A New Era of Clean Capitalism is Coming: Let’s Roll Back the Blueprint

In other words, education, health, clean air and water, biodiversity and other factors are an integral part of what it means to be truly prosperous. Indeed, a country’s comprehensive wealth per capita can drop even while GDP per capita rises.

What constitutes this inclusive, comprehensive wealth? In addition to financial capital, there is produced capital, such as roads, railroad tracks, electrical grids and machines; human capital, such as improvements to health, education and skills; social capital, representing the health and robustness of our institutions; and natural capital, which covers “ecosystem services” such as forests, fossil fuel reserves, minerals and land.

On balance, when we enhance our various forms of capital on a net basis, we enhance our overall wealth. This is the essence of clean capitalism.

The inclusive-wealth report analysed 20 countries representing 73 per cent of global GDP. It found that overall wealth is falling, despite rising GDP, in six nations – South Africa, Colombia, Nigeria, Russia, Saudi Arabia and Venezuela. In all other countries, with the exception of France and Germany, the average growth rate of inclusive wealth lags the rate of GDP growth.

Alarmingly, 17 out of 20 countries show an unsustainable decline in natural capital per capita over the past two decades, offset partially by increases in human capital. As University of Cambridge economics professor Partha Dasgupta wrote, “When natural capital is included in economic statistics, the recent economic history of nations looks very different from what we are led to believe.”

The Path Forward

To improve our collective well-being in a way that is sustainable over the long term, Corporate Knights believes it is important to make the most efficient use of all our productive resources. That means doing a better job of counting all forms of capital and removing barriers to their optimal allocation.

Where market failures are holding us back, we should fix them. Where others have tried before us, we should learn from them. To guard against unintended consequences, we should plan for evidence-based interventions. As U.S. presidents, both Republican and Democratic, have said many times throughout history: “If not us, who? If not now, when?”

Market failures include, but are not limited to: unpriced externalities, such as carbon pollution and aspects of water delivery and treatment, resulting in goods and services that are not fully valued; lack of timely information on products and national/corporate balance sheets, which makes it difficult for consumers, taxpayers and investors to make informed decisions that affect their well-being; under-provision of public goods, such as electricity transmission infrastructure and high-speed trains, which would enable a faster transition to renewable energy and clean transportation; and institutional inertia, such as the tendency of corporate and financial executives to do what they’ve always done, rather than embrace new opportunities that may be both profitable and more sustainable.

There are four vectors through which targeted policy intervention can largely correct these market failures to unleash the full potential of our planet-based economy: information, incentives, infrastructure and investment.

Information

The release of greenhouse gases and other pollutants through economic activity has an impact on our stock of natural capital – soil, air, water, flora and fauna. But that impact, or externality, is not fully priced into the goods and services we produce and consume.

British economist Arthur Pigou articulated this dilemma more than 90 years ago, yet our natural and social capital are still largely unaccounted for, making it difficult to develop policies aimed at preserving them. We can’t manage what we don’t measure. We need more information to help us live within our means.

This was recognized in 2012 by dozens of financial institutions that signed the Natural Capital Declaration, an initiative of the United Nations Environment Programme aimed at getting governments and business to value natural capital.