Martin Weitzman, Professor of Economics at Harvard University, discusses the fundamental four-fold relationship among wealth, income, sustainability, and accounting.
Wealth is a stock, not a flow. The country with the highest flow of GDP in a particular year is not necessarily the richest country. The richest country has the highest capital stock, whether endowed or accumulated. While this should in theory be obvious, it is often ignored. A focus on wealth, and changes in wealth, would lead to attention to investment in important assets – whether natural, produced, human, institutional or financial – and sharper attention to sustainability. In this discussion, the panelists consider wealth accounts and policy implications.
The state is often seen as facilitating the process of wealth creation, rather than being a key driver of the process itself. A better understanding of the role that the state has and can play in the wealth creation process is the starting point for policy solutions that can increase the rate of wealth creation, while reducing rent-seeking and ensuring a fairer distribution of that co-created wealth.
In recent decades, governments have largely focused on public debt. Public wealth, however, is largely overlooked and larger than many think. In this discussion, the panelists present on the value of public wealth – theory, balance sheets, financial statements.
Although it is heartening to see wealth inequality being taken seriously, key concepts are often muddled, including the distinction between income and wealth, what is included in “wealth”, and facts about wealth distributions. Philippe Van Kerm discusses research (conducted with Frank Cowell, Brian Nolan, and Javier Olivera) that highlights the issues arising in making ideas and facts about wealth inequality precise, and presents newly-available data taking a fresh look at wealth and wealth inequality in a comparative perspective.
Many countries have set up sovereign wealth funds (SWFs) as vehicles for public saving and wealth management. The majority of SWFs are in resource-exporting countries; frequent objectives are macroeconomic and fiscal stabilisation, inter-temporal transfer of wealth, and national development. Some resource funds hold assets equivalent to several multiples of GDP, but many funds are relatively small. The evidence shows that the design and operation of a SWF can help or encumber economic management and wealth preservation.
Eoin McLaughlin presents research (conducted with Matthias Blum and Cristián Ducoing) on the long-run development of Genuine Savings (GS) using a panel of eleven countries during the twentieth century.
Infrastructure services in energy, transport, water and telecommunications services underpin the wealth of modern nations. Yet, inefficiencies abound. In developing nations hundreds of millions of people lack access to modern infrastructure services. Globally as much as 40% of expenditures on infrastructure may constitute waste, equivalent to some 1 to 2 % of global GDP. Michael Klein discusses infrastructure development, links between infrastructure, wealth and economic growth, and more.
Recognizing environmental constraints, and in particular recognizing that many natural assets are close to falling below their thresholds for sustainability does not imply that economic growth must stop or even slow down. Dieter Helm discusses how it is possible to have economic growth while protecting aggregate natural capital.
What is intangible wealth and what is its relation to TFP and future consumption? The panel discusses how to calculate residual capital, and what its relationship to tangible capital and economic growth is.
Over the next fifty years, most new wealth will be accumulated in cities; this includes physical infrastructure (road, rail, electricity, telecommunications and sanitation), productive capital (houses, offices and factories) and knowledge capital (skills, knowhow and ideas). The development of cities will also determine humanity’s ability to preserve natural capital. Consequently, urbanisation deserves urgent attention from policymakers, academics and businesses worldwide. Dimitri Zenghelis discusses how well-governed, connected, clean cities are likely to attract productive capital, talent, and creativity; while bad governance and inaction over planning can erode progress for decades to centuries.
The welfare returns to investing in trust could be substantial. Michael Woolcock discusses research (conducted together with Kirk Hamilton and John Helliwell) that uses social trust data from 132 nations covered by the Gallup World Poll, presenting a range of estimates of social trust’s wealth-equivalent values.
What are the key research questions around Wealth? Who are the key institutional actors in a coalition that might give rise to acceptance of Wealth as an indicator? The panelists discuss the way forward for Wealth Accounting.
Angela Cummine, political theorist at Oxford University and Director of the Wealth Project, discusses the history and thought behind modern day sovereign wealth funds, asking the question: What measures are needed to ensure that the management of sovereign funds truly reflects, promotes and protects the interests and values of their citizen-owners? For the full podcast, click here.
Diane Coyle explains why GDP is an increasingly inappropriate indicator for the twenty-first-century economy
Mariana Mazzucato speaks about the importance of the public sector in wealth creation
Cities are central to knowledge growth but also resource efficiency, with infrastructural lock-in playing a key role in determining resource use