EXECUTIVE SUMMARYINCLUSIVEWEALTH REPORT2018

Foreword
Sir Partha Dasgupta

University of Cambridge, Chair,
Science Panel, Inclusive WealthReport 2018“... development thatmeets the needs ofthe present withoutcompromising theability of future
generations to meettheir own needs”.

2

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 theneeds of the present without compromising the ability of
future generations to meet their own needs”. This means
that, relative to their respective demographic bases, eachgeneration 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? How do we measure theproductive base of a nation and the sustainability ofdevelopment programmes over time?
Focusing on gross domestic product (GDP) alone is clearly
not the answer when it comes to measuring human wellbeing. The United Nations Development Programme’s annual
Human Development Report routinely criticizes the attemptsof national governments and international organizations toprescribe policy and assess economic performance. It saysthese organizations fail to correctly measure the ultimate
purpose of an economy, which is to promote human wellbeing. It says that to use GDP and its distribution to assess
economic performance is to confuse the means for theends, and it cautions against the use of GDP as an index of
economic achievement on the grounds that GDP is a measureof a country’s opulence, not its well-being. But I have neverread a publication in which GDP was taken by its authors to
be an end in itself. Moreover, it is not a mistake to seek to
identify success (or the lack of success) in achieving ends interms of an index of opulence. The point isn’t that opulencemisleads, but that we should search for the right measure ofopulence. GDP misleads when used in evaluating human wellbeing not because it is a measure of the means, but because
it is the wrong measure of the means. Nor is the United
Nations’ Human Development Index the right measure of themeans.
We believe that the correct measure of a nation’s opulence
is its inclusive wealth. Inclusive wealth is the dynamic
version of income. It is the accounting value of an
economy’s stock of manufactured capital, human capital,and natural capital (hence the qualifier “inclusive”). An
economy’s inclusive wealth 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 atmosphereand the oceans – ecosystems more generally – as wellas subsoil resources). Durable assets like knowledge,

By assets we mean:

Manufactured capital
Roads, buildings, machines
and equipment+

Human capital
Knowledge, aptitude,education and skills+

institutions, culture, religion – anation’s social capital – are taken to
be enabling assets; that is, assets thatenable the production and allocationof a nation’s manufactured, humanand natural capital. Wealth is astock, whereas income is a flow. In astationary economy the two amounts
to the same thing, but they can point indifferent directions when an economy
is not in a stationary state. This is what
the authors of the Inclusive WealthReport 2018 show. They find that
44 out of the 140 countries in theirsample have experienced a decline ininclusive wealth per capita since 1998
even though GDP (read, “income”) per
capita increased in all but a handfulof them. It is clear, then, that GDP is apoor measure of a country’s well-being
because a nation’s well-being candecline even though its GDP is rising.
The Sustainable Development Goals
were adopted by the United Nations
General Assembly in September
2015. The UN’s member states haveagreed to achieve the goals by 2030.
Seventeen in number, the goals
range from poverty eradication andimprovements in education and health,to the protection of global assets that
include the oceans and a stable climate.
Each is of compelling importance. But
neither the Sustainable Development
Goals nor their background documents

Natural capital

Forests, agricultural land, rivers
and estuaries, the atmosphereand the oceans – ecosystems
more generally – as well as
subsoil resources.

=

Inclusive
Wealthmention the need to move to a systemof national accounts that contains
estimates of wealth. Without that move,
however, there would be no way forgovernments to check whether or not
the economic measures they take tomeet the international agreement risk
jeopardizing the sustainability of thosegoals. If wealth (adjusted for populationand the distribution of wealth)increases as governments try to meetthe 17 Goals, then the Goals will besustainable; if it declines, then the Goals
will be unsustainable. It could be thatthe goals are reached in the stipulated
time period but are not sustainablebecause the development paths nations
follow erode their productive capacities
beyond repair.
The supporting documents of the United
Nations’ Sustainable Development
Goals do not tell us how to check thatthe goals are being met in a sustainable
way. That is why the Inclusive WealthIndex, which is based on a massive
dataset that tracks changes over almosta generation, is so crucial. It is a toolthat allows policymakers to assess
whether or not the polices they enact
are sustainable. It allows them to form
better policy and to better manage
the assets at their disposal. If the
Sustainable Development Goals are to
be achieved then a measure that tracks
humanity’s progress towards them is3

