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f_0010083_7830 - Quantifying the Wealth of Nations The...

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Fall 2008 The Ambassadors REVIEW 30 Quantifying the Wealth of Nations: The Impact of Intangible Capital and Implications for Policy Formulation Sue M. Cobb 1 Secretary of State of Florida, 2005-2007 United States Ambassador to Jamaica, 2001-2005 his short paper focuses on a recent study done by The World Bank entitled, Where is the Wealth of Nations? Measuring Capital for the 21 st Century .” 2 The World Bank’s self-styled ‘millennium capital assessment’ was done by the environmental economics department of the Bank with an eye toward asset manage- ment and sustainable development. I believe the study has serious implications for policymakers in areas from sustainable development to tax policy to education to immigration and beyond. Intuitively, anecdotally, and empirically, we all know that a well-educated popula- tion and a stable investment-friendly environment produce greater national wealth than possible in undereducated and unstable societies. Thus national policy discussions as well as appropriation debates focus on allocation of resources to achieve the desired well educated populace and stable environment. But what tools are available to policymakers to buttress analysis of allocation of resources? In this extremely intriguing study (produced in 2005 based on millennium year data), the researchers quantified the three major contributors to the total wealth of nations: natural, produced, and intangible capital. Natural capital includes the sum of non- renewable resources (oil, gas, minerals, etc.) and fertile land, forests, protected areas and aquifers. Produced capital includes factories, machines, equipment, products, industrial and urban infrastructure. Intangible capital includes all a nation’s assets that are neither natural nor produced. Intangible capital is calculated as a residual—the difference between total wealth and the sum of produced and natural capital. The study explains that the intangible capital residual also includes governance elements that help raise the productivity of labor, i.e., if a nation has an efficient judicial system, clear property rights, and an effective government, the result will be greater total wealth and thus a higher intangible capital residual. (In the study, total wealth is estimated as the present value of future consumption; that is to say: if tomorrow you could never earn another dollar, then the amount of consumption you could enjoy for the rest of your life is equal to the value of assets such as bank accounts, housing, land, etc. that you have today.) 1 This brief abstract, extrapolated from and, with permission, liberally quoted from the study by The World Bank, fails to do justice to the primary work. All deficiencies herein are solely attributable to this writer.
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