Well-Being vs. Wealth (2) – Natural Capital

This is the 2nd of three posts on well-being and wealth (see 1 & 3).

While the increase in average human wellbeing over the past century is good, a common worry of ecologists (and ecological economists) is much of this increase is sustainable. The answer to this question depends upon how much these improvements in well-being come from more efficient use of renewable flows versus how much comes from the liquidation of natural capital.

There are increasing attempts to try to estimate whether economic development is increasing wealth. The Millennium Ecosystem Assessment presents a graph which compares conventional measures of a country’s wealth against a measure of inclusive wealth that includes consideration of investments in Human Capital (such as education), natural resource depletion, and damage caused by pollution. This comparison, which only considers a few types of ecological degradation, shows that many countries are not increasing their net wealth, but are converting natural or human capital into financial capital.

Figure 3.1 Net National Savings in 2001 Adjusted for Investments in Human Capital, Natural Resource Depletion, and Damage Caused by Pollution Compared with Standard Net National Savings Measurements

inclusive wealth

Legend for inclusive wealth figure

From Millennium Ecosystem Assessment. 2005. Ecosystems and Human Well-being: Synthesis (page 55).

Further details on the figure:

Positive values for national savings (expressed as a percent of gross national income) reflect a gain in wealth for a nation. Standard measures do not incorporate investments in human capital (in standard national accounting, these expenditures are treated as consumption), depletion of a variety of natural resources, or pollution damages. The World Bank provides estimates of adjusted net national savings, taking into account education expenses (which are added to standard measures), unsustainable forest harvest, depletion of nonrenewable resources (minerals and energy), and damage from carbon emissions related to its contribution to climate change (all of which are subtracted from the standard measure). The adjusted measure still overestimates actual net national savings, since it does not include potential changes in many ecosystem services including depletion of fisheries, atmospheric pollution, degradation of sources of fresh water, and loss of noncommercial forests and the ecosystem services they provide. Here we show the change in net national savings in 2001 for countries in which there was a decline of at least 5% in net national savings due to the incorporation of resource depletion or damage from carbon emissions.

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