vital. This, we believe, is precisely what
the Inclusive Wealth Index does.
To better appreciate the notion of
wealth that IWR 2018 advances,imagine someone is asked to estimate
their personal wealth. The individual
would most likely turn first to financial
assets (their savings in the bank,stocks and bonds) and the properties
they own (their house and belongings,
for example). And they would use
the market value of these assets tocompute their wealth. If pressed, theywould acknowledge that their future
earnings at work should be included,
and they would estimate this part oftheir wealth by making a forecast of
the flow of their income and adding
it up over the rest of their working
life, using perhaps a market interest
rate to discount future earnings.
The individual would probably stop
there and agree that their earned
incomes represent the return on the4human capital they have accumulated(via education, skills, health). The
person would also agree that wealthis important to them because it
determines the opportunities they haveto shape their life – the activities theycan engage in, the goods they canpurchase for pleasure, and so on. But
they would probably overlook that theirtaxes pay for the public infrastructure
they use. They would almost certainly
not factor in the natural environment
they make use of every day, freeof charge. So the wealth they havecomputed is not inclusive.
The wealth we are interested in is far
broader. Wealth is the social worth ofthe economy’s entire stock of assets
and their ability to provide goods andservices over time. The social value(or accounting price) of an asset is
the worth of the stream of goods
and services that a society is able toobtain from it. A mangrove forest isa habitat for fish populations. It is also arecurrent source of timber for inhabitants,
and it protects people from storms andtsunamis. An economy’s institutions andpolitics are factors determining the social
value of its assets because they influence
what people are able to enjoy from them.
The value of a building is not independentof whether society is at peace.
An economy’s inclusive wealth is theaccounting price of its stock of assets – its
stock of human, manufactured and natural
capital. An asset’s accounting price can bevery different from its market value. The
difference between an asset’s accounting
price and its market price reflects a
distortion in the economy and should be
eliminated if possible. To give an example,
as the market price of fish in the open seasis zero, fishermen harvesting them ought
to be charged for doing so. The charge, or
tax in this case, is the accounting price offish in their natural habitat. It may be wise
to impose a quota on fishing, but quotas
are only an extreme form of taxation (i.e.
zero tax per unit caught up to the quota, aprohibitive tax beyond it).
Capital goods are to be distinguishedfrom an economy’s social environment,
which is the intangible medium in which
goods and services are produced andallocated among people, and acrosstime and the generations. The social
environment is made up of the laws andnorms that provide people with incentives
to choose one course of actions rather
than another; it includes the workings ofsocial and economic institutions such as
families, firms, communities, charities,
and government; and it includes the playof politics. The social environment is theseat of mutual trust. A strengthening oftrust facilitates enterprise and exchange,
thus enhancing personal well-being.
The social environment isn’t quantifiable
but it shapes events and so its

consequences are often quantifiable.
The social environment influences how
we behave, such as the rate at which we
consume goods and services, save andinvest, borrow and lend, engage in social
activities, and so on. Political scientists
say that economic development coevolves with the social environment; bywhich they mean institutions and politics
adapt to the state of the economy assurely as the economy responds to its
institutions and politics. That’s anotherway of saying that the mix of capital
goods co-evolves with the economy’ssocial environment. Seemingly innocuouschanges to the geography of voters’
constituencies, for example, are known
to influence political outcomes, which inturn influence the shape of institutions,and thus the policies that are chosen.
Small differences in religious sensibilities
can make enormous differences to thedevelopment of attitudes and thought.
And so on. For any conception of social
well-being, an economy’s stock of capital
assets and its social environment,
together with a forecast of things to come,determine the accounting price of each
capital good. Again, the accounting valueof an economy’s stock of capital goods is
its inclusive wealth.
The world is in need of a better measureof human well-being as we seek to tackle
some of the greatest challenges of ourtime. Current measures of economic
progress, like GDP, are a poor indicator ofwell-being. They fail to take into accounta nation’s stock of natural, human andphysical capital. We believe that the
Inclusive Wealth Index is a far bettermeasure of human progress. As such, it
allows governments to track whether they
are on course to meet the Sustainable
Development Goals. In doing so, it
provides policymakers with a measure ofwhether they can meet our needs today
without compromising the ability of future
generations to meet theirs.

5Executive
Summary
Inclusive WealthIndex 2018... we need a bettermeasure of economic
progress and social
well-being, one thatassesses a nation’s
ability to look after its
wealth in a way thatsafeguards it for future
generations.

