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Forget GDP And Start Measuring Inclusive Wealth

India and Brazil have had explosive growth over the last decade. Or have they? A new measurement of the true wealth of nations finds that what countries give up for a rise in GDP may be incredibly costly.

Brazil and India have paid dearly for their rapid economic growth. By conventional measures, these two countries have only grown richer: Gross domestic product (GDP) per capita rose 34% and 120% respectively between 1990 and 2008. But the countries’ natural wealth has nosedived as their economic activity ballooned.

But GDP is not the be all and end all of economic success. There are other ways to measure the progress of a society. One way to think about economies is as the aggregate of three sorts of capital: physical (infrastructure and the means of production), human (skills and education) and natural capital. While the first two are renewable (some argue inexhaustible), natural resources such as fossil fuels, soil, biodiversity, and even forests may be depleted, sometimes permanently.

The United Nations is now proposing the "Inclusive Wealth Indicator" as a challenge to the myopic focus on short-term profits and economic capital inherent in GDP. In its early findings, it found that natural capital declined 46% in Brazil and 31% in India during the last 17 years. This reduced the countries’ blazing GDP growth rates to a more modest "inclusive wealth" increase of 3% in Brazil and 9% in India. Much less to get excited about.

The Inclusive Wealth Indicator, which is scheduled to launch later this year, captures economic growth as the aggregate of a country’s wealth including its natural resources. "Our goal is to provide national governments with a bi-annual report to assess transition to the so-called green economy, to create productive and sustainable economic bases for the future," says Anantha Duraiappah, executive director of UNU-IHDP in a release.

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

The UN is not the first to try alternative economic measures. Gross National Happiness has been Bhutan’s official yardstick of progress for decades. The state of Maryland is using the Genuine Progress Indicator. There are efforts worldwide to rename GDP and find new ways to measure progress from the Philippines to South Africa.

Although GDP shows no signs of falling out of favor, the UN will be pushing its first Inclusive Wealth Report, covering 20 nations from Australia to Venezuela representing 72% of world GDP and 56% of global population, this June at the UN Rio+20 summit in Brazil.

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