Re: [MLUG - DISCUSSION] Where Is the Wealth of Nations?

["Jonathan King" <EMAIL:PROTECTED>]

So it's a chestnut, and maybe out of priint, but an interesting book
youi may like is (if I recall correctly). "Rich Christians in a World
of Hunger".

jking



On 10/10/07, Stephen Montgomery-Smith <EMAIL:PROTECTED> wrote:
> Definitely a good article.  And something I have been saying for years!
>
>
> Mike Miller wrote:
> > See the WSJ article below.  This is really fascinating information to
> > ponder and it makes a lot of sense to me.  Corruption in government and
> > failure of legal/policing systems are the major causes of economic
> > failure in many nations.  What can we do to improve the situation?  It's
> > a tremendous challenge but one worth confronting.
> >
> > The World Bank produced this publication in late 2005:
> >
> > Where Is the Wealth of Nations?: Measuring Capital for the 21st Century
> > http://go.worldbank.org/U055JOCQT0
> >
> > I found two versions of the PDF document:
> >
> >
> http://siteresources.worldbank.org/INTEEI/214578-1110886258964/20748034/All.pdf
> >
> >
> http://siteresources.worldbank.org/INTEEI/Home/20666132/WealthofNationsconferenceFINAL.pdf
> >
> >
> > The first seems to be the formatted, published version and the second
> > seems to be a conference version from a couple of months earlier with
> > similar (identical?) text and better graphics.  --Mike
> >
> > --------------------------------------------------------------------------
> >
> >
> > http://online.wsj.com/article/SB119103046614343129.html?mod=googlenews_wsj
> >
> > Wall Street Journal
> > September 29, 2007
> >
> > The Secrets of Intangible Wealth
> >
> > By Ronald Bailey
> > Word Count: 1,038
> >
> > A Mexican migrant to the U.S. is five times more productive than one who
> > stays home. Why is that?
> >
> > The answer is not the obvious one: This country has more machinery or
> > tools or natural resources. Instead, according to some remarkable but
> > largely ignored research -- by the World Bank, of all places -- it is
> > because the average American has access to over $418,000 in intangible
> > wealth, while the stay-at-home Mexican's intangible wealth is just
> $34,000.
> >
> > But what is intangible wealth, and how on earth is it measured? And what
> > does it mean for the world's people -- poor and rich? That's where the
> > story gets even more interesting.
> >
> > Two years ago the World Bank's environmental economics department set
> > out to assess the relative contributions of various kinds of capital to
> > economic development. Its study, "Where is the Wealth of Nations?:
> > Measuring Capital for the 21st Century," began by defining natural
> > capital as the sum of nonrenewable resources (including oil, natural
> > gas, coal and mineral resources), cropland, pasture land, forested areas
> > and protected areas. Produced, or built, capital is what many of us
> > think of when we think of capital: the sum of machinery, equipment, and
> > structures (including infrastructure) and urban land.
> >
> > But once the value of all these are added up, the economists found
> > something big was still missing: the vast majority of world's wealth! If
> > one simply adds up the current value of a country's natural resources
> > and produced, or built, capital, there's no way that can account for
> > that country's level of income.
> >
> > The rest is the result of "intangible" factors -- such as the trust
> > among people in a society, an efficient judicial system, clear property
> > rights and effective government. All this intangible capital also boosts
> > the productivity of labor and results in higher total wealth. In fact,
> > the World Bank finds, "Human capital and the value of institutions (as
> > measured by rule of law) constitute the largest share of wealth in
> > virtually all countries."
> >
> > Once one takes into account all of the world's natural resources and
> > produced capital, 80% of the wealth of rich countries and 60% of the
> > wealth of poor countries is of this intangible type. The bottom line:
> > "Rich countries are largely rich because of the skills of their
> > populations and the quality of the institutions supporting economic
> > activity."
> >
> > What the World Bank economists have brilliantly done is quantify the
> > intangible value of education and social institutions. According to