6

A holistic wealth of nations
Ever since the end of the Second World War countries havetended to measure economic progress in terms of grossdomestic product (GDP). When GDP increases, a nation
assumes its economy is doing well. Governments focus on
boosting GDP and improving the efficiency of production toincrease the size of their economies. The larger the economy,
the more goods and services are available for consumption,
the thinking goes. But the problem is that GDP is a poor way tokeep count of wealth. This is partly because GDP is a measureof income and not wealth. GDP puts a value on a nation’s goods
and services rather than on its stock of natural, physical andhuman assets. If the ultimate aim of an economy is to promote
well-being, then GDP is a poor measure of human progress.
There is another problem with equating economic progress with
GDP: it fails to account for what a nation loses as its economy
grows. Economic growth and more efficient production often go
hand in hand with a rise in, for example, air and water pollution.
Economies may appear to be growing when measured using
GDP but if we look at the state of the biosphere today (fresh
water, ocean fisheries, the atmosphere as a carbon sink), there isstrong evidence to suggest that the rates at which we are using
them are unsustainable. The rate of biological extinctions today
is 100 to 1,000 times the average, background rate of the past
several million years. Climate change is another example of an illthat has arisen in spite of – or perhaps because of – economic
growth, as measured by GDP. The Aral Sea offers a more specificexample of what can happen when we fail to account for natural
capital when we pursue short-term economic gains. Water
diversions for cotton and rice production caused the surface
area of the Aral Sea to fall so dramatically that ships could
no longer reach the shores of existing cities, transforming a
once economically vibrant water body into one with virtually no
economic value.
The mid-twentieth century marks the beginning of an era thatenvironmental scientists call the Anthropocene, an epoch inwhich humans have massively altered the workings of thebiosphere. And yet, over the same period, the investments ofprevious generations in science and technology, educationand health have improved living standards in many partsof the world. Many refer to this period as the golden age ofcapitalism. If we invest more and grow our economies, we
can improve these living standards even further, the argument
goes. It should come as no surprise that the Anthropocene andthe golden age of capitalism began at about the same time.
It is clear that economic growth and other forms of humanprogress, as traditionally measured, have come at a tremendous
environmental cost, one that threatens the future sustainabilityof our economies.

If we are to fully appreciate this cost thenwe need a better measure of economic
progress and social well-being, one thatassesses a nation’s ability to look after
its wealth in a way that safeguards it
for future generations. This is why the
Inclusive Wealth Index (IWI) was born. At
its heart, the IWI is a way of measuring acountry’s overall well-being. Unlike GDP,
it also provides a tool for countries tomeasure whether they are developing ina way that allows future generations tomeet their own needs. This is what wemean when we call something sustainable– each generation must bequeath to
the next as large a productive base as
it inherited from its predecessor. If ageneration follows this prescription, thenthe economic possibilities available to its
successor would be just as good as theones it enjoyed. Conversely, if countries
fail to look after their capital properly, then
the next generation will be worse off. The
IWI measures exactly this. It acts as a tool
to assess whether a country’s social wellbeing, or inclusive wealth, is improving andwhether this progress will last. Ultimately,
the IWI aims to measure a nation’s
capacity to create and then maintainhuman well-being over time.
To do this, the IWI tracks the progressof 140 countries that make up the lion’sshare of the global economy ($56.84

trillion) and population (almost 6.89
billion people). Fifty countries withsmall economies were left out of thereport because it was too difficult toobtain reliable data. The IWI looks ateach country’s stock of assets – its
manufactured, human and natural
capital – and assesses the changing
health of these assets over a quarter ofa century, a massive dataset that covers
almost an entire generation. A country’s
economy may appear to be doing well– its GDP may be growing – but at whatcost? The IWI answers this question.

