A colleague passed along a link to this article in Reason Magazine on intangible wealth — the invisible elements that drive the visible wealth of a country and its people. According to the World Bank, tangible wealth (natural and produced capital) only accounts for a fraction of any country’s affluence.
If one simply adds up the current value of a country’s natural resources and produced, or built, capital, there’s no way that can account for that country’s level of income. The rest is the result of ”intangible” factors — such as the trust among people in a society, an efficient judicial system, clear property rights and effective government. All this intangible capital also boosts the productivity of labor and results in higher total wealth. In fact, the World Bank finds, ”Human capital and the value of institutions (as measured by rule of law) constitute the largest share of wealth in virtually all countries.”
The 2006 World Bank report on the subject, Where is the Wealth of Nations? Measuring Capital for the 21st Century (available for PDF download), explored lots of things not captured in traditional measures of wealth, including the depletion of resources and damages to the environment. But its discovery about the invisible elements of capital are particularly striking — accounting for 60 to 85 percent of a most countries’ wealth.
It shouldn’t be a huge surprise that ”stuff” alone doesn’t make for sustainable wealth. But it’s helpful to have yet one more indicator that our indicators are flawed.
Thanks, Mark, for the link.
Wealth comes mostly from cheap raw materials and work force from undeveloped countries.
It’s great to see that this concept is entering the public consciousness at last. About time!!! The book THE REAL WEALTH OF NATIONS by Rian Tennenhaus Eisler explores one facet of this — economics as though people mattered.