> > their regression analyses, for example, the rule of law explains 57% of
> > countries' intangible capital. Education accounts for 36%.
> >
> > The rule-of-law index was devised using several hundred individual
> > variables measuring perceptions of governance, drawn from 25 separate
> > data sources constructed by 18 different organizations. The latter
> > include civil society groups (Freedom House), political and business
> > risk-rating agencies (Economist Intelligence Unit) and think tanks
> > (International Budget Project Open Budget Index).
> >
> > Switzerland scores 99.5 out of 100 on the rule-of-law index and the U.S.
> > hits 91.8. By contrast, Nigeria's score is a pitiful 5.8; Burundi's 4.3;
> > and Ethiopia's 16.4. The members of the Organization for Economic
> > Cooperation and Development -- 30 wealthy developed countries -- have an
> > average score of 90, while sub-Saharan Africa's is a dismal 28.
> >
> > The natural wealth in rich countries like the U.S. is a tiny proportion
> > of their overall wealth -- typically 1% to 3% -- yet they derive more
> > value from what they have. Cropland, pastures and forests are more
> > valuable in rich countries because they can be combined with other
> > capital like machinery and strong property rights to produce more value.
> > Machinery, buildings, roads and so forth account for 17% of the rich
> > countries' total wealth.
> >
> > Overall, the average per capita wealth in the rich Organization for
> > Economic Cooperation Development (OECD) countries is $440,000,
> > consisting of $10,000 in natural capital, $76,000 in produced capital,
> > and a whopping $354,000 in intangible capital. (Switzerland has the
> > highest per capita wealth, at $648,000. The U.S. is fourth at $513,000.)
> >
> > By comparison, the World Bank study finds that total wealth for the low
> > income countries averages $7,216 per person. That consists of $2,075 in
> > natural capital, $1,150 in produced capital and $3,991 in intangible
> > capital. The countries with the lowest per capita wealth are Ethiopia
> > ($1,965), Nigeria ($2,748), and Burundi ($2,859).
> >
> > In fact, some countries are so badly run, that they actually have
> > negative intangible capital. Through rampant corruption and failing
> > school systems, Nigeria and the Democratic Republic of the Congo are
> > destroying their intangible capital and ensuring that their people will
> > be poorer in the future.
> >
> > In the U.S., according to the World Bank study, natural capital is
> > $15,000 per person, produced capital is $80,000 and intangible capital
> > is $418,000. And thus, considering common measure used to compare
> > countries, its annual purchasing power parity GDP per capita is $43,800.
> > By contrast, oil-rich Mexico's total natural capital per person is
> > $8,500 ($6,000 due to oil), produced capital is $19,000 and intangible
> > capita is $34,500 -- a total of $62,000 per person. Yet its GDP per
> > capita is $10,700. When a Mexican, or for that matter, a South Asian or
> > African, walks across our border, they gain immediate access to
> > intangible capital worth $418,000 per person. Who wouldn't walk across
> > the border in such circumstances?
> >
> > The World Bank study bolsters the deep insights of the late development
> > economist Peter Bauer. In his brilliant 1972 book "Dissent on
> > Development," Bauer wrote: "If all conditions for development other than
> > capital are present, capital will soon be generated locally or will be
> > available . . . from abroad. . . . If, however, the conditions for
> > development are not present, then aid . . . will be necessarily
> > unproductive and therefore ineffective. Thus, if the mainsprings of
> > development are present, material progress will occur even without
> > foreign aid. If they are absent, it will not occur even with aid."
> >
> > The World Bank's pathbreaking "Where is the Wealth of Nations?"
> > convincingly demonstrates that the "mainsprings of development" are the
> > rule of law and a good school system. The big question that its
> > researchers don't answer is: How can the people of the developing world
> > rid themselves of the kleptocrats who loot their countries and keep them
> > poor?
> >
> >   ---
> >
> > Mr. Bailey is Reason magazine's science correspondent.
> >
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