Relationship revealed between capital and a sustainable future

A recent report issued by the World Bank states that economic growth is unsustainable unless natural and human capital are considered alongside traditional measures, such as Gross Domestic Product (GDP).

Report highlights

  • Natural and human capital must be evaluated, not just GDP.
  • The report aims to inform policymakers.
  • Human capital – Women need greater equality to achieve sustainability.

Managing Director for partnerships and development policy at World Bank, Mari Pangestu, commented that a more in-depth and nuanced understanding regarding the sustainability of wealth was vital to a resilient, green, and inclusive future.

A clearer picture of wealth

The report entitled “Changing Wealth of Nations 2021” showed that wealth increased substantially throughout the world from 1995 to 2018, but in the process, increased levels of inequality and risked future prosperity.

Pangestu added that it was crucial that human and natural capital were valued equally to more established economic growth sources, enabling policymakers to take steps to bring about long-term prosperity.

The World Bank defined human capital in its report as a person’s earnings over a lifetime. It stated that natural capital referred to the economic value of renewable resources, like farmland, fisheries and forests, as well as non-renewable resources, like fossil fuels and minerals.

Traditionally, GDP is used to measure a country’s wellbeing. However, critics condemn its use for failing to account for pollution, income inequality and other factors that impact quality of life.

Many believe that fossil fuels are overvalued in comparison to climate change and pollution, which are only now being considered. Now, the report from the World Bank suggests that wealth must be evaluated alongside GDP to effectively monitor sustainability during economic development.

Guiding policy

The World Bank created the report in hope that the data it has found can be employed by policymakers now looking to improve measures of economic progress, allocate human capital with a fair value and price natural assets more accurately.

The report noted that many nations are on a path to unsustainable development due to human and natural capital currently being depleted in favour of short-term boosts for consumption or income.

Human capital imbalances

The report also noted that imbalances in human capital disproportionately impact women in most regions, displaying only marginal improvement within the period studied.

In sub-Saharan Africa, the recorded female share of human capital amounts to approximately one-third of its total. The same can be said for the region with the largest current share of wealth, East Asia and the Pacific.

Around 80 per cent of South Asia’s human capital is attributed to men. In the Caribbean and Latin America, where female labour force participation is greater than all other regions at 44 per cent, gender parity for human capital is yet to be reached.

The report also indicated that women accounted for just 35 per cent of human capital in 1995, and this percentage only increased to 37 per cent by 2018.

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