Key Takeaway:
Inclusive wealth, a concept that includes not just economic output but also natural resources, human skills, and social networks, is gaining traction among international institutions like the World Bank and the United Nations Environment Programme (UNEP). This broader measure of a nation’s well-being aims to address the limitations of GDP, which focuses only on short-term economic gains. However, there is a major obstacle: no one can agree on how to measure it. The World Bank and UNEP calculate inclusive wealth in different ways, leading to conflicting results. Consistency in measurement is crucial for inclusive wealth to gain widespread acceptance, as it offers a path toward sustainable development that balances economic growth with long-term well-being.
For years, Gross Domestic Product (GDP) has been the gold standard for measuring a nation’s success. The higher the number, the wealthier and more prosperous a country is thought to be. But as the world grapples with environmental disasters, rising pollution, and the loss of biodiversity, a growing movement questions whether GDP is still the best yardstick. GDP, after all, only measures economic activity and completely ignores the environmental and social costs of that growth.
That’s where the idea of “inclusive wealth” comes in—a broader and more holistic measure of a nation’s well-being that includes not just economic output but also natural resources, human skills, and social networks. It’s an idea that’s been gaining traction for decades, with international institutions like the World Bank and the United Nations Environment Programme (UNEP) championing it. However, there’s a major obstacle: no one can agree on how to measure it. Different organizations use different methods, leading to vastly different results and raising questions about its real-world applicability.
What Is Inclusive Wealth?
Inclusive wealth is a concept that aims to capture the full range of assets a nation possesses, assets that contribute to well-being and sustainable growth. It expands the definition of wealth to include not just economic output (produced capital) but also human capital (the skills and knowledge of the population), natural capital (environmental resources like forests and fisheries), and social capital (the networks and institutions that hold society together).
The central idea is that when inclusive wealth per capita rises, it signals a country’s ability to sustain long-term well-being. This broader approach aims to address the limitations of GDP, which focuses only on short-term economic gains, ignoring the depletion of resources and social costs.
Economists like Cambridge’s Partha Dasgupta and Harvard’s Martin Weitzman have been strong advocates for this shift. Their work laid the foundation for a growing consensus that the world needs a more nuanced measure of success—one that takes into account the well-being of future generations.
Competing Measurements, Conflicting Results
Despite its promise, inclusive wealth faces a major challenge: how to measure it consistently. The World Bank and UNEP, two of the leading institutions promoting this approach, calculate inclusive wealth in very different ways, leading to conflicting results.
Take the case of Qatar. According to UNEP’s calculations, Qatar’s inclusive wealth per capita is declining, meaning the country’s development path is unsustainable. But the World Bank paints a rosier picture, showing Qatar’s wealth increasing. Which is right? If you were the Qatari government, these conflicting assessments would leave you unsure of whether to act or stay the course.
The discrepancies arise largely from how each institution values natural resources. Both the World Bank and UNEP factor in resources like fossil fuels, minerals, and forests, but they use different methods to calculate their worth. The World Bank uses a discounting method that estimates future earnings from these resources, while UNEP applies current market prices, known as “shadow pricing.” These differences lead to wildly different conclusions about a country’s wealth trajectory.
Why It Matters
This lack of consensus is one of the key reasons inclusive wealth hasn’t yet gained mainstream traction. While there have been nods to the concept in government reports from countries like New Zealand and the U.S., where the Biden administration recently announced plans to track natural resources using a version of natural-capital accounting, no major economy has fully embraced it as a replacement for GDP.
Consistency in measurement is crucial. Without it, inclusive wealth remains an abstract idea, not a tool that policymakers can use to shape economic decisions.
While the World Bank has been more transparent about its data, this isn’t about choosing one method over another. Both approaches have their strengths, but for inclusive wealth to gain widespread acceptance, the global community will need to agree on a standardized method for calculating it. Otherwise, countries will continue to rely on GDP—leaving environmental and social factors out of the equation.
The Stakes for the Future
As the world faces growing environmental and social challenges, finding a way to measure inclusive wealth is more important than ever. It offers a path toward sustainable development—one that balances economic growth with the long-term well-being of both people and the planet.
But without a consistent, widely accepted method for calculating it, inclusive wealth risks being sidelined, just another theoretical concept that doesn’t translate into real-world policy. And that’s a missed opportunity in the battle for a more sustainable, equitable future.
