TCS Daily

Where is the Wealth of Nations?

By Tim Worstall - September 20, 2005 12:00 AM

The World Bank has just released a report called "Where is the Wealth of Nations?". As the Private Sector Development Blog (which is itself an offshoot but not a part of the World Bank) describes it:

"Meant to challenge the common assumptions about how nations generate their wealth, the report offers new estimates of a country's total wealth by including produced capital, natural resources, and the value of human skills and capabilities. The argument being that current wealth indicators fail to capture deteriorations to natural resources and the environment."

The entirely unsurprising point that the report makes is that it is not the rich countries which are rich by means of destroying their natural resources. So much of a modern or advanced economy is in services and so little in the primary production of commodities that those natural resources provide 1-3% of the wealth. As the table shows, it is the poor countries that are consuming their capital, not the rich ones.



The poor countries must industrialize in order to be adding value, so that they can feed themselves, grow, without entirely consuming the environment around them. While there is debate about exactly how this should be encouraged as was shown at the United Nations last week there is something simple that we can do to encourage it. Yes, our old friend, free trade. Not managed trade, not fair trade, not trade except in those things that we produce, but pure, simple, free trade. The benefits that flow to the poor countries are but a side effect, for free trade makes us richer ourselves, must do or we wouldn't indulge in it. As Owen Barder (a leftie but a development economist and therefore a free trader) points out:

Let's get this straight. Trade barriers make a country poorer and should be abolished  irrespective of whether other countries have the wisdom to do the same thing. "We'll only stop throwing rocks in our harbour when you stop throwing rocks in yours" is not the policy of a rational person.

We'll have to wait and see what happens at the Doha Round meeting of the World Trade Organization in Hong Kong later this year to find out whether we are in fact ruled by the rational or not. I'm not sure that I hold out much hope for a positive answer as here in Europe it is not the individual nations that do the negotiating, but the European Union itself, not, as you might remember, an organization I credit with a great deal of economic sense.

The report also answers a little question that The Guardian asked last week:

But in the space of just seven days Norway has notched up two achievements that should attract the attention and respect of all but the most prejudiced. The first was to be declared the best place in the world to live in a survey by the United Nations. This accolade is no flash in the pan. Norway has come first in this 177-nation survey for the past five years, since it ousted Canada from top spot in 2001. More importantly, it reflects Norway's enviable ability to sustain the elusive combination of economic prosperity (3.75% growth expected this year) with a strong welfare state and a clean environment.

Note that from the chart fully 12% of Norway's wealth is derived from primary resources, very much an outlier for rich nations. I wonder what this could mean?

To this must now be added the result of Monday's Norwegian general election, in which voters bucked the current rightward European trend by returning the country's first majority left-of-centre government in 20 years.

An interesting comment, no? Twenty years of center-right government produces good economic growth and the finest place in the world to live. Not, you would have thought, an observation that you would expect a center-left newspaper to praise. Then:

If they could bottle and sell their secret to the rest of us, Norwegians would be even richer than they are already.

Bottle it? Well, as that figure for resource consumption shows us, actually they barrel it. It's called oil. As Odin (which is I think a wonderful name for part of the Norwegian