Inclusive Wealth - Metric

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The New "Inclusive Wealth" participative metric and why it is important



"Technically, Inclusive Wealth is a reform of neo-classical economics, using accounting prices (i.e., substitution prices) to put a monetary value on key capital stocks in nature, the manufactured economy, human welfare, and human knowledge. The core idea: manage all those stocks so that they don't decline over time, and you get sustainability. Now, some people have a big problem with putting a monetary value on nature or welfare, or with big hairy equations, or with economics in general. But this is the best attempt I've seen yet to fix some fundamental problems in economics that lie at the heart of our current global dilemma. Fix the economics, and fixing a million other problems in this world that are currently very, very hard to change will get noticeably easier.

The problems with the Gross Domestic Product have been well known, and mostly ignored, for decades. Efforts to reform the GDP have occasionally made little splashes over the last twenty years, the biggest one back in 1995 by the folks at Redefining Progress (RP), one of a small handful of research efforts around the world promoting some variation on the Index of Sustainable Economic Welfare (ISEW). First introduced by Herman Daly and John Cobb, the ISEW was renamed the Genuine Progress Indicator by the folks at RP. News about it first graced the cover of Atlantic Monthly (If the GDP is Up, Why is America Down?) back in October of 1995. The GPI, which subtracts bad stuff out of the GDP instead of adding it to the total, sends a "things are getting worse" message, showing a downturn since about the 1970s driven by rising environmental costs and social problems. Meanwhile the GDP has been a consistent beacon saying, "Things are getting better and better."

What exactly is "Inclusive Wealth"? It is an attempt to measure the the change in value over time of all the critical capital stocks in an economic system, at constant prices. Natural resources. Ecosystems. Manufactured capital. Human welfare. Human knowledge. Inclusive Wealth is "inclusive" for two reasons: one, because it tries to include everything that actually matters in economic development (which is a first, even for economics); and two, because it includes the interests of future generations. This is a genuine economics of sustainability. For the big-name team of economists and ecologists who thought this up, sustainability can be defined this way: the value of your wealth, in all its forms, should not decline over time. The next generation must inherit watersheds that still work, infrastructure that isn't collapsing, a store of knowledge (and healthy people who know the knowledge) that's getting bigger and richer instead of smaller and stupider, and so on. You measure sustainability by figuring out whether all those capital stocks are maintaining or increasing their value, continuously. If they aren't, it's time to change your course ... or perhaps to learn to fiddle, so that you are ready for when Rome starts to burn.

The important distinguishing feature of this method is the use of accounting prices, or what might be called the "real price" (though economists do not call it that, preferring the more obscure term "shadow price"). Such prices reflect the actual cost of replacing the asset, and do not vary with changes in valuation by the market. "We are looking for the value of changes in assets," writes one research team about its field project, "and not for the changes in the value of assets." (

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Other alternative metrics:

  1. Genuine Progress Indicator
  2. Gross National Happiness