Index

5:  NATURAL WEALTH? — THE NEGLECTED STATISTIC

Helen Trask

"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. Corporations have been enthroned, an era of corruption will follow, and the money power of the country will endeavour to prolong its reign by working upon the prejudices of the people, until the wealth is aggregated in a few hands, and the republic destroyed." — Abraham Lincoln.

GNP AND ITS LIMITATIONS

Governments and international institutions base their policies on what they call economic growth as measured by GNP or GDP. But as we know this is a very flawed indicator. It influences all economic decisions, and often social and environmental decisions as well but is a totally misleading measure of economic growth and doesn’t include either social or environmental issues.

USING THE GNP TO MEASURE ECONOMIC GROWTH BIASSES POLICIES IN FAVOUR OF:

1). Increasing the production of goods and making money above everything else;

2) The use of technological advance to boost production of goods and

3) Production of expensive luxuries.

IT'S A BIAS AGAINST:

1) Durability and conservation;

2) Using technology to reduce working time;

3) Production of cheaper necessities.

Basically destruction as well as construction increases the GNP.

For example, the cost of the Iraqi war and the cost of rebuilding Iraq. The cost of cleaning up the pollution of air and water etc.

Our priority is to increase our quality of life, or well-being in a Sustainable way NOT to concentrate on increasing our economic growth. The GNP is even less suitable for measuring our quality of life. Because accidents, depletion of resources, cost of crime, ill health due to pollution etc. do not improve our quality of life, whereas they do increase the GNP whilst voluntary work (especially women’s unpaid work) does not go into the GNP.

Fig.1 shows that our life satisfaction has remained virtually the same, though GNP has increased between 1973 and 2000.

MEASUREMENT OF WEALTH

To measure our well-being we need to include a measurement of our NATURAL WEALTH, i.e. a measurement of our forests, our unpolluted air and rivers, our wildlife etc. We derive benefits from this Natural Capital as well as from the capital from our financial assets. But this is left out of G.N.P.

The Canadians have put forward a Canada Well-being Measurement Act asking people what issues they feel affect their well-being. Then their concerns would be investigated and indicators developed to measure progress.

The following is from an article in The New Statesman 3/11/03 titled Economic Growth often accompanies a decline in a poor countries wealth, byPartha Dasgupta.

Wealth should include not only manufactured capital (roads and buildings, machinery and equipment, cables and ports) and what is nowadays called human capital (knowledge and skills, but also natural capital (oils and minerals, fisheries, forests and more broadly, ecosystems).

I use the term ‘inclusive investment’ for this broader definition of wealth and contrast it with the narrower scope of recorded investment.

Inclusive wealth reflects a country’s capacity to maintain human well being i.e. is a better measure of sustainability and development. IT’S A KEY TO ECONOMIC PROGRESS WHICH CAN BE POSITIVE WITHOUT DESTROYING THE EARTH

It is possible that GNP (which does not even acknowledge depreciation of capital assets) grows while inclusive wealth declines, because, for example, minerals are mined, forests cut down etc.

Those who destroy mangroves in order to create shrimp farms are not required to compensate the fishermen dependent on the mangroves etc. When we campaign for the fishermen to get compensation etc. we should also be campaigning for the use of indicators, which measures inclusive wealth.

The World Bank has recently calculated inclusive investment in a large number of countries. The account is incomplete but it is a beginning. See fig.2

Taken together these regions are where the bulk of the billion poorest live, and have experienced the largest population increase.

IN ALL BUT CHINA THERE HAS BEEN A DECUMULATION IN PER CAPITA INCLUSIVE WEALTH.

Moreover given that the populations of Bangladesh and Nepal grew at a slower rate than their wealth per head declined, these countries became poorer in the aggregate. In India, sub-Sahara and Nepal the aggregate grew but did not keep pace with the growing population. The figures for Bangladesh, India, Nepal and Pakistan should cause surprise. Only China has managed to accumulate inclusive wealth in excess of population growth. Because the World Bank’s estimates do not include soil erosion or urban pollution these figures should be treated with caution. Contrast the second column of mostly minus signs with GNP our assessment of development in the Indian sub-continent using GNP would be highly misleading. We would see Pakistan, for instance as a country where GNP per head would grow at a healthy 2.7% per year, implying that wealth per head doubled in value between 1965 and 1993. The figure in the second column however implies that the average Pakistani became one and a half times poorer in the same period. The average Bangladeshi was only about half as wealthy as he or she was over the same time.

The average person in sub-Sahara Africa is twice as poor over the same period.

This table suggests that this area has experienced an enormous decline in its capital assets over the past 3 decades.

We would by now have been far ahead in our understanding of what has really happened if development economists had taken nature’s services seriously in the past.

