Authors

Prof. Anantha Kumar Duraiappah
Dr. Pablo Fuentenebro

Reference

Duraiappah, A. and Fuentenebro, P. (2012). Lessons, findings, and recommendations. In UNU-IHDP and UNEP. Inclusive Wealth Report 2012. Measuring progress toward sustainability. Cambridge: Cambridge University Press.

Abstract

For decades, economists and governments have used conventional production indicators such as per capita gross domestic product (GDP) or, more recently, the Human Development Index (HDI) to measure societies’ overall “well-being.” The reliance on GDP per capita is understandable. It is easy to compute, and it is based on a rigorous and well-tested economic theory. Moreover, the data needed to compute GDP were relatively easy to compile and countries were quick to adopt this system of national accounts. However, as illustrated in this report, neither GDP per capita nor the HDI reflect the state of the natural environment and both focus on the short term, with no indication of whether current well-being can be sustained. Therefore, it is not surprising that we continue to see a degradation of the natural environment. It should also not come as a surprise if we continuously hear of the growth-versus-environment debate. We are basically using the wrong measurement approach to guide policy-making.

The Inclusive Wealth Report (IWR) provides a metric of measurement for sustainable development. While GDP and the HDI are based on a flow concept, inclusive wealth relies on the stocks of different assets: natural capital (natural resources, land, and ecosystem services, etc.); produced capital (machinery, buildings, etc.); and human capital (education, health, skills, etc.), which make up the productive base of a country. The Inclusive Wealth Index (IWI) is not intended to answer all of a decision-maker’s questions, but it can lend insights about the use of assets over time.

In this report, the focus is on natural capital. Although it is true that many developing countries have been depleting their natural resources over the past several decades, we are not suggesting that countries should stop using their natural capital assets to achieve improvements in well-being; rather, we offer more sustainable solutions for achieving these improvements (e.g., making larger investments in other parts of the economy, such as human capital). In this sense, what the 2012 IWR puts on the table is the foundation for a more holistic approach to economic development than is currently practised.

To be clear, the IWI is an important step forward in understanding human well-being, the economy, wealth, and sustainability. Indeed, it’s an enormously valuable input into decisionmaking. That said, as a nascent index, it should not be seen as the exclusive source of information and insight. For now, it is advised that the IWI be used in conjunction with GDP, the HDI and some of the specific environmental indicators such as the ecological footprint and the ecological sustainability index among others to gain the most comprehensive perspective possible.