While real wealth per capita increased by about 21% globally, renewable natural capital — such as forests, marine capture fisheries, and mangroves — declined by more than 20%, according to a new World Bank report co-authored by YSE Professor Eli Fenichel.
Many people are familiar with the term GDP — short for gross domestic product. It’s one of the most widely used indicators to measure a country’s economic performance over time. Yet, many economists consider GDP insufficient for capturing the full picture of a country’s economic health, including whether it is developing sustainably — a consideration that is increasingly relevant in the face of the growing connections among the economy, climate change, and nature loss.
“If you think of a country as a business, when a business sells a good, it adds to income, but subtracts from inventory. Inventory is a form of wealth, so the hope for the business is that by selling inventory, it has sufficient income to buy more inventory,” said Eli Fenichel, Knobloch Family Professor of Natural Resource Economics at the Yale School of the Environment. “Well, countries need to keep track of that inventory, too, but GDP is just the income side of ledger. GDP also, in practice, has not done a good job of accounting for the maintenance costs or using up or degrading natural resources.”
Fenichel is a co-author of the recently released The Changing Wealth of Nations (CWON) 2024 report. An initiative of the World Bank, CWON uses monetary estimates from the System of National Accounts and the System of Environmental-Economic Accounting to produce a wealth database that assesses trends in economic progress and sustainability that go beyond GDP — encompassing and tracking over time a broad portfolio of market and non-market assets. These assets fall into four general categories: produced capital, such as buildings and machines; renewable natural capital, such as agricultural land, forests, and fish stocks; non-renewable natural capital, such as oil, natural gas, and minerals; and human capital.
“The scope of what counts for GDP is pretty narrowly defined to address questions associated with things like the federal budget and how many taxes can be collected,” Fenichel said. “The World Bank’s comprehensive wealth measure is intended to start going beyond that boundary to include other things people value like shoreline protection services and non-timber services from forests, as well as the value of investments in the labor force.”
It seems like non-declining wealth should be a minimum requirement. What I think we want to see is income, production, and wealth all rising — and also to think about how that wealth is distributed across asset groups and among people.”
Globally, real wealth per capita increased by about 21% between 1995 and 2020, the period examined in the report, with two-thirds of the 151 countries in the sample experiencing growth, and 27 countries experiencing declines or little change. (In contrast, real GDP per capita increased approximately 50% in all regions over the same period, the authors note.) The increase was driven largely by rapid urbanization and the growing number of women participating in the labor market, particularly in the Middle East, North Africa region, and Latin America and the Caribbean.
While human capital and produced capital increased by 9% and 47% respectively over the past quarter century, renewable natural capital — which should be able to regenerate itself if managed sustainably — declined by more than 20% globally. While that figure is likely an underestimate due to the challenges and limitations of measuring and valuing renewable capital, Fenichel said many countries are getting better at measuring at least some forms of renewable capital.
“In the U.S., I think we are getting much better at accounting for water, for example (which is not presently included in CWON). At the global scale, it is harder to organize the data, but with some new remote sensing products, I’m optimistic we can get there soon. Then, there is the challenge of valuing changes in water, which can be heavily institution dependent. Indeed, many countries may act as if water has a negative value, which it might in flood prone areas,” he said. “So, I suspect valuation to remain hard at the global scale but doable at the local scale for the foreseeable future, so we might be able to start adding up those local measures as they develop.”
Unequal gains, uneven losses, and widespread overexploitation
While the value of renewable natural capital — driven by an overexploitation across almost all natural resources, such as forests, marine capture fisheries, and mangroves — declined globally, it did not decline at even pace. Sub-Saharan Africa, the Middle East, and North Africa experienced an approximately 40% decline in natural capital wealth per capita, while South Asia lost about one-third. High-income countries have seen the smallest losses: 8% for Europe and Central Asia; 18% for North America. Meanwhile, marine fish stocks per capita have dropped by more than 45% in real terms since 1995, to the point where it has nearly reduced its contribution to the value of renewable natural capital to zero (decreasing at a higher rate than mangroves or forests).
Sub-Saharan Africa, notably, has not experienced the same rise in real wealth per capita as other regions. Low-income and lower-middle-income countries, home to half of the world’s population, account for just 7% of global wealth. Sub-Saharan Africa accounts for just 2%.
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While conflict and instability were cited as factors contributing to sub-Saharan Africa's slower rate of wealth accumulation, Stefanie Onder, the author of the report’s executive summary and a former senior environmental economist at the World Bank, said there are several likely causes, including the region’s rapid population growth and dramatic declines in its natural capital.
“Sub-Saharan Africa has made significant strides in accumulating produced capital wealth — matching that of other regions with a 129% increase over 25 years. However, rapid population growth led to a modest 17% increase in produced capital per capita from 1995 to 2020. A similar pattern can be observed for human capital,” said Onder, who is now an assistant professor of economics at American University’s School of International Service. “In addition, the region has experienced a dramatic decline in its natural capital per capita over the same time period. Given that natural capital makes up 11% of the region’s wealth, these declines — which are largely driven by resource mismanagement and a changing energy landscape — translate into slower growth in real wealth overall.”
To explore the reasons why real wealth per capita has not grown for a specific country, a more detailed analysis drawing on more disaggregated country level data is needed, she noted.
Fenichel added that he hopes the report and the World Bank’s CWON initiative will continue to explore and refine the question of how we measure not just the value of goods and services, or assets and liabilities, over time, but the true “wealth of nations.”
“Sustainability means meeting the needs of the present without compromising the needs of future generations. It is really a lower criterion as it does not mean that people today or tomorrow have good lives, simply that things are not getting worse,” Fenichel said. “It seems like non-declining wealth should be a minimum requirement. What I think we want to see is income, production, and wealth all rising — and also to think about how that wealth is distributed across asset groups and among people.”
