Global Wealth Has Grown, But at the Expense of Future Prosperity – World Bank Group
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World Bank report provides data for a more comprehensive view of economic growth and sustainability; finds share of total global wealth in renewable natural capital is decreasing and threatened by climate change
WASHINGTON, Oct. 27, 2021 – Global wealth has grown overall—but at the expense of future prosperity and by exacerbating inequalities, according to the World Bank’s new Changing Wealth of Nations report released today.
Countries that are depleting their resources in favor of short-term gains are putting their economies on an unsustainable development path. While indicators such as Gross Domestic Product (GDP) are traditionally used to measure economic growth, the report argues for the importance of considering natural, human, and produced capital to understand whether growth is sustainable.
The Changing Wealth of Nations 2021 tracks the wealth of 146 countries between 1995 and 2018, by measuring the economic value of renewable natural capital (such as forests, cropland, and ocean resources), nonrenewable natural capital (such as minerals and fossil fuels), human capital (earnings over a person’s lifetime), produced capital (such as buildings and infrastructure), and net foreign assets. The report accounts for blue natural capital—in the form of mangroves and ocean fisheries—for the first time.
“A deeper and more nuanced understanding of the sustainability of wealth is crucial to a green, resilient, and inclusive future,” said World Bank Managing Director for Development Policy and Partnerships, Mari Pangestu. “It is essential that renewable natural capital and human capital are given the same importance as more traditional sources of economic growth, so that policymakers take steps to enable long-term prosperity.”
According to the report, global wealth grew significantly between 1995 and 2018, and middle-income countries are catching up to high-income countries. However, growing prosperity has been accompanied by unsustainable management of some natural assets. Low- and middle-income countries saw their forest wealth per capita decline 8% from 1995 to 2018, reflecting significant deforestation. Meanwhile, the value of global marine fish stocks collapsed by 83% due to poor management and overfishing over the same period. The projected impacts of climate change may exacerbate these trends.
In addition, mispricing of assets like carbon-emitting fossil fuels can lead to overvaluation and over-consumption. Development can be put on a more sustainable path by taking a comprehensive view of wealth and putting in place policy measures including carbon pricing to better value and nurture assets such as forests, mangroves, and human capital.
Global wealth inequality is growing, the report indicates. Low-income countries’ share of global wealth has changed little from 1995 to 2018, remaining below 1% of the world’s wealth, despite having around 8% of the world’s population. Over one-third of low-income countries saw declining wealth per capita. Countries with declining wealth tend also to be degrading their base of renewable natural assets. For low-income countries, appropriately managing renewable natural capital, which accounts for 23% of their wealth, remains crucial.
Globally, the share of total wealth in renewable natural capital (forests, cropland, and ocean resources) is decreasing and being further threatened by climate change. At the same time, renewable natural capital is becoming more valuable as it provides crucial ecosystem services. For example, the value of mangroves for coastal flood protection has grown more than 2.5 times since 1995 to over $547 billion in 2018. The value of protected areas per square kilometer has also rapidly increased.
“The Changing Wealth of Nations provides the data and analysis to help governments get prices and policies right for sustainable development,” said World Bank Global Director for Environment, Natural Resources, and the Blue Economy, Karin Kemper. “By ignoring polluting and climate warming impacts, fossil fuel assets have historically been overvalued, while assets that contribute to climate mitigation, like forests, are undervalued.”
The report shows that human capital, measured as the population’s expected lifetime earnings, is the largest source of worldwide wealth, comprising 64% of total global wealth in 2018. Middle-income countries increased their investment in human capital and in turn saw significant increases in their share of global human capital wealth.
Although the long-lasting effects of the COVID-19 pandemic are still unknown, low-income countries are likely to experience the most severe impacts, with a projected loss of 14% of total human capital. Human capital is additionally constrained by gender gaps across all regions and income groups, with little improvement since 1995. Air quality also has serious consequences for both human capital and climate change, and accounts for over 6 million premature deaths annually.
