A measure of the total goods and services produced in a nation, GDP (Gross Domestic Product) remains the most widely used measure of a nation’s wealth and economic well-being, but economists, other social scientists and researchers have been working up more comprehensive alternative measures of wealth, well-being and quality of life based on the concept of “natural capital.” The United Nations University-International Human Development Program’s (UNU-IHDP) “Inclusive Wealth Indicator” goes beyond GDP to “reflect the sustainability of natural and human, as well as manufactured/economic capital.”
Illustrations of the application of the Inclusive Wealth Indicator (IWI) and comparisons with GDP were presented at the Planet Under Pressure 2012 conference in London this past week. As measured by GDP per capita, the wealth of Brazil and India rose 34 percent and 120 percent between 1990 and 2008, respectively. In stark contrast, Brazil’s natural capital actually declined by 46 percent and India’s by 31 percent. Hence, Brazil’s IWI rose just 3 percent and India’s rose 9 percent over the period.
Going beyond GDP: Measuring wealth and well-being
Why the huge disparity? IWI is based on natural capital, the “the sum of a country’s assets, from forests to fossil fuels and minerals,” it was explained. Going beyond measuring economic capital in isolation, IWI, designed to augment, not replace GDP, incorporates measures of natural capital along with measures of human and manufactured capital.
As revealed by the IWI, Brazil and India pay a high price for rapid economic growth, experts speaking at the Planet Under Pressure 2012 conference stated, particularly as their GDP growth is coming at the expense of depleting and degrading their natural resource bases.
“The work on Brazil and India illustrates why Gross Domestic Product is inadequate and misleading as an index of economic progress from a long-term perspective,” said Professor Anantha Duraiappah, UNU-IHDP’s executive director.
“A country could completely exhaust all its natural resources while posting positive GDP growth. We need an indicator that estimates the wealth of nations – natural, human and manufactured and ideally even the social and ecological constituents of human well-being.”
UNU-IHDP and the United Nations Environment Programme (UNEP) will present the first Inclusive Wealth Report at a joint event at the UN’s Rio+20 conference on sustainable development in Brazil this June.
“Our goal is to provide national governments with a bi-annual report to assess transition to the so-called green economy, to create productive and sustainable economic bases for the future,” Duraiappah explained.
Added Dr. Pablo Muñoz of UNU-IHDP, the report’s Scientific Director: “Until the yardsticks which society uses to evaluate progress are changed to capture elements of long-term sustainability, the planet and its people will continue to suffer under the weight of short-term growth policies.”
The need for business and industry to adequately assess and incorporate the growing risks of resource scarcity and climate change is increasingly urgent, former UN Framework Convention on Climate Change (UNFCCC) executive director Yvo de Boer added.
“If companies had to pay for the full environmental costs of their activities, they would have lost 41 cents out of every (US) $1 earned in 2010,” de Boer stated. “The external environmental costs of 11 key industry sectors rose by almost 50 percent between 2002 and 2010, from $566 billion to $854 billion.”
“It is clearly no longer the question if we must transcend to a more sustainable economy. The question is the pace at which we are able, and especially willing, to achieve it.”