The Inclusive Wealth Report 2018,shows that 44 out of the 140
countries have suffered a decline
in inclusive wealth per capita
since 1992, even though GDP
per capita increased in all but ahandful of them.
This means that these countries are noton a path to sustainable development
even if their economies, according to GDP,appear to be growing. They are depleting
their stocks of natural, human or physicalcapital at rates that will leave future
generations worse off.
A country’s inclusive wealth is the social
value of all its capital assets, including

Trend in per capita inclusive wealth (global) for 1992-2014
100%
80%
60%
40%
20%
0%
-20%

GDP per capita

Population

PC per capita

NC per capita

HC per capita

IW

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1996

1995

1994

1993

1992

-40%

IW per capita

7

BOX 1 - What do we mean by“inclusive” wealth?
Some economists caution against theuse of GDP as an index of economic
achievement. They say it is a measure of acountry’s opulence and not its well-being.
But the point isn’t that opulence misleads;
it’s that we need to measure opulence, or
wealth, correctly. That’s where inclusive
wealth comes in. It is the measure,through the ages, of human well-being. It
totals up the value of an economy’s stockof manufactured capital, human capitaland natural capital. Manufactured, or
produced, capital means things like roads,
buildings, machines, equipment and otherphysical infrastructure. Human capitalmeans things like knowledge, education,
skills, health and aptitude. Natural capitalmeans forests, fossil fuels, fisheries,
agricultural land, rivers and estuaries,
oceans, the atmosphere and ecosystems,
like subsoil resources, more generally.
These three types of capital lead to theultimate purpose of an economy – social
well-being. They are called the productive
base of the economy.
To work out the social value of an asset
you need to total up the goods andservices that a society obtains from it.
This allows us to determine how the
well-being of a society is affected by anasset. A mangrove forest, which is an
example of an asset, is a habitat for fishthat we then eat. It is also a source oftimber. And it protects people from storms
and tsunamis. Likewise, an economy’s
institutions and politics are factors that
determine the social value of its assets
because they influence what people areable to enjoy from them. Assets are stocks,
not flows. They provide us with goods andservices, which are flows. A tree is a stock;its fruit is an annual flow of goods, while
its leaves – by inhaling carbon dioxide– provide a continuous flow of services.
Putting a price on these assets allows us
to measure a country’s real wealth, its true
well-being. Ultimately, we should simply
drop the word “inclusive” from IWI and justcall it what we really mean: wealth.

8natural capital, human capital and produced capital. We callthis the country’s productive base. It is an index of a country’s
production potential. If a country’s IWI is either increasing or
stable over time, then we can say its growth is sustainable; its
economy is making progress without harming the well-beingof future generations.

Worryingly, the Inclusive Wealth Report 2018shows that growth in inclusive wealth per capita,with adjustments (for total factor productivity,
carbon damage, and oil capital gains), indicatesthat only 81 of the 140 countries, or 58%) are on asustainable path.

Why measure the real wealthof nations?
The IWI has enormous implications for economic
policymaking. Using the IWI can help countries scale up
resource efficiency by providing policymakers with an overview
of changes in the productive base of a country. It provides
insights into whether current growth is sustainable or is basedon an overexploitation of natural capital. This information canhelp leaders develop policies that promote sustaining growth
while better managing human and natural capital. The resultsfrom the previous Inclusive Wealth Report in 2014 have alreadyshown that investing in human capital would be the mostbeneficial for countries with high rates of population growth. It
also demonstrates the benefit of investing in natural capital, inparticular agricultural land and forests. By placing a value on
everything from roads to rivers, the IWI allows policymakers
to better manage their countries’ assets in ways that protect
them for future generations.
The IWI is also a vital tool for countries seeking to meetthe goals laid out in the Agenda 2030 for sustainable
development. Can we achieve all the Sustainable
Development Goals without having to make trade-offs?
Will countries have sufficient resources to achieve poverty
reduction while at the same time having enough resources
left to build schools and train teachers, for example? Even if
all of the Goals are achieved by 2030, the magic question iswhether these gains can be maintained. Will we achieve all
the goals but exhaust our resources in the process? The IWI
helps policymakers answer these tricky questions.
There is a strong environmental dimension to the Sustainable
Development Goals. Most of the targets are directly or indirectlyrelated to the status of natural capital, theplanet’s forests, agricultural land, rivers andestuaries, the atmosphere and oceans. The
overarching message is that nations must
keep their natural capital stocks intact if theworld is to meet the Goals. Yet this is clearly
not the case: the IWI report shows thatnatural capital declined in 127 of the 140
countries, even as the global economy grew.
Unfortunately, the Sustainable
Development Goals only briefly mention
the need for a system of national
accounts that goes beyond GDP. SDG
Indicator 17.19 speaks of developing“measurements of progress on sustainable
development that complement grossdomestic product.” Without this, there
will be no way for governments to check
whether the economic measures theytake to meet the international agreement
jeopardize the sustainability of thosegoals. The IWI provides governmentswith a way of checking this. If inclusive
wealth (adjusted for population andthe distribution of wealth) increases as
governments try to meet the SDGs, theSDGs will be sustainable; if it declines,
the SDGs will be unsustainable. It could
be that the goals are reached but are notsustainable in the long run because thedevelopment paths that nations choose
to follow erode their productive capacities
beyond repair.
One understated variable in the Sustainable
Development Goals is population. The
world has seen the fastest growth inhuman population ever witnessed in humanhistory. Most countries have failed to take
into account dramatic population growthin policymaking. In fact, many countries
have initiated population-boosting policies,
fearing the demise of a workforce that they
believe is required to maintain economic
activity. There are major consequencesof these type of policies in a world where
resources are finite and increasingly
scarce. Previous IW reports have shownconclusively how countries can movefrom being sustainable when computedin absolute terms to being sustainable
when population growth is factored in.
Policymakers must begin to understandthe impact of population growth on the
productive base. If they fail to do so, they
will struggle to achieve the Goals.
Ultimately, we hope the IWI will improve
the ways in which resources are allocatedin the imperfect economies in which we

