The Changing Wealth of Nations Measuring Sustainable Development in the New Millennium Gianni Ruta Environment Department ...
Wealth and Sustainable Development <ul><li>Stiglitz:  we don’t judge a company solely on the basis of income statements—lo...
Outline <ul><li>The wealth of nations in 2005 </li></ul><ul><li>What changed? 1995-2005 </li></ul><ul><li>WAVES </li></ul>
<ul><li>The Wealth of Nations in 2005 </li></ul>
Where is the wealth of Ghana? Shares of total wealth, 2005 Shares of natural wealth, 2005 Total wealth / capita: $9,500
Where is the wealth of the UK? Shares of total wealth, 2005 Shares of natural wealth, 2005 Total wealth / capita: $663,000
Composition of Wealth Shares by country income class, 2005 Intangible wealth —human and social capital—dominates in almost...
For developing countries--especially low-income countries--the challenge is to leverage natural capital for growth  <ul><u...
Importance of human and social capital <ul><li>Investment in human capital—but especially in good institutions, the rule o...
<ul><li>What changed? 1995-2005 </li></ul>
How did wealth change from 1995 to 2005? Growth in total and per capita wealth by region Globally, wealth grew 34% in tota...
Development & changing composition of wealth Lower-middle income countries:  shares of total wealth 1995-2005 Percent of t...
Change in total wealth by type of asset   $ billion, 1995-2005
Implications for ministries of finance <ul><li>From increasing GDP… </li></ul><ul><li>… to </li></ul><ul><ul><li>Strengthe...
Wealth Accounting and Valuation of Ecosystem Services:  Expanding accounts for Natural Capital
Why do we need WAVES? <ul><li>MEA:  undervaluation of natural capital a major cause of ecosystem degradation and biodivers...
Major Components of WAVES <ul><li>Implementation of natural capital accounting, physical and monetary, in 6-10 countries: ...
Natural Capital Accounting under WAVES <ul><li>Accounts include </li></ul><ul><ul><li>Physical measures & monetary value o...
Overcoming obstacles from past environmental accounting initiatives <ul><li>Identify policy links early on & Identify stro...
How we measure development will drive how we do development Thank you! http://data.worldbank.org www.worldbank.org/program...
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July 4, 2011 wealth of nations (at ifad) gianni ruta

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  • “ The Changing Wealth of Nations: Measuring Sustainable Development in the New Millennium” (World Bank, 2011) Comprehensive wealth accounts for Ten years, 1995-2000-2005 for more than 120 countries Manufactured, Natural, Human &amp; Social capital Natural capital includes: energy &amp; mineral stocks, agricultural land, forests, protected areas Changes in wealth—Adjusted Net Saving, calculated annually
  • Natural capital is most important in low income countries—more than twice as large as produced capital In middle income countries natural capital and produced capital are roughly equal Intangible wealth dominates in all countries, especially in high income countries
  • Work led by my co-author, Kirk Hamilton demonstrate the importance of social capital, especially the rule of law Work led by Barbara Fraumeni and Chinese colleagues for China demonstrate that the economic reforms increased the returns to HC far beyond the increase in educational attainment.
  • The challenge of development is to manage Total volume of assets—how much to save vs. how much to consume Composition of the asset portfolio—how much to invest in different types of capital
  • Lower middle income countries – roughly from $1000 to $4000 per capita GDP
  • Framework for implementation of WAVES: SEEA System of Environmental and Economic Accounting (SEEA) is a comprehensive accounting framework, like the System of National Accounts, that includes both indicators for evaluation performance as well as detailed statistics for management: asset accounts (physical &amp; monetary); flows of energy, materials, pollution; environmental taxes/subsidies &amp; expenditures; macroeconomic aggregates and indicators Developed under the UN Statistical Commission by national &amp; international statistical agencies over the past 20+ years Statistical standard for some parts of the SEEA by 2012 Accounting for ecosystems is relatively undeveloped in the SEEA, but is a major focus of current and future work
  • Implementation &amp; funding of the Partnership Partnership with UNEP, UNDP, UNCEEA, donors, partner countries, NGOS and others Building on initiatives of partners in pilot countries 2 phases: 1-year preparation phase ($750,000), through Dec 2011 Establish the Global Partnership Assemble Policy &amp; Technical Experts Group to develop methodology for ecosystem accounting Feasibility &amp; planning studies for 6 pilot countries 4-5 year implementation phase ($15 million), through 2015 Milestones: 2012: Preliminary report to Rio+20 Summit 2015: Report to the MDG review, proposal regarding environment MDG
  • July 4, 2011 wealth of nations (at ifad) gianni ruta

