Policy Recommendations

The  Inclusive  Wealth  Index  (IWI)  measures  the assets available in an economy, namely produced, human, and natural capital. It shows whether a country’s wealth has been increasing or decreasing and thus presents a comprehensive accounting tool for policy-makers and national planning authorities. With the IWI, authorities can monitor  the  development  of  a  country’s  well-being and ensure it is on a sustainable track.

1) Countries  witnessing  diminishing  returns  in natural capital should build up investments in renewable natural capital to increase their inclusive wealth and the well-being of their citizens. 

The majority of countries assessed in the Inclusive Wealth Report 2012 (IWR 2012) have seen reductions in their natural capital base and increases in IWI per capita. This shows that the countries may have invested the gains from natural capital into other forms of capital, however, this cannot be  continued  indefinitely  as  natural  resources may be fully depleted and/or experience diminishing  returns.  The  IWI  can  be  substantially  in- creased  if  countries  with  low  IWI  growth  rates invest more in building up their renewable natural  capital  assets.  Examples  of  investment  in renewable  natural  capital  include  reforestation (REDD+  programs),  agro-biodiversity  landscapes, and seascapes. 

2) Countries  should  embed  the  Inclusive  Wealth Index within both their macroeconomic planning   and   development   ministries   alongside common  economic  indicators  like  GDP.  Projects and activities are thereby evaluated based on an approach that includes natural, human, and manufactured capital. 

Economic   planning,   poverty   reduction,   and conservation strategies are typically designed to meet specific objectives and are evaluated based on project-level targets. However, there is often a high interependency among the various social, economic,  and  environmental  components  so that a limited evaluation might not be sufficient to ensure sustainability of the outcomes. Instead, the authors of the Inclusive Wealth Report 2012 suggest that governments require projects to be evaluated at the sectoral level and with regard to potential impacts on the three capital asset bases (produced, human, and natural capital) and over- all changes in the IWI. The benefits of getting a more inclusive view of the practical consequences of decision-making might provide guidance in a  country’s  transition  toward  sustainable  development.

3) Governments  should  shift  from  an  income- based  accounting  framework  to  a  wealth  accounting framework.

The present accounting systems used at the national level are based almost exclusively on economic  production  and  income.  There  tends  to be  limited  information  available  on  a  country’s other  capital  stocks,  like  human,  natural,  and social  capital.  An  inclusive  wealth  accounting framework,  however,  tracks  changes  in  the  different capital assets, providing a comprehensive account  of  changes  in  a  country’s  productive base over time.

4) Governments should move away from GDP per capita and evaluate their macroeconomic policies based on contributions to the country’s inclusive wealth instead. 

Short-term  economic  indicators  like  gross  domestic  product  (GDP)  and  the  Human  Development  Index  (HDI)  commonly  used  to  monitor economic  production  fail  to  reflect  the  state  of natural  resources  or  ecological  conditions  and give  no  indication  of  whether  national  policies are sustainable over longer periods of time. The objective of policies based on these assessments (e.g. fiscal and monetary policies) has traditionally  been  to  increase  economic  growth  as  measured by GDP, and keep inflation low and employment high. However, GDP only measures a certain proportion of a country’s productive base. It does not reflect depletions of the natural, human and possibly  even  manufactured  capital  asset  base and possibly contributes to such a depletion. In this  light,  the  authors  of  the  IWR  2012  propose to focus on increasing the inclusive wealth of a country by investing in the different capital asset bases. A regular assessment of the development of a nation’s productive base over time will also give an indication of how to facilitate sustainable development.

5) Governments  and  international  organizations should establish research programs for valuing key components of natural capital, particularly ecosystem services. 

The  usefulness  of  the  IWI  can  only  be  fully  realized  once  there  is  a  set  of  functioning  wealth accounts. The accounts developed in this report are  only  in  their  infancy,  with  data  gaps  in  the natural and human capital categories. Although much  progress  has  been  made  in  developing  a typology  for  the  natural  capital  accounts,  there is  still  much  theoretical  and  empirical  work  to be done to make them fully operational so that they become mainstream instruments in government policy-making. This can be achieved if governments  and  international  organizations  form partnerships  to  design  and  fund  research  programs  to  get  better  estimates  of  natural  capital stocks and their values.