This post was authored by Richa Gupta during an internship at Fields of View.
(Please read the previous blog ‘The Inclusive Wealth Report 2014’ on Inclusive Wealth Index)
These two reports have led to the development of several recommendations for the included countries. These include the incorporation of Inclusive Wealth into planning post-2015 Sustainable Development Goals (SDGs), and the evaluation of macroeconomic policies (such as monetary and fiscal policies) based on IWI rather than on GDP per capita—as this would ensure sustainable and long-term, rather than purely short-term, growth.
Additionally, nations experiencing diminishing returns (that is, the decrease in marginal output) of natural capital are encouraged to invest in reforestation, agricultural biodiversity, and renewable natural capital. Moreover, as said by Dr. Anantha Duraiappah, director of the UNESCO / Mahatma Gandhi Institute of Education for Peace and Sustainable Development, “The report is a tool for making macroeconomic decisions on what and where to invest”. And lastly, as written in the Inclusive Wealth Report 2014, “The inclusive wealth index is […] a complement to GDP, not its replacement. The shift to sustainability as a core development pillar demands an index that can quantify, measure, and track sustainability”.
However, although the IWI is a better indicator of economic growth and prosperity, it still has its own limitations. For example, it does not factor in happiness levels, suicide rates, life satisfaction, and the accessibility of housing. It also doesn’t take social capital of a country into account; social capital is a form of economic and cultural capital wherein goods and services are produced for a common good rather than for selfish interests, and transactions are characterised by trust, cooperation, and reciprocity.
In addition, natural capital is often difficult to accurately price. For example, the UN cannot include common access resources like clean air—since it is not directly owned by anyone, and is available for people to use without payment. Hence, when the Inclusive Wealth Index is computed, only natural capital with a market price can be included (such as petroleum, gas, metals, and timber). The Economist suggested another example: bees create honey, which can be sold on the market. But they also pollinate nearby apple trees, a useful service that is not purchased or priced. So, calculations of the Inclusive Wealth Index will invariably be rough, unless economists make a conscious effort to quantify the value of clean air, pollination, and the myriad of others.
But despite its limitations, the concept of Inclusive Wealth has been widely embraced, since it represents development based on concern for the environment and future generations. And it has been predicted by Professor Dasgupta that eventually, people will drop the adjective “inclusive”, and will only call it “wealth”—since, after all, economic wealth is not synonymous with solely income, but also with human capital, the environment, and sustainability.