing Wealth of Nations 2018—global wealth grew significantly between 1995 and 2014 and middle-income countries are catching up to high-income countries in terms of their wealth, mainly because of rapid growth in Asia. More than two dozen low-income countries, where natural capital dominates the composition of wealth, have moved to middle-income status, in part by investing resource rents into infrastructure and education and health, which increases human capital.
However, the wealth accounts also indicate areas of concern. Some low-income countries—especially in Sub-Saharan Africa—saw a decline in per capita wealth as rapid population growth outpaced investment. We also see that in 12 countries the percentage of people living in extreme poverty has jumped over the last decade.
Looking at this disturbing trend through the lens of wealth accounting shows that the ‘demographic dividend’ from population growth can be realized only with rapid investment in infrastructure and education, and by managing the natural asset base sustainably in the long run. In high-income countries, human capital accounts for 70 percent of wealth, whereas for low-income countries, natural capital is still the biggest asset.
• Global wealth grew significantly between 1995 and 2014. Middle-income countries are catching up in large part because of rapid growth in Asia, but inequality in overall wealth persists. Because wealth underpins national income, measuring changes in wealth permits us to monitor the sustainability of development, an urgent concern today for all countries.
• Although total wealth increased almost everywhere, per capita wealth did not. Several low-income countries experienced a decline in per capita wealth because population growth outpaced investment, especially in Sub-Saharan Africa. As per capita wealth declines, the ability of countries to maintain per capita income will decline.
• Human capital, measured as the value of earnings over a person’s lifetime, is the most important component of wealth globally. Human capital wealth on a per capita basis is typically increasing in low- and middle-income countries. In some upper-middle- and high-income countries, aging and stagnant wages are reducing the share of human capital in total capital.
• Women account for less than 40 percent of human capital wealth because of lower earnings, lower labor force participation, and fewer average hours of work. Achieving higher gender parity in earnings could generate an 18 percent increase in human capital wealth.
• A country’s level of economic development is strongly related to the composition of its national wealth. Natural capital is the largest component of wealth in low-income countries (47 percent in 2014) and accounts for more than one-quarter of wealth in lower-middle-income countries.
• Getting rich is not about liquidating natural capital to build other assets—natural capital per person in high-income Organisation for Economic Co-operation and Development (OECD) countries was three times that in low-income countries in 2014, even though the share of natural capital in high-income OECD countries was only 3 percent.
• Growth is in part about more efficient use of natural capital and investing the earnings from natural capital sources, such as minerals, into infrastructure and education. This investment then results in growth of total wealth.
• Renewable resources—agricultural land and forests and protected areas—can produce benefits in perpetuity if managed sustainably. In low- and middle-income countries, the monetary value of renewable assets more than doubled, keeping up with population growth on average, which is good news, with greater gains in value of agricultural land than forests.
• In contrast with renewable resources, nonrenewable natural capital—such as fossil fuels and minerals—offer a one-time chance to finance development by investing resource rents. Nearly two-thirds of countries that have remained low income since 1995 are classified as resource-rich, or fragile and conflict states, or both. This shows that resources alone cannot guarantee development: strong institutions and good governance are needed to ensure that rents are invested and not used entirely for consumption.
• In conclusion, wealth should be used as an indicator of sustainability to complement GDP, which measures only current income