The UN’s Sustainable Development Goals and the wealth of nations

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By Professor Sir Partha Dasgupta
University of Cambridge

In September 2015, the United Nations General Assembly agreed on an agenda for sustainable development in member countries. Nations committed themselves to meet 17 Sustainable Development Goals (SDGs), involving 169 socio-economic targets, by the year 2030. To measure progress in meeting those targets, it was proposed to track more than 240 socio-economic indicators over the coming years. What is missing from the list is an indicator that can be used to judge whether the policies that countries follow to meet the targets protect and promote sustainable development. The missing indicator is an inclusive measure of wealth.

By sustainable development we should mean a path of development along which “social well-being” increases over time; by social well-being, we mean a numerical measure of well-being of not only present people but of future people in society too. (Utilitarian philosophers, for example, would regard social well-being to be a weighted sum of personal well-being from the present into the indefinite future.) As people need assets no matter what they wish to do or be, we should suspect that the idea of sustainable development translates into the requirement that an appropriate measure of a society’s stock of capital goods grows over time. We call the required measure “inclusive wealth.”

What is inclusive wealth?

By inclusive wealth we mean the social value of the economy’s total stock of capital goods, which includes produced capital (roads, building, ports), human capital (education, health, personal knowledge, reputation), and natural capital (ecosystems, sub-soil resources). All other assets, such as institutions and practices, which are often called “social capital”, can be labelled “enabling capital” because they bestow value to the three types of capital goods on our list. (For example, a society composed of trustworthy citizens would be wealthier than a society composed of untrustworthy citizens, other things equal.) Inclusive wealth differs from the usual measure of wealth in two ways: (i) accounting prices are used to value capital goods (they are not necessarily market prices); (ii) the measure includes not only produced capital but human capital and natural capital as well.

The wealth/well-being equivalence theorem

It can show that social well-being increases over time if inclusive wealth increases over time, and declines over time if inclusive wealth declines over time. We may call the italicized statement the “wealth/well-being equivalence theorem.” Thus, inclusive wealth and social well-being are two sides of the same coin. The theorem says that inclusive wealth is the right coin with which to measure sustainable development, not gross domestic product (GDP) nor any of the other measures that have been suggested in recent years, such as the United Nations’ Human Development Index (HDI).

A study sponsored by the United Nations Environment Programme and the United Nations University tracked the inclusive wealth per capita of 140 countries over the period 1992-2014. Strikingly, only 84 countries were found to have experienced non-declining inclusive wealth per head. Moreover, in most countries (and they included both developed and developing economies) produced capital per head, and to a lesser extent human capital per head, increased over the period in question even while natural capital per head declined. Globally, produced capital per head approximately doubled and human capital per head increased by about 13%, but natural capital per head declined by nearly 40%. The publication reported that although there is a positive correlation between the growth rates of GDP per head and inclusive wealth per head during 1992-2014, the correlation is relatively weak (correlation coefficient, 0.24). These findings, rough and ready though they may be, tell us that whether the UN’s Sustainable Development Goals are sustainable remains an unresolved question.

In response: Professor Robin Mason, Pro-Vice-Chancellor (International), University of Birmingham

For much of human history, as best we can tell, the average income per capita changed hardly at all and was very low, in today’s terms. This changed dramatically in the mid-nineteenth century, with an explosion (in some countries at least) in this measure of wealth. Almost two hundred years later, however, we are starting to understand the consequences and limits of this phenomenal growth. In particular, there is a growing realisation that our traditional measure of wealth—gross domestic product per capita, or something similar to that—leaves out many important things. Partha Dasgupta has been at the forefront of thinking through how standard measures of economic wealth should be extended to capture wealth in its broadest sense. The challenge, though, is to know what to measure, and then how to measure it. What, for example, exactly is “human capital”? The amount of education is, presumably, material; but what about the quality of that education? What about “softer” aspects, such as social connections: who you know, as well as what you know? More generally, how do we arrive at a comprehensive list—surely a very, very long one—of all the assets that matter? Once the concepts are clearly defined, how can they easily and consistently be valued, across many different countries with many different ways of collecting national statistics? These conceptual and practical difficulties are profound and are part of the reasons why various attempts in the past to extend national income measures have failed to catch on. But just because it is difficult, it does not mean that it should not be done. Partha Dasgupta is surely right to call for the inclusive wealth of nations to be measured more systematically and to be used more widely, and he has made significant contributions to making this possible.

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