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The Changing Wealth of The Changing Wealth of NationsNations
Measuring Sustainable DevelopmentMeasuring Sustainable Developmentin the New Millenniumin the New Millennium
Gianni RutaEnvironment Department
The World Bank
Wealth and Sustainable Wealth and Sustainable DevelopmentDevelopmentStiglitz: we don’t judge a company solely on the
basis of income statements—look at both income and balance sheets.Why do we assess country economic progress on the basis of national income alone?
The source of income and well-being is wealth broadly defined to include◦ Manufactured capital◦ Natural capital◦ ‘Intangible’ capital: human capital and social capital
Comprehensive Wealth Approach to Sustainable Development:
Economic development is a process of building wealth and managing this
portfolio of assets 2
OutlineOutline
The wealth of nations in 2005What changed? 1995-2005WAVES
3
The Wealth of Nations in 2005
4
Where is the wealth of Ghana?Where is the wealth of Ghana?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Intangible
Natural
Produced
78%
21%
1%0%
Agricultural land
Forests
Protected area
Subsoil assets
Shares of total wealth, 2005
Shares of natural wealth, 2005
Total wealth / capita:$9,500
5
Where is the wealth of the UK?Where is the wealth of the UK?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Intangible
Natural
Produced
35%
3%
13%
49%
Agricultural land
Forests
Protected area
Subsoil assets
Shares of total wealth, 2005
Shares of natural wealth, 2005
Total wealth / capita:$663,000
6
Composition of WealthComposition of WealthShares by country income class, 2005
Intangible wealth—human and social capital—dominates in almost all countries
…but
Natural capital is especially important in low income countries—averaging 36%, and in some countries more than 50% of wealth
Low incomecountries($ 6,523per person)
50%
14%
36%
Middle incomecountries($ 30,662
59%20%
21%
High incomecountries($ 581,424per person)
80%
17%3%
IntangibleProducedNatural
7
For developing countries--especially For developing countries--especially low-income countries--the challenge low-income countries--the challenge is to leverage natural capital for is to leverage natural capital for growth growth ◦Subsoil assets: essential to transform non-
renewable capital into other forms of capital◦Land: efficient management of agricultural
land, forests and protected areas, especially where competing land use is an issue
Shares of natural wealth (%), 2005Crop Land
Pasture Land
Forest and Protected Areas
Subsoil Assets
East Asia-Pacific 55 6 16 23Europe-Central Asia 14 11 13 62Latin America-Carib. 33 10 27 30MidEast-North Africa 20 8 2 69South Asia 49 25 13 13Sub-Saharan Africa 35 13 17 36
8
Importance of human and Importance of human and social capitalsocial capital
Investment in human capital—but especially in good institutions, the rule of law, transparency—is critical for wealth creation.
Social capital increases the return to all assets by improving management◦ Most of the increase in wealth in Sub-Saharan
Africa was human and social capital◦ In China, 1995 institution and market reforms
increased returns to human capital (9.2% annual growth in value of HC after 1995)
9
What changed? 1995-2005
10
How did wealth change from 1995 How did wealth change from 1995 to 2005?to 2005?
Growth in total and per capita wealth by region
0
10
20
30
40
50
60
70
80
90
100
East Asia & Pacific
Europe & Central Asia
Latin America & Caribbean
Middle East & North Africa
South Asia Sub-Saharan Africa
Perc
ent c
hang
e in
wea
lth
Wealth
Per capita wealth
Globally, wealth grew 34% in total and 17% per capita
Cha
n ge
in w
e al th
(%
)
11
Development & changing composition of Development & changing composition of wealthwealthLower-middle income countries: shares of total wealth 1995-2005
0%
10%
20%
30%
40%
50%
60%
1995 2000 2005
Perc
ent o
f tot
al w
ealt
h
Produced Capital
Natural Capital
Intangible Capital
Per
cen t
of
t ot a
l wea
lth
12
Change in total wealth by type of Change in total wealth by type of assetasset $ billion, 1995-2005 $ billion, 1995-2005
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
East Asia & Pacific Europe & Central Asia
Latin America & Caribbean
Middle East & North Africa
South Asia Sub-Saharan Africa
Intangible Capital Produced Capital Natural Capital
13
Implications for ministries of Implications for ministries of financefinance
From increasing GDP…
…to◦ Strengthening natural resource
management◦ Investing resource rents in other
assets◦ Investing in people◦Building institutions
14
Wealth Accounting and Wealth Accounting and Valuation of Ecosystem Valuation of Ecosystem
Services: Services:
Expanding accounts for Natural Expanding accounts for Natural CapitalCapital
15
Why do we need Why do we need WAVES?WAVES?
MEA: undervaluation of natural capital a major cause of ecosystem degradation and biodiversity loss
Progress with valuation: wide support in the environment community (TEEB),
How do we convince Ministries of Finance, Treasury, Planning agencies that they have a stake in sustainable mgmt of natural capital
bring natural capital into the national income accounts to show the link between natural capital and long-term growth, sustainable development
Framework for implementation of WAVES: SEEA
16
Major Components of WAVESMajor Components of WAVES
1. Implementation of natural capital accounting, physical and monetary, in 6-10 countries:Colombia, Madagascar, Botswana, Philippines, India (Costa
Rica, Mexico, Vietnam, Indonesia)Australia, Norway, UK, (Canada, Japan)
2. Incorporate natural capital accounts in policy analysis and development planning
3. Help develop methodology for ecosystem accounting for the SEEA
4. Promote adoption of natural capital accounting beyond the pilot countries
17
Natural Capital Accounting Natural Capital Accounting under WAVESunder WAVES
Accounts include• Physical measures & monetary value of ecosystem
services produced annually and cost of degradation• Distribution of benefits from ecosystem services, and
burden of degradation among different stakeholders• Value of assets, Comprehensive Wealth accounts
Issues:• Scaling up from specific ecosystems to national level• Valuing public lands, global commons• Handling thresholds, irreversibilities
Valuation techniques:• Market prices for provisioning & recreational services• Other techniques—ecological production functions-- for
regulating services, drawing on models such as ARIES, InVest, and others 18
Overcoming obstacles from Overcoming obstacles from past environmental past environmental accounting initiativesaccounting initiatives Identify policy links early on & Identify
strong ‘champion’ within a country to lead a cross-sectoral national steering committee
Provide technical support & training
Scientific credibility/internationally endorsed approach
• Link to the SEEA to provide credibility on the accounting to Ministries of Finance, statistical offices
• Policy &Technical Experts Group—important to link policy and science early on
19
How we measure development will drive how we do development
Thank you!http://data.worldbank.org
www.worldbank.org/programs/waves 20