As businesses call on governments to support new models that operate within planetary boundaries and help to collectively build healthy societies, resilient economies and thriving businesses, the Bennett Institute's forthcoming Wealth Economy Foundation workshop will set out the practical steps to help achieve this.
In the week that China hosts the opening phase of the convention on biological diversity (CBD) COP15 in Kunming, businesses have written to governments calling for a meaningful and actionable Global Biodiversity Framework.
The letter, which is signed by over 1,000 companies, representing USD 4.7 trillion in annual revenue and employing over 11 million people, recognizes their responsibility to:
“transform our business models in order to operate within planetary boundaries. By doing so we’ll collectively build healthy societies, resilient economies and thriving businesses.”
And calls for governments to “adopt a Post-2020 Global Biodiversity Framework that is meaningful and actionable by everyone.”
Research by Professor Diane Coyle, Dr Matthew Agarwala, Dimitri Zenghelis et al shows that governments and businesses need to go one step further than this and adopt a framework that takes into account all of their inclusive wealth and assets available to them.
The inclusive wealth of any economy (national, regional, or local) and indeed any organisation (charity, business, or public service provider) comprises many interconnected capitals. The Wealth Economy approach seeks to increase the returns to all investments (public and private) by recognising the mutually reinforcing nature of complementary assets (such as air quality and health or local infrastructure and community cohesion).
Different applications of the Wealth Economy framework categorise assets in varying ways, aggregating and distinguishing as needed to suit the policy or measurement task at hand, or due to data availability. For instance, the United Nations Inclusive Wealth Reports focus on human, natural, and produced capital.
The Bennett Institute’s Wealth Economy framework highlights six capitals:
- Natural capital refers to environmental stocks and systems that generate benefits for people, including ecosystem services, raw materials, and a stable climate.
- Human capital refers to the health and skills of the population. It is a core determinant of labour productivity.
- Knowledge capital refers to the accumulated ‘best practices’ and ‘ways of doing things’ that arise from learning-by-doing and which enable innovation in management and business processes. Unlike human capital, it can live forever.
- Physical capital (also known as produced capital) refers to infrastructure, homes, machines and equipment, and information and communications technology.
- Social capital refers to interpersonal trust, shared social norms, neighbourhood belonging and community cohesiveness. It is the glue that holds societies together and it enables us to overcome collective action problems – that is, decisions that need many people to coordinate and agree even if their personal benefit will be small.
- Institutional capital refers to the quality and reliability of governance and relationships between institutions and organisations.
These are the combined components of inclusive wealth – the stock of ingredients and equipment in the economic pantry. They comprise the economy’s productive capacity, and their management determines whether the potential for future prosperity is rising or falling.
In contrast to many economic approaches used in decision-making, the idea that future prosperity depends on the current management of society’s entire portfolio of assets is inherent within this framework. But it yields some profound conclusions. First and foremost, it means that the success of an economic strategy cannot be understood simply by measuring income flows (i.e., the size of the pie).
Higher income (i.e., a bigger pie) that is generated merely by drawing down capital (raiding the pantry, not mending the oven), is inherently unsustainable. If we focused only on the measurement of income, we would miss the depletion of assets in the economic pantry. Thus, measures of economic success must reflect the management of inclusive wealth.
Individuals and organisations interested in exploring the Wealth Economy approach further should attend the Wealth Economy Foundation Workshop on 24 November 2021. This online workshop will give decision-makers and strategists the opportunity to engage with the Wealth Economy team over a series of practical sessions, designed to develop a strategic approach to implementing an inclusive wealth strategy for their business or organisation.
The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.
