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The Quest for Development, through Wealth Accounting

Posted by Jeffrey A Brez Thursday, July 7, 2011


by Gianni Ruta (Senior Environmental Economist, World Bank)

Measuring the wealth of nations was a concern already a millennium ago, when William the Conqueror commissioned the Domesday Book for fiscal purposes. We had to wait until the birth of the economics profession, with Adam Smith, to see the question put forth as a major development issue. Unfortunately, wealth measurement has been forgotten by economists in recent decades. A focus on GDP growth has overshadowed the concern for managing the natural assets (and social capital) upon which growth crucially depends for the long run, and GDP growth is not a measure of sustainable growth.

But I was pleasantly surprised when I visited IFAD on Monday to present the “The Changing Wealth of Nations”, and was reassured that sustainability and the importance of natural assets have not been forgotten by these practitioners of agriculture and rural development. In a stimulating 90-minute exchange, we explored the uesfulness of wealth accounting for rural development, agriculture and sustainable land and water management. Take a look at my powerpoint where I present major insights from the book and introduce the theory and practice of wealth accounting.



I was pleased by the hard-nosed questions of IFAD's (and FAO's and WFP's) macroeconomists and agriculture specialists, aware that the way forward is not simple. Extending the measurement of capital to include not only natural but also human and institutional assets carries conceptual and practical challenges, including how market prices for natural assets in different countries affect measures of total wealth. A major challenge is how to disentangle the contribution of ecosystem services to the value of agricultural land and other assets. I like to remind myself that already we are shifting the paradigm from a focus solely on today's income to a more healthy focus on both today's plus tomorrow's income. Still, we have lots of work to do.

Let me invite you to engage with the new Global Partnership on Wealth Accounting and Valuation of Ecosystem Services (WAVES) so that together we may continue to progress.

I found a group of individuals striving to connect research and operations to the benefit of their stakeholders. Key discussion points included: How can we acknowledge the impacts on values/prices of management practices and uses of natural assets? Is there a way to factor in the effects of land tenure? How are the availability of data and market forces affecting the emerging global trends that we see? How can wealth accounting support investments in "intangible" (social capital, institutions) assets? In summing up, the central message was unequivocally clear: how we measure development will drive how we do development.

A special thank you to Kevin Cleaver for moderating the discussion, and to my hosts!

A Few Words from IFAD: We were grateful to have Gianni join us to engage with a full room of interested staff - and also appreciated the engagement of FAO and WFP colleages who dialled in to participate. IFAD recognizes the importance of acknowledging the social, cultural and economic values of the natural assets of the rural poor and smallholder farmers. If we don't understand those values and factor them into our partnerships and investments, the outcomes will suffer. This is a core principle (#2) of our recently launched ENRM Policy.

1 Responses to The Quest for Development, through Wealth Accounting

  1. You are right that development is key of reduce of poverty....