Until now, gross domestic product (GDP) has been the headline indicator for tracking economic progress. Its widespread adoption is a testament to its utility in capturing key economic dimensions, particularly those related to the domestic production of market goods and services. However, using GDP is not without its limitations. It falls short in encompassing the full spectrum of productive activities, especially those ¡°produced¡± by nature, such as breathable air, clean water, nutritious food, weather regulation, and recreation. It also fails to account for the costs associated with this production in terms of human health, resource degradation, and environmental pollution.
Another aggregate economic metric is thus needed that can measure the sustainability of economic progress¡ªa nation¡¯s wealth. The minimum condition for economic development to be sustainable is that real wealth per capita does not decline over time. This is because as long as real wealth per capita does not decline, future generations will inherit at least the same production and consumption opportunities as the current generation. Wealth in this context encompasses the value of all the assets of a nation that support economic production, such as factories, intellectual property, and roads (produced capital); forests, fish stocks, and fossil fuel reserves (natural capital); the dimensions of the labor force (human capital); and net foreign assets. Real wealth per capita will increase if more workers enter the labor force or if the same workers upgrade their skills, if forests grow, or new commercially recoverable minerals are discovered. However, it will decline if fish stocks are overfished, machinery degrades, or the reserves of fossil fuels are depleted or become commercially unexploitable.
All countries produce GDP estimates, but few measure wealth. ľ¹ÏÓ°Ôº¡¯s The Changing Wealth of Nations (CWON) program addresses this gap. The CWON program is one of the pioneering efforts in measuring wealth, producing the most comprehensive, publicly accessible, and reproducible wealth database currently available. These monetary estimates draw on internationally endorsed concepts and valuation principles from the System of National Accounts and System of Environmental Economic Accounting. This ensures that CWON¡¯s wealth measure is methodologically rigorous and comparable to other metrics of economic progress like GDP.
Over the past two decades, the CWON program has updated and expanded its comprehensive wealth estimates with each new edition, as new data sources, measurement techniques, and guidance became available. This 5th edition continues this tradition and implements an important methodological change in the way it estimates real wealth aligned with the goal of tracking the sustainability of economic development. The new approach better captures changes in asset relative prices, changes in asset relative (physical) volumes, and changing substitution patterns across assets, which are critical for sustainability as natural capital assets are becoming scarce and have limited substitutes.
