GDP and Wealth are complementary indicators that provide a fuller picture of economic well-being. A country’s comprehensive wealth includes all produced capital such as factories and roads; natural capital like forests and water; human capital, which leads to earnings; and net foreign assets. Only by having a clear understanding of our world’s wealth—including all forms of capital—can we plan for a more sustainable future. The World Bank released a new book The Changing Wealth of Nations 2018 which tracks the wealth of 141 countries between 1995 and 2014.
Importance of investing in people
Human capital accounts for two-thirds of global wealth, the largest chunk of wealth. The report shows that human capital is about 70% of the wealth in high-income countries and only 40% in low-income countries. Human capital is computed as the present value of future earnings for the labor force, factoring in education and skills as well as experience and the likelihood of labor force participation at various ages. This report makes a clear economic case for investing in human capital to boost wealth and future economic growth.
Human capital is being measured for the first time and there are improved estimates for natural capital which include forests and agricultural land, as well as fossil fuels and minerals.
The good news is that overall wealth is growing. Middle-income countries are closing the gap with high-income countries and now have a greater share of wealth. More than two dozen low-income countries, where natural capital dominates the composition of wealth, have moved to middle-income status, in part by investing prudently in natural resources, infrastructure, and education. However, not everything is rosy, including a decrease in the value of productive forests and declining or stagnating per capita wealth in more than two dozen countries.
Despite rising global wealth, inequality persists
The world is still unequal when seen through the lens of wealth. High-income OECD countries hold 52 times more wealth per capita, measured at market exchange rates, than low-income countries.
More than two dozen countries saw their per capita wealth decline or stagnate. Declining per capita wealth implies that assets critical for generating future income may be depleted, a fact not often reflected in national GDP growth figures. This included several large low-income countries, some carbon-rich countries in the Middle East, and a few high-income OECD countries affected by the 2009 financial crisis.
In low-income countries, wealth almost doubled, a larger increase than the global average of a 66% rise. But higher population growth in many low-income countries means that, in those countries, per capita wealth often grew at a slower pace than the global average. This is particularly true for Sub-Saharan Africa, where the needle on wealth per capita did not move much since 1995.