Nonrenewable natural capital wealth (minerals, fossil fuels) has declined since 2014, mainly due to falling commodity prices. The report looks at the projected impacts of a low-carbon transition and border carbon adjustment taxes on fossil fuel wealth and provides recommendations for managing the economic risks posed for resource-dependent countries. Countries that are heavily dependent on fossil fuel wealth were found to have lower shares of wealth from human capital, despite their high income levels, with human capital only comprising 34% of their wealth.
The report outlines several priorities for policymakers to diversify and rebalance their national portfolios to be more resilient and sustainable. It recommends actively investing in public goods like education, health, and nature, to prevent unsustainable depletion, and manage future risks. Recommendations also include policy and pricing measures that help reflect the social value of assets and to steer private investment toward better outcomes for all. This may include, for example, actions like repurposing fisheries subsidies, and taking action to price carbon and promote renewable energy assets.
Download the Changing Wealth of Nations 2021 here.
In Sub-Saharan Africa, wealth per capita has increased over the past two decades, but at a lower rate than other regions. 11 countries in Sub-Saharan Africa saw stagnating or even declining wealth per capita between 1995 and 2018 as population growth outpaced net growth in asset values. Human capital in Sub-Saharan Africa has increased more rapidly than any other asset. However, this growth has been unequal, and the female share of human capital is only about one third of the total. Wealth in natural capital has been declining, and many countries in the region have a high dependence on nonrenewable natural resource revenues, especially from fossil fuels.
As of 2018, the East Asia and the Pacific region has the largest share of wealth in the world, with an 188% increase since 1995. Human capital makes up over half of the region’s wealth, however, only about one third of human capital was attributed to women. Natural capital comes in at 4% of regional wealth, with renewable natural capital declining, led by the drop in marine fisheries. Cropland wealth is projected to be especially hard hit by climate change in East Asia and Pacific countries.
In South Asia, total wealth has grown since 1995, but due to population growth in the same time period, per capita wealth remains among the lowest in the world. Human capital makes up over half of the region’s wealth, but is extremely unbalanced, with over 80% attributed to men, with little change in the past two decades. If gender parity was achieved in South Asia, this could increase human capital nationally by roughly 42 percentage points. As a region, South Asia is also most severely affected by the estimated loss of human capital due to air pollution. Renewable natural capital, particularly cropland, is vital for South Asia, and the value of its blue natural capital also grew over the past two decades.
Wealth in Europe and Central Asia, which includes Western Europe for the purpose of this report, has increased 45% since 1995. Wealth per capita has grown slowly compared with many other regions. Human capital accounts for over half of the region’s wealth, with consistent growth compared to other assets. Non-timber forest resources are becoming the main renewable natural capital asset in Europe and Central Asia, due to the value of ecosystem services they provide, while the value of marine fisheries assets has significantly dropped.
Although total wealth has nearly doubled in Latin America and the Caribbean over the past two decades, there are significant contrasts in the trends of wealth per capita. Some countries have more than doubled their wealth since 1995, while in several Caribbean countries, total wealth per capita has declined. Over time, wealth in nonrenewable natural capital has begun to decline, due to price volatility, but renewable wealth is increasing. Wealth in protected areas has more than doubled, despite the fact that land area of forests has declined. Female labor force participation is higher than in any other region, but Latin America and the Caribbean has still not reached gender parity in its human capital.
Wealth has increased in the Middle East and North Africa in the past two decades, but to a lesser extent than the regional GDP over the same period. Human capital makes up the lowest share of total wealth in this region, compared to other regions, with a significant gender imbalance. Nonrenewable natural capital makes up a large portion of the region’s wealth and has generated issues for countries facing resources dependence and price volatility. The countries in the region reliant on fossil fuel revenues face unique development challenges in the face of global efforts to shift to low-carbon development. Although cropland remains the main renewable natural asset in the region, per capita cropland wealth has declined over the past two decades. The region will need to preserve and restore its renewable natural asset in the region, per capita cropland wealth has declined over the past two decades. The region will need to preserve and restore its renewable natural assets to support greater diversification of wealth.