The World Bank recently published a study, “Where is the Wealth of Nations?: Measuring Capital for the 21st Century”, which is generating a lot of buzz. Why? Because, in trying to quantify the value of capital and resources in economic development, the found that most of the world’s wealth was…. missing.
The study started with an inventory of each nation’s natural capital – nonrenewable resources such as oil, natural gas, coal, minerals; and agricultural resources such as crop and pasture land, forests, protected areas – then added the value of built capital, e.g. infrastructure, buildings, machinery, equipment. By tallying the value of natural and built capital, the World Bank found that those figures alone could not account for a country’s level of income. The majority percentage of the world’s wealth is not attributable to natural or built capital.
I love stuff like this, partly because it validates my deeply-held belief that some of the most important things in life are qualitative and thus very hard to quantify. Quantification and measurement should be tools, not goals or philosophies – even in business. But I digress.
So what accounts for the majority of the wealth of nations? According to the study, “Human capital and the value of institutions (as measured by rule of law) constitute the largest share of wealth in virtually all countries.” The term used for the combined value of this human and institutional capital is “intangible capital”, and it includes labor, human skills and know-how, social capital and societal trust, and the quality of social institutions (including government). “For example, if an economy has a very efficient judicial system, clear property rights, and an effective government, the result will be a higher total wealth and thus an increase in the intangible capital residual.”
The implications for Northfield are interesting. If we put as much time and money into developing our human capital as we do wrangling about new liquor stores, our long-term prospects for community health and vitality would be much stronger. Why do we, as a community, seem so focused on the tangible capital? Is it because of a mistaken belief that it’s the main contributor to community wealth and health? Is it because it’s safe and comfortable? (Liquor stores aren’t likely to grow legs and walk away, whereas human beings are distressingly mobile.) Or is it because outcomes and results of investing in intangible capital are just not easy to measure, making it subject to political machinations?