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Launch of `inclusive` wealth index reveals GDP limitations

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Source: SciDev.Net

RIO DE JANEIRO -- A new index that measures a nation's wealth by taking into account factors such as natural resources, social stability and wellbeing, has painted Colombia and Venezuela in a very different light to that suggested by their GDP (gross domestic product) — the traditional measure of a country's success.

The Inclusive Wealth Indicator (IWI) was presented in preliminary form at the Planet Under Pressure conference in London, United Kingdom, in March, and formally unveiled — with further countries and data incorporated — at the UN Conference on Sustainable Development (Rio+20) yesterday (18 June).

The IWI was developed in response to growing calls in the lead up to Rio+20 for a measurement of development that would go 'beyond GDP'. It was created by the United Nations University's International Human Dimensions Programme (IHDP), with support from the UN Environment Programme.

While GDP only considers variables relating to a country's manufacturing output, the IWI combines human capital data — such as a population's educational attainment, and data from forests, fisheries, fossil fuels, minerals and agricultural land (natural capital) — with calculations of manufactured capital. It also considers variables related to health, such as extensions or reductions in life expectancy.

Averaged over two decades, Colombia and Venezuela's GDPs were found to be positive (1.7 per cent and 1.3 per cent respectively). But their IWI scores were negative (-0.1 and -0.3 respectively), indicating that both countries were on unsustainable paths.

Nigeria, Russia, Saudi Arabia and South Africa were also shown to have negative ratings. All other countries — of the 20 chosen to be evaluated — received positive ratings. First place went to China (2.1), followed by Germany (1.8), France (1.4), Chile (1.2), Brazil (0.9), India (0.9) and Japan (0.9).

The findings were presented at Rio+20 by Pablo Munoz, an Argentinean economist with the UN University, who is based in Bonn, Germany.

Munoz told SciDev.Net that there had been extensive discussions over the past decade on 'the need for inclusive wealth indicators, measuring not only manufactured capital, but including other assets such as human capital, natural capital and, ideally, social capital'.

Partha Dasgupta, an economist at the University of Cambridge, United Kingdom, and a scientific advisor to the initiative, said that the index was intended to provide a more diverse analysis of a country's welfare and the elements comprising it.

Colombia was an ideal example of the too-narrow vision of development provided by GDP, Dasgupta said.

Munoz said that while Colombia's GDP had increased by 35 per cent between 1990 and 2008, its natural capital had decreased by 31 per cent. Combining these two types of wealth with variables related to human capital had shown Colombia was on an unsustainable path. Previously, there had not been an indicator to show this.

According to the report, rapid population growth was a key contributing factor to Columbia's poor IWI score.

Columbia's Minister of Environment and Sustainable Development, Frank Pearl González, told SciDev.Net that the ministry was working in collaboration with the National Administrative Departments of Statistics on a system that takes account of natural and human capital, to make better economic decisions in the future.

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