Economic growth can only be considered truly sustainable if human and natural capital are part of the equation, since Gross Domestic Product (GDP) and other traditional measures are not enough, a new report from the World Bank (WB) showed.
“A deeper and more nuanced understanding of the sustainability of wealth is critical to a green, resilient and inclusive future”Said Mari Pangestu, WB general director of development policies and associations.
The Changing Wealth of Nations 2021, a report released Wednesday, found that wealth increased significantly across the world between 1995 and 2018, but it did so at the cost of deepening inequality and risking future prosperity.
“It is essential that renewable natural capital and human capital are given equal prominence as more traditional sources of economic growth, so that policymakers take action to enable long-term prosperity”Said Pangestu.
The report defines human capital as earnings over a person’s lifetime, while natural capital is the economic value of both renewable resources, such as forests and farmland, 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 failing to take into account income inequality, pollution, or other indicators that affect quality of life.
The use of fossil fuels, for example, has been overrated, as the negative effects of pollution and climate change have not always been taken into account.
“Wealth should be used in conjunction with GDP to provide a means of monitoring the sustainability of economic development”Declared Pangestu.
The report database could be used by policy makers to improve measures of economic progress, more accurately value natural assets, or give a fair value to human capital.
It also points out that “many countries are on an unsustainable development path because their natural, human or produced capital is being depleted in favor of short-term increases in income or consumption”.
The report values a broad set of assets among forms of natural capital, including minerals, fossil fuels, forests, mangroves and marine fisheries, that developing countries could take advantage of.
The WB report is known before the United Nations COP26 climate summit that begins this weekend in Glasgow.
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