THE INEQUALITIES OF WEALTH

Worldwide the inequalities of wealth have increased much more than the inequalities of income. See fig.3, 4 and 5. This fact is unrecognized by economists, who focus only on income inequalities. (RWEO p.xxvi)

When debts can’t be serviced then assets such as land, minerals etc. are sold.

While the dynamics of profits might be unstable, the dynamics of capital gains (in particular interest or compound interest) follow a straight line upwards. (RWEO p.15). There are now 7.1 million High Net Worth Individuals (HNWI) who have $26.2 trillion. In Latin America the HNWIs’ wealth grew by 8% in 2001 despite the appalling economic decline in the region that year.

Growing inequality is evident in the UK as well. Excluding household wealth, the bottom 50% owns only 1% of the wealth. In 1976 they had 12%.

A SUGGESTION FOR THE RIGHT TO A BASIC CAPITAL

We have always been taught that we must work, work, work to earn a living; It’s always jobs, jobs, jobs because for most of us it is the only way to get a living. However a lot of people cannot work and jobs are not always available and most people in the world only get paid a pittance. But in fact productive capital does most of the work and creates most of the wealth. In large parts of the world, millions of people labour ceaselessly every day and they are, and always will be, in poverty because they own little or no capital.

The blindness of the conventional schools to the productive power of capital then allows the schools to say that it does not matter who owns the capital assets because its jobs that matter. Thus in practice the schools support mechanisms that keep the capital assets narrowly owned (or in the case of communist or socialist economies, narrowly controlled) by roughly 5-10% of the population, rather than individually owned by everyone. At present the capital markets exclude 90% of the population from participation and thus from capital acquisition. Because capitalism productive capacity is not widely spread consumption is also not widely spread. Convention says jobs and welfare are enough for most people but there can never be proper market efficiency, or substantial growth, or any hope of social and economic justice without the ownership of productive capital extending widely throughout the population and this includes sharing common resources such as:

a) land - its site value;

b) energy - its unextracted value;

c) the environment’s capacity to absorb pollution and waste;

d) the use of space for road traffic, airports etc.;

e) water, including waterborne traffic;

f) the electro-magnetic spectrum (including radio);

g) the value created by issuing new money.

THE FOLLOWING ARE SOME SUGGESTIONS AS TO HOW THIS COULD BE DONE:

Every year in the U.S.A. new capital investment, to the tune of $7,500 for every man, woman and child, is made. But the US government allows workers without savings to purchase shares through an organization called ESOP (Employees Share Ownership Plan). There are now over 11,000 schemes reaching 11 million people. US Government allows workers without savings who adopt ESOP to purchase shares on credit wholly secured by the future profits of the company. This is one way of sharing capital.

In Peter Challen’s book he suggests how this could be done here, and shows how to open individual capital ownership to anyone. A constituent trust is set up. When a big company wishes to expand, it asks a constituent for money. The local bank assesses the soundness of the company’s proposal and if approved lends money to the trust. The Trust buys shares in the company with the money, holding these shares in the constituent’s name(s).

This money is cheap because it is lent at 0% interest as long as this investment makes capital owners of previously capital-less people.

{To see how this is OK read Jerry Bains’ article in the Green World. He points out the difference between money, which is earning and money just made out of nothing by the banks, and whereas the first earns interest the second earns nothing and should not have interest. (only demurrage).}

For the next 5-7 years the Trust will get dividends, which will be used to pay off the share and repaid, to the bank. The stock, now paid for is given to the client. The client becomes the owner of capital estate providing income. Overall there is an increase in productive and consuming capacity but no increase in the money supply, so there is no inflation.

Everyone should receive a basic income as a right to some of their share of the ‘Commons’.

By shifting the creation of new money from the banks to the government would give an estimated £45bn a year to public revenue (See James Robertson’s book, Creating New Money.)

In the global dimension nations should pay for ocean fishing; sea-lanes flight lanes, outer space & for the electro spectrum.

A genuine international currency should be created.

Revenue from global taxes could be distributed to every world citizen as a global citizen’s income based on fair shares of the value of global resources.

In conclusion, there needs to be:

massive support for indicators, which measure a country’s progress, which include its inclusive wealth. both its capital assets and its natural wealth;

recognition that everyone has a right to their share in the common global resources;

recognition that their natural wealth continues to be taken from the ‘poor’ from before the enclosure of the commons till the present days, and current laws are robbing them of their right to their plants and seeds.

References:

Peter Challen: Seven Steps to Justice

James Robertson: Creating New Money

Partha Dasgupta Sharing limited resources and a change of course

Ann Pettifor Ed.Real World Economic Outlook

Helen Trask, 2003

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