India beats Australia on ‘inclusive wealth’

There is growing criticism of the use of GDP as an indicator of national success Copyright: Flickr/401K

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[LONDON] The first fruits of attempts to create an index of a nation’s wealth, which takes account of its natural and human capital and what it produces, were unveiled today at the Planet Under Pressure conference (26–29 March).

The Inclusive Wealth Indicator (IWI) reveals Australia, Brazil and India in a different light from that indicated by the traditional measure of a country’s success — GDP (gross domestic product).

Brazil and India showed increases in Inclusive Wealth over nearly two decades that were far more modest than their increases in GDP, while Australia — which also posted a rise in GDP over the last two decades — actually declined in inclusive wealth.

There is growing consensus around the world that GDP, a measurement of a nation’s economic activity, is too widely invoked as an index of a nation’s success. GDP takes no account of natural resources, social stability, wellbeing and other factors.

This article is part of our Planet Under Pressure 2012 coverage — which takes place 26–29 March 2012. To read insights from our conference team please visit our blog.

Calls for a measurement that goes "beyond GDP" have been growing in the build-up to the UN Conference on Sustainable Development (Rio+20) to be held in Brazil in June.

Some 17 researchers from seven countries have been working on a new indicator for the United Nations University’s International Human Dimensions Programme (IHDP) with the support of the UN Environment Programme.

Anantha Duraiappah, executive director of the IHDP — revealing figures today which he noted were preliminary — said inclusive wealth included three components: natural capital, produced capital and human capital.

Natural capital includes resources such as forests; produced capital is a measure of infrastructure; and human capital is based on the average number of years of education a country’s citizens receive.

India’s GDP, averaged over 18 years, recorded an average growth of 4.52 per cent per year, and its IWI increased at 0.52 per cent per year. It was a similar story for Brazil, where there was a sharp rise in GDP, and a modest rise in inclusive wealth.

In comparison, while Australia’s GDP was nearly 2.17 per cent, its inclusive wealth declined year on year by -0.05 per cent.

Looking more closely at the three components, Duraiappah said declining natural capital in both Australia and India was the underlying factor in their low IWI scores.

The report found India’s natural capital fell by 2.04 per cent over the period, and Australia’s also fell by a more modest 1.75 per cent.

"The draw-down on natural capital over the last 20 years has been worldwide," Duraiappah said, saying that only countries that had been building up their forest reserves had seen a rise in natural capital.

"A country could completely exhaust all its natural resources while posting positive human growth. We need an indicator that estimates the wealth of nations — natural, human and manufactured — and ideally even the social and ecological constituents of wellbeing."

Duraiappah said the IWI is a macroeconomic indicator but is constructed in such a way that one could ‘drill down’ to find data relevant to different sectors. It could, for example, guide businesses on where to invest.

Pablo Munoz, of IHDP, scientific director for the report, said in a statement: "Until the yardsticks which society uses to evaluate progress are changed to capture elements of long-term sustainability, the planet and its people will continue to suffer under the weight of short-term growth policies."

The full report, detailing the inclusive wealth of 20 developed, developing and least developed nations, will be launched in June, enabling critics to assess its data and methods.

Link to live web streaming of the conference

For more news and analysis of the Planet Under Pressure 2012 conference click here, and also see our live blog.