Inclusive wealth

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Inclusive wealth is the aggregate value of all capital assets in a given region, including human capital, social capital, public capital, and natural capital.^[1] Conserving inclusive wealth is often a goal of sustainable development.^[2] The Inclusive Wealth Index is a metric for inclusive wealth within countries: unlike gross domestic product (GDP), the Inclusive Wealth Index "provides a tool for countries to measure whether they are developing in a way that allows future generations to meet their own needs".^[3]

The United Nations Environment Programme has released reports published in 2012, 2014, and 2018 on inclusive wealth. The 2018 "Inclusive Wealth Report" found that, of 140 countries analyzed, inclusive wealth increased by 44% from 1990 to 2014, implying an average annual growth rate of 1.8%. When examined on a per capita basis, 89 of 140 countries had an increased inclusive wealth per capita. 96 of 140 countries had increased inclusive wealth per capita when adjusted.^[3] Roughly 40% of analyzed countries had stagnant or declining inclusive wealth, sometimes despite increasing GDP. Many countries showed a decline in natural capital during this period, fueling an increase in human capital.^[4]

Inclusive Wealth Index[]

The Inclusive Wealth Index (IWI).^[5] was developed by the UN Environment Programme,^[6] in partnership with Kyushu University. The Index calculation is based on estimating stocks of a nation’s human, natural and produced (manufactured) capital which make up the productive base of an economy, with the biennial Inclusive Wealth Reports (IWR)^[5] tracking progress on sustainability across the world for 140 countries. The IWI is the UN Environment Programme’s metric for measuring intergenerational human well-being. The implementation of the IWI has also been undertaken by many individual countries with the support from UNEP which in turn has a scientific panel headed by Sir Partha Dasgupta of the Cambridge University.

Inclusive wealth is not a substitute but rather complimentary indicator to Gross Domestic Product (GDP). In a ‘stocks and flows’ model, capital assets are stocks, and the goods and services provided by the assets are flows (GDP). A tree is a stock; its fruit is an annual flow of goods, while its leaves provide a continuous flow of services by pulling carbon dioxide from the atmosphere to store as carbon. It is a multi-purpose indicator capable of measuring not only traditional stocks of wealth but also those less tangible — such as skill sets, health care, and environmental assets that form the backbone of human progress.^[7] The effective management of these capitals results in the ultimate purpose of an economy – societal well-being.

Conceptual framework[]

Trends in inclusive wealth, produced, human, and natural capital.

Produced capital (also referred to as manufactured capital) includes investment in roads, buildings, machines, equipment, and other physical infrastructure. Human capital comprises knowledge, education, skills, health and aptitude. Natural capital includes forests, fossil fuels, fisheries, agricultural land, sub-soil resources, rivers and estuaries, oceans, the atmosphere and ecosystems, more generally. Social capital is also acknowledged as critically important to a nation’s wealth, and includes trust, strength of community, transparency of institutions, and the overall ability of societies to overcome problems. An economy’s institutions and politics are factors that determine the social value of its assets because they influence what people are able to enjoy from them. In the present methodology of IWI, social capital is not directly measured but embedded in other capital types. Not all components of capital that are conceptually components of wealth are currently included in the Inclusive Wealth methodology. This is due to difficulties in measuring certain assets, as well as data availability and comparability constraints.

Methodology and Overall framework^[5][]

The conceptual framework looks at the change of inter-temporal well-being at:

${\displaystyle V(t)=\int _{t}^{\infty }U(C_{\tau })e^{-\delta (\tau -t)}d\tau }$

Assuming equivalence between wealth and well-being, it is measured by wealth in practice. Denoting produced, human, and natural capital as