NEW YORK – Economic growth can only be considered truly sustainable if human and natural capital are part of the equation, because gross domestic product and other traditional measures are insufficient, according to a new World Bank report.
“A deeper and more nuanced understanding of the sustainability of wealth is crucial for a green, resilient and inclusive future,” said Mari Pangestu, Managing Director for Development Policy and Partnerships at the World Bank.
The Changing Wealth of Nations 2021, a report presented on Wednesday, found that wealth increased significantly in the world between 1995 and 2018, but this at the same time as deepening inequalities and risking future prosperity.
“It is essential that renewable natural capital and human capital are given the same importance as more traditional sources of economic growth so that policymakers take action to enable long-term prosperity,” Pangestu said.
The report defined human capital as the income over a person’s lifetime, while natural capital was the economic value of renewable resources, such as forests and cropland, and non-renewable resources such as minerals. and fossil fuels.
GDP has traditionally been the measure of a nation’s well-being, but it has long been criticized for ignoring income inequality, pollution, or other measures that affect quality of life.
The use of fossil fuels, for example, has been overstated because the negative effects of pollution and climate change have not always been taken into account.
“Wealth should be used alongside GDP to provide a means of monitoring the sustainability of economic development,” Pangestu said.
The report’s database is intended to be used by policy makers seeking to improve measures of economic progress, to more accurately value natural assets, or to give human capital a fair value.
It also notes that “many countries are on an unsustainable development path because their natural, human or produced capital is depleted for short-term increases in income or consumption.”
The report values a wide range of assets among forms of natural capital, including minerals, fossil fuels, forests, mangroves and marine fisheries, which could be exploited by developing countries.
The World Bank report precedes the UN climate summit COP26 which begins this weekend in Glasgow.
Wasted wealth of women
In terms of human capital, imbalances affect women disproportionately in most regions and improved only marginally over the study period.
The share of women in human capital is only about a third of the total in sub-Saharan Africa, as in East Asia and the Pacific, the region with the largest share of wealth.
About 80% of human capital in South Asia is attributed to men. Latin America and the Caribbean, where female labor force participation is higher than any other region at 44%, has yet to achieve gender parity in its human capital.
“Globally, women made up only 37% of human capital in 2018, which was only 2 percentage points above the 1995 level,” the report says.
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