BOX 2 - The big debate – substituting the weak for the strong
How to put a price on the services that ecosystems provide is a controversial topic. Many ecosystem services
can be evaluated by the market. Beekeeping is an obvious example. Bees make honey, which fetches a
price on the market. But they also pollinate fruit trees, a service that is difficult to price. Similarly, a forest’scontribution to flood control and climate regulation, and its carbon storage services are difficult to put a priceon even though these services are valuable to humans, animals and other life forms. Ecosystems that provide
us with services, like clean air and water, that are difficult to price are known as “critical capital”. Ecologists
say that the IWI fails to properly take into account critical capital. They also say that a country’s IWI can appear
healthy even if its natural capital and/or critical capital is being depleted. A country can chop down $100
billion worth of forest and yet, so long as it invests $100 billion in infrastructure, be no worse off according
to its IWI. Ecologists say that this type of policymaking does not lead to strong sustainability because natural
capital is being depleted. Most economists, however, allow for substitution across the three forms of capital.
This type of substitution leads to what is called weak sustainability. The IWI allows for an increase in inclusive
wealth per capita even though natural capital is being depleted: it can increase as long as the decrease innatural capital stocks is offset by enough of an increase in human and physical capital stocks. Reconciling theviews of economists and ecologists should be possible if the context and character of resources are known. If
one could identify and measure critical capital, and monitor the levels and growth of that capital, then it might
be possible to develop a sustainability index of critical capital. But it is unlikely that a market value of this typeof capital will enter GDP measures anytime soon.

9

live. We believe this database willrecord both the changes in and thesustainability of capital assets inthe 21st century – and beyond. We
hope it will eventually help solve
the global problems laid downby the Sustainable Development
Goals and Paris Agreement on
climate change, ambitious targets
that require a way of tracking ourprogress towards them.

What the data show
The changes in the inclusive wealthof 140 countries are calculatedby annual average growth rates
over the past 25 years, and1990 is set as a base year. The
results show that the growth ofinclusive wealth is positive for aconsiderable number of countries.
Top performers include Republic ofKorea, Singapore and Malta among
others (see Table 1). However, ina significant number of countries,
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 percapita growth of wealth occurred incountries that experienced absolute
gains in wealth.

Top performers on the basis of per capita inclusive
wealth for 1992-2014
IWI
Ranking
1
2
3
4
5
6
7
8
9
10

Country
Republic of Korea
Singapore
Malta
LatviaIreland
Moldova
Estonia
Mauritius
Lithuania
Portugal

Average growth per head During
1992-2014
33.0%
25.2%
18.9%
17.9%
17.1%
17.0%
16.0%
15.5%
15.2%
13.9%

(Source: Inclusive Wealth Report 2018, Routledge, London)

