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Home > By DEPARTMENTS > Management > Green Economy

Total Wealth -- Nation by Nation, Resource by Resource

Community and company sustainability are based in rule of law and education ... who knew?

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california poppies wildflowers native ecosystem Some leaders think of their companies as "family." I see companies as "communities" -- they just don't have the lifetime affiliations of families, but they do have the interconnections, mutual benefits, roles, and outcomes of communities within larger communities. They are like tribes.

Sustainability concepts are helping business leaders explore how businesses have broader roles in society -- how their productivity affects not only their immediate community, but the community of the future and distant stakeholders. If we think of a company being somewhat like a "country", we can learn a lot from the research findings reported below by the World Bank.

The World Bank finds that, "Human capital and the value of institutions (as measured by rule of law) constitute the largest share of wealth in virtually all countries."

The World Bank's environmental economics department set out to assess the relative contributions of various kinds of capital to economic development. Its study, "Where is the Wealth of Nations?: Measuring Capital for the 21st Century," began by defining natural capital as the sum of nonrenewable resources (including oil, natural gas, coal and mineral resources), cropland, pasture land, forested areas and protected areas. Produced, or built, capital is what many of us think of when we think of capital: the sum of machinery, equipment, and structures (including infrastructure) and urban land.

But once the value of all these are added up, the economists found something big was still missing: the vast majority of world's wealth!

The rest is the result of "intangible" factors—such as the trust among people in a society, an efficient judicial system, clear property rights and effective government. All this intangible capital also boosts the productivity of labor and results in higher total wealth.

Once one takes into account all of the world's natural resources and produced capital, 80% of the wealth of rich countries and 60% of the wealth of poor countries is of this intangible type.

THINK ABOUT IT: "skills" and "operational system".

The bottom line: "Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity."

The rule of law explains 57 percent of countries' intangible capital.

Education accounts for 36 percent.

THINK: "It's how we share it equitably!"

The natural wealth in rich countries like the U.S. is a tiny proportion of their overall wealth—typically 1 percent to 3 percent— yet they derive more value from what they have. Cropland, pastures and forests are more valuable in rich countries because they can be combined with other capital like machinery and strong property rights to produce more value.

On the rule-of-law index, these are some of the scores:

  • Switzerland scores 99.5 out of 100
  • U.S. hits 91.8
  • Nigeria's score is 5.8
  • Burundi's 4.3
  • Ethiopia's 16.4.
  • Members of the Organization for Economic Cooperation and Development—30 wealthy developed countries—have an average score of 90, while sub-Saharan Africa's is a dismal 28.

Overall, the average per capita wealth in the rich Organization for Economic Cooperation Development (OECD) countries is $440,000, consisting of $10,000 in natural capital, $76,000 in produced capital, and a whopping $354,000 in intangible capital. (Switzerland has the highest per capita wealth, at $648,000. The U.S. is fourth at $513,000.)

THINK: Replace "country" with "company".

In fact, some countries are so badly run, that they actually have negative intangible capital. Through rampant corruption and failing school systems, Nigeria and the Democratic Republic of the Congo are destroying their intangible capital and ensuring that their people will be poorer in the future.

THINK: Replace these concepts with "us" and "our competitors". Pay attention to your intangible resources.

Comparing Annual Purchasing Power Parity of US and Mexico

Country Natural Capital Produced Capital Intangible Capital TOTAL GDP per capita
US $15,000 $80,000 $418,000 $513,000 $43,800
Mexico $8,500 ($6,000 due to oil) $19,000 $34,500 $62,000 $10,700


It's no wonder neighbors to the south find it worth the risk to them to flee over the border for economic opportunity for themselves and their families.

THINK: Replace the word "aid" with "investment funds"

The World Bank study bolsters the deep insights of the late development economist Peter Bauer. His 1972 book, "Dissent on Development," postulated, "If all conditions for development other than capital are present, capital will soon be generated locally or will be available . . . from abroad. . . . If, however, the conditions for development are not present, then aid . . . will be necessarily unproductive and therefore ineffective. Thus, if the mainsprings of development are present, material progress will occur even without foreign aid. If they are absent, it will not occur even with aid."

THINK: Replace these concepts with "corporate strategy" and "continual learning".

The World Bank's pathbreaking "Where is the Wealth of Nations?" convincingly demonstrates that the "mainsprings of development" are

  • The rule of law and
  • A good school system.

SOURCE: "The Secrets of Intangible Wealth"
Ronald Bailey, October 5, 2007

SUMMARY

Sustainable concepts such as the Triple Bottom Line, "People, Planet and Profits" and being a responsible, transparent part of a community are part of our intangible wealth. What systems are we building? Do they educate our people? Do we treat one another with an equitable rule of law? Do we build our intangible wealth instead of depleting our natural resources?

When we discover that WHAT we DO is even more important than WHAT we HAVE, we will use our brain power more than our brawn to innovate a thriving community. In our own office. In our company. In our communities...and across the globe.

Our company thrives when we learn and grow together equitably. We learned that very early. We will be 'sustainable' and thrive when we apply these basic principles in our daily work in the workplace and in our homes.



Edited by Carolyn Allen, owner/editor of California Green Solutions
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