    1. 1. The Changing Wealth of Nations Measuring Sustainable Development in the New Millennium Gianni Ruta Environment Department The World Bank
    2. 2. Wealth and Sustainable Development <ul><li>Stiglitz: we don’t judge a company solely on the basis of income statements—look at both income and balance sheets. </li></ul><ul><li>Why do we assess country economic progress on the basis of national income alone? </li></ul><ul><li>The source of income and well-being is wealth broadly defined to include </li></ul><ul><ul><li>Manufactured capital </li></ul></ul><ul><ul><li>Natural capital </li></ul></ul><ul><ul><li>‘ Intangible’ capital: human capital and social capital </li></ul></ul><ul><li>Comprehensive Wealth Approach to Sustainable Development: </li></ul><ul><li>Economic development is a process of building wealth and managing this portfolio of assets </li></ul>
    3. 3. Outline <ul><li>The wealth of nations in 2005 </li></ul><ul><li>What changed? 1995-2005 </li></ul><ul><li>WAVES </li></ul>
    4. 4. <ul><li>The Wealth of Nations in 2005 </li></ul>
    5. 5. Where is the wealth of Ghana? Shares of total wealth, 2005 Shares of natural wealth, 2005 Total wealth / capita: $9,500
    6. 6. Where is the wealth of the UK? Shares of total wealth, 2005 Shares of natural wealth, 2005 Total wealth / capita: $663,000
    7. 7. Composition of Wealth Shares by country income class, 2005 Intangible wealth —human and social capital—dominates in almost all countries … but Natural capital is especially important in low income countries—averaging 36%, and in some countries more than 50% of wealth
    8. 8. For developing countries--especially low-income countries--the challenge is to leverage natural capital for growth <ul><ul><li>Subsoil assets : essential to transform non-renewable capital into other forms of capital </li></ul></ul><ul><ul><li>Land : efficient management of agricultural land, forests and protected areas, especially where competing land use is an issue </li></ul></ul>Shares of natural wealth (%), 2005 Crop Land Pasture Land Forest and Protected Areas Subsoil Assets East Asia-Pacific 55 6 16 23 Europe-Central Asia 14 11 13 62 Latin America-Carib. 33 10 27 30 MidEast-North Africa 20 8 2 69 South Asia 49 25 13 13 Sub-Saharan Africa 35 13 17 36
    9. 9. Importance of human and social capital <ul><li>Investment in human capital—but especially in good institutions, the rule of law, transparency—is critical for wealth creation. </li></ul><ul><li> Social capital increases the return to all assets by improving management </li></ul><ul><ul><li>Most of the increase in wealth in Sub-Saharan Africa was human and social capital </li></ul></ul><ul><ul><li>In China, 1995 institution and market reforms increased returns to human capital (9.2% annual growth in value of HC after 1995) </li></ul></ul>
    10. 10. <ul><li>What changed? 1995-2005 </li></ul>
    11. 11. How did wealth change from 1995 to 2005? Growth in total and per capita wealth by region Globally, wealth grew 34% in total and 17% per capita Change in wealth (%)
    12. 12. Development & changing composition of wealth Lower-middle income countries: shares of total wealth 1995-2005 Percent of total wealth
    13. 13. Change in total wealth by type of asset $ billion, 1995-2005
    14. 14. Implications for ministries of finance <ul><li>From increasing GDP… </li></ul><ul><li>… to </li></ul><ul><ul><li>Strengthening natural resource management </li></ul></ul><ul><ul><li>Investing resource rents in other assets </li></ul></ul><ul><ul><li>Investing in people </li></ul></ul><ul><ul><li>Building institutions </li></ul></ul>
    15. 15. Wealth Accounting and Valuation of Ecosystem Services: Expanding accounts for Natural Capital
    16. 16. Why do we need WAVES? <ul><li>MEA: undervaluation of natural capital a major cause of ecosystem degradation and biodiversity loss </li></ul><ul><li>Progress with valuation: wide support in the environment community (TEEB), </li></ul><ul><li>How do we convince Ministries of Finance, Treasury, Planning agencies that they have a stake in sustainable mgmt of natural capital </li></ul><ul><li> bring natural capital into the national income accounts to show the link between natural capital and long-term growth, sustainable development </li></ul><ul><li>Framework for implementation of WAVES: SEEA </li></ul>
    17. 17. Major Components of WAVES <ul><li>Implementation of natural capital accounting, physical and monetary, in 6-10 countries: </li></ul><ul><ul><ul><li>Colombia, Madagascar, Botswana, Philippines, India (Costa Rica, Mexico, Vietnam, Indonesia) </li></ul></ul></ul><ul><ul><ul><li>Australia, Norway, UK, (Canada, Japan) </li></ul></ul></ul><ul><li>Incorporate natural capital accounts in policy analysis and development planning </li></ul><ul><li>Help develop methodology for ecosystem accounting for the SEEA </li></ul><ul><li>Promote adoption of natural capital accounting beyond the pilot countries </li></ul>
    18. 18. Natural Capital Accounting under WAVES <ul><li>Accounts include </li></ul><ul><ul><li>Physical measures & monetary value of ecosystem services produced annually and cost of degradation </li></ul></ul><ul><ul><li>Distribution of benefits from ecosystem services, and burden of degradation among different stakeholders </li></ul></ul><ul><ul><li>Value of assets, Comprehensive Wealth accounts </li></ul></ul><ul><li>Issues: </li></ul><ul><ul><li>Scaling up from specific ecosystems to national level </li></ul></ul><ul><ul><li>Valuing public lands, global commons </li></ul></ul><ul><ul><li>Handling thresholds, irreversibilities </li></ul></ul><ul><li>Valuation techniques: </li></ul><ul><ul><li>Market prices for provisioning & recreational services </li></ul></ul><ul><ul><li>Other techniques—ecological production functions-- for regulating services, drawing on models such as ARIES, InVest, and others </li></ul></ul>
    19. 19. Overcoming obstacles from past environmental accounting initiatives <ul><li>Identify policy links early on & Identify strong ‘champion’ within a country to lead a cross-sectoral national steering committee </li></ul><ul><li>Provide technical support & training </li></ul><ul><li>Scientific credibility/internationally endorsed approach </li></ul><ul><ul><ul><li>Link to the SEEA to provide credibility on the accounting to Ministries of Finance, statistical offices </li></ul></ul></ul><ul><ul><ul><li>Policy &Technical Experts Group—important to link policy and science early on </li></ul></ul></ul>
    20. 20. How we measure development will drive how we do development Thank you! http://data.worldbank.org www.worldbank.org/programs/waves

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