10

For developing countries, although
net wealth accumulation appears tohave kept pace with income growth inrecent years, the high rate of natural
capital depreciation is troubling,
especially in low-income economies
where the problem appears to beworsening. The rate of natural capitaldepreciation has been on average fivetimes larger in developing countries
than in the rich OECD economies. In
low- and middle-income economies
other forms of capital investments
have largely compensated for therising natural capital depletion thathas occurred since the late 1990s.
Over the long run, these high rates ofdepreciation are bound to damage
the sustainability of development
efforts and to worsen inequality.
A key focus of policies should
be to improve the efficiency andsustainability of natural resource use
so that natural capital depreciationin developing countries is diminishedsubstantially.
The world economy faces two major
threats: increasing natural resource
degradation and the growing gap
between rich and poor. These
two threats are symptomatic of a
growing structural imbalance in all
economies, which is how nature is
exploited to create wealth and how it
is shared among the population. The
root of this imbalance is that natural
capital is under-priced, and hence
over exploited, and the resulting
proceeds are insufficiently invested inaccumulating other forms of wealth,especially human capital.
The IWI 2018 report shows thatthe global growth rate of inclusive
wealth between 1990 and 2014
was 44%, an average growth rateof 1.8% per year. However, this rateis 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,

while the share of human capital andphysical capital has steadily increased.
The overall implications are that, giventhat stocks of natural resources arebeing depleted in order to produce andaccumulate wealth, any measure ofnational wealth that excludes natural
capital depreciation likely exaggerates
the actual increase in an economy’s
wealth over time, especially in those

Global average wealth composition

20%

Health induced HC

26%

Education induced HC
Produced Capital
Natural Capital

21%
33%

countries where accumulation ofother forms of wealth is failing tocompensate for diminishing natural
capital.
This suggests that income and wealthinequality may be worsening in richcountries, and in the global economy
generally. If overall wealth accumulation
net of natural capital depreciation as ashare of national income is falling while
private financial wealth is rising, then the
gap between rich and poor will continue
to widen in all economies. For the OECDhigh-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. For thesecountries, policies to encourage more
economy-wide investment in otherforms of capital to raise adjusted net
saving rates, and especially the long-run
rate of net wealth accumulation relative
to growth, are urgently needed.

Trend in global average wealth composition for 1990-2014
70%

Composition of capital

60%
50%
40%
30%
20%
10%
0%

1990

1995

2000

2005

2010

Year
Natural Capital
Produced Capital
Education induced Human Capital
Health indu ced Human Capital
Human Capital

11

Our results show that 135 of 140 countries show a
growth in inclusive wealth. However, this number
drops significantly when adjustments for things likecarbon 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 positive trend forthe inclusive wealth per capita. The 29 countries had
eroded wealth on a per capita basis.
Turning to the breakdown of growth
by asset, we find that produced
capital increased at an annual
average rate of 3.8%, while health- andeducation-induced human capital
growth remained at 2.1%, and natural
capital decreased by 0.7%. In short,
investment in produced capital has
increased. However, health, education,and natural capital, in which we see
enormous potential for future wellbeing, either grew modestly or evendecreased.

12

On a global scale, the configuration ofcapital has been as follows: produced(21%), education (26%), health (33%),
and natural (20%). It is remarkable
that, of the trio of capitals, the value
decreased only for natural capital. A
natural way to interpret this outcome
is that produced capital and, to alesser extent, human capital havebeen enhanced at the cost of natural
capital (unsustainable agriculture
and industrialization, for example,
leading to better ports, roads andinfrastructure, at least in the short run).
Under a weak substitutability criteria,
the world has been experiencing
sustainable growth. Our guess,however, is the world likely would notsatisfy sustainability under a strong
substitutability criteria (see BOX 2).
Of 121 countries, 47 averaged negative
rates of per capita inclusive wealthbetween 1990 and 2010, placingthese countries on an unsustainable
path. Almost all of them are either
developing or middle-income
countries. Almost half of the countries
are in sub-Saharan Africa. For almost
all 47 countries, natural resources
serve as an important source of GDP,and one can safely assume that the fallin per capita inclusive wealth is linkeddirectly to natural resource extraction(e.g., minerals and oil) or harvesting (e.g.,forests). Also, population growth is highin most of the countries, which further
serves to hamper sustainable growth.
Of the 74 countries that witnessed a risein per capita inclusive wealth, we find thateven if a country’s natural capital stocks
are falling these countries have offset thefall by reinvesting in physical and humancapital, placing them on a sustainable
path. China, for example, begins witha natural capital share of 42% in 1990,
which falls to 21% by 2010, showing amajor loss of natural capital. However,
the rates of growth in China’s human andphysical capital stocks (relative to its
decline in natural capital stocks) haveoffset these losses. This reinvestment in
human and physical capital is one of thereasons China’s inclusive wealth index has
outperformed all other countries.
Interestingly, the report finds that it ispossible to achieve per capita growthin both GDP and natural capital. Ten
countries are doing well on this front,
including Belgium, Armenia, Croatia,
Russia and Slovenia. It is also interestingthat many of the countries experiencing
an increase in wealth and natural
capital are former Soviet states. Thismay be because these countries areundergoing profound socio-economicchanges. Populations in Central Asia
and Eastern Europe are declining, thediscovery of fossil fuels and the improved
management of forest resources since
Soviet times partly explain these changes.
In addition, many of these countries
are experiencing relatively fast growth
in produced capital and human capital.
Within Eastern Europe five countries
have suffered a decline in natural capitalwhile also experiencing growth in GDP.
One explanation is that forest resourcesin these countries – Bulgaria, Czech
Republic, Hungary, Republic of Moldova
and Poland – have declined along with thegrowth in the fossil fuel sector.
Overall, only 31 of the 140 countries
experienced positive growth of natural
capital. Forest resources, for example,
increased in 55 of the 140 countries
between 1990 and 2014. The growth offorest resources is positive for European
Union (EU) countries, Japan and Russia.
On the other hand, the decline of forests in
Africa, Latin America, China, India, Brazil,
the United States and Canada is creatingpressure on their ability to develop
sustainably. Broken down per capita,
only 31 countries experience positive
growth in forest resources. Singapore
witnessed the largest per capita growthin forest resources, at 5%. At the bottom

13end, the United Kingdom suffered a 6%
reduction in forest resources over thesame period.
Our findings show that most countries(123 of 140) experienced a declining
trend of natural capital while achieving
an increasing trend of wealth between
1990 and 2014. Seven countries(Albania, Armenia, Estonia, Guyana,
Lithuania, Russia and Slovenia)
experienced the most desirable situationin terms of growth in wealth and natural
capital. These countries are on a strong
sustainable development path. Only
five countries (Belarus, Ukraine, Serbia,
Hungary, Latvia) experienced a decline
in wealth while registering an increase innatural capital.
Overall, we find that only 15 countries
have increased their fishery wealth.
A worrying 92 countries reported adecline 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.
It is also worth mentioning that somecountries that are presumably rich innatural capital are actually running out

of it: less than 1% of wealth in Bahrain
and the United Kingdom in 2014 camein the form of natural capital. This may
be because both of them have depleted
their oil capital over the last several
decades.
It is worth noting that we have included
non-renewable resources as a positive
natural capital asset, rather than anegative one. Clearly, if you factor in
the social costs of carbon emissions –air pollution, for example – fossil fuels
may be considered stranded assets
or liabilities. However, the shadow
price of natural capital represents
the marginal contribution it makes
to social well-being. The mechanism
we assume is the business-as-usual
scenario currently pursued by theimperfect economies in which we live.
In these imperfect economies, people
still believe that the benefit of fossil
fuel (its use in growing the productivebase) outweighs its drawbacks (thesocial costs of carbon) in the market.
Interestingly, if we removed fossil
fuels from natural capital accounting,then we would see an improvement in
the growth of natural capital globally.
This is because, at the global level, thedecline in non-renewable resources
is actually larger than the decline in
renewable resources.

BOX 3 - Climate change
Not surprisingly, carbon damage as a share of inclusive wealth produces a stronger effect on small
countries because their inclusive wealth tends not to be sufficiently large enough to absorb such shocks.
The largest order of carbon damage with regard to inclusive wealth is seen in Luxembourg (-0.6%),
followed by Malta (-0.4%), Maldives (-0.4%), Bahrain (-0.4%), and Barbados (-0.3%). Island nations are
obviously the most vulnerable to climate change and are on the verge of non-existence. Some of these lie
beyond the scope of the 140 countries studied for the IWI.
In absolute terms, carbon damage is relatively large in high-income countries such as Germany, France,
the United Kingdom and the United States, among others. In per capita terms, carbon damage exceeds$500 in Austria, Belgium, Switzerland, Germany, Denmark, Finland, France, the United Kingdom, Ireland,
Iceland, Italy, Luxembourg, the Netherlands, Norway, and Sweden. It is also interesting to note that somecountries become better off due to climate change: Australia, Canada, Israel, New Zealand, Russia, andSingapore actually gained as a result of global carbon emissions

14

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