The Urgency of Real Wealth Accounting: Shaping Sustainable and Inclusive Growth

The Changing Wealth of Nations report by the World Bank advocates measuring real wealth per capita including produced, human, and natural capital as a more sustainable and equitable metric than GDP, highlighting significant wealth disparities and the urgent need for preserving natural resources to ensure long-term economic resilience. This approach aims to provide policymakers with insights for balanced, sustainable growth that secures future production and consumption opportunities.

The World Bank’s latest edition of The Changing Wealth of Nations (CWON) presents a transformative perspective on measuring economic progress, arguing that conventional metrics like Gross Domestic Product (GDP) fail to capture the full picture of a country’s economic health and sustainability. Produced by the World Bank’s Environment Global Department with contributions from international experts, this report proposes tracking real wealth per capita as a more robust measure of progress. Unlike GDP, which only accounts for productive activity, wealth per capita encompasses produced, human, and natural capital as well as net foreign assets, offering a holistic view of long-term economic well-being. By tracking changes in wealth, particularly assets that contribute to future production, societies can assess whether their growth is sustainable over time. Although GDP has long been the standard, it has serious limitations: it ignores environmental and social costs of production, leading to what economist Sir Partha Dasgupta describes as a one-sided view like a soccer game scored only by goals made, ignoring goals against. GDP’s narrow scope omits critical factors, such as resource depletion and ecosystem degradation, that impact future productivity and well-being.

A Holistic Measure to Fill the Gaps Left by GDP

CWON aims to address this gap by providing a comprehensive wealth database for over 150 countries, grounded in international standards like the System of National Accounts (SNA) and the System of Environmental-Economic Accounting (SEEA). This alignment ensures CWON’s wealth data can be directly compared with GDP and other economic indicators. Wealth, as defined in CWON, represents the cumulative value of all assets supporting economic production and human well-being, from physical infrastructure to forests and educational attainment. This fifth edition incorporates new approaches, such as a Törnqvist volume index that adjusts for asset changes due to productivity and scarcity rather than short-term price shifts, creating a wealth measure that accurately reflects sustainable growth. For instance, a forest’s value goes beyond timber to include contributions like carbon sequestration and water regulation. CWON thus accounts for produced capital, like factories and roads, as well as human capital skills and education and renewable natural capital, including forests, fish stocks, and agricultural land.

Global Wealth Disparities: A Widening Gap

Over recent decades, global wealth per capita has increased, but this growth is far from equal. Wealth remains concentrated in high-income countries, which controlled nearly two-thirds of global wealth in 2020, while low-income nations, despite accounting for half the world’s population, hold just 7%. This discrepancy reflects a wealth gap that has persisted since 1995, with low-income countries making modest gains yet maintaining a minimal share of global wealth. The report highlights that real wealth per capita has grown primarily due to increases in human capital and produced capital, supported by rapid urbanization and higher labor market participation, especially among women. However, some regions face challenges in keeping wealth growth on par with population increases. Sub-Saharan Africa, for instance, has seen limited wealth growth relative to its population, despite moderate progress between 2000 and 2005. In contrast, the Middle East and North Africa achieved an impressive 97% rise in wealth per capita, with Latin America and the Caribbean also showing significant growth, largely due to human and produced capital gains.

Declining Natural Capital Raises Sustainability Concerns

CWON data reveal that human capital now holds the largest share of nominal wealth globally, rising 9% in per capita terms since 1995. Produced capital surged nearly 50% in the same period, reflecting significant investments in infrastructure, housing, and technology. However, renewable natural capital—which ideally should regenerate with sustainable management declined by over 20% per capita. This troubling trend, likely underestimated due to data gaps, signals significant sustainability concerns, particularly as renewable resources like forests and fish stocks are depleted faster than they can recover. Mangroves, agricultural land, and forest ecosystems that offer recreational services have experienced notable declines, although hydropower a renewable energy source newly included in CWON’s metrics has grown.

Fossil Fuels and Minerals Still Dominate Nonrenewable Wealth

The report highlights slight declines in nonrenewable natural capital, which includes oil, gas, and mineral reserves, over the past few decades. Despite global shifts towards renewable energy, fossil fuels still account for about 60% of nonrenewable wealth worldwide. While the low-carbon transition may alter this balance in the coming years, current data show only minor reductions in fossil fuel dependence. Rapid urbanization and industrialization have also spurred growth in produced capital, especially in South Asia, which saw a remarkable 500% increase in per capita produced capital from a low base. North America, Europe, and East Asia hold most of the world’s produced capital, while Sub-Saharan Africa’s gains remain modest due to rapid population growth.

Real Wealth per Capita: A New Framework for Sustainable Growth

CWON’s comprehensive wealth database serves as a vital tool for policymakers, offering insights into sustainability and enabling countries to shape strategies for long-term resilience. Human capital, responsible for 60% of global wealth in 2020, has steadily increased, supported by education and labor force participation, though gender disparities persist. Women still represent only 37% of human capital globally, underscoring the need for policies that enhance gender equity. By going beyond GDP, CWON encourages a shift toward valuing assets essential for future prosperity and provides a foundation for more equitable and sustainable economic growth. This framework represents a shift in understanding that future economic resilience depends on the comprehensive and sustainable management of all assets essential to a nation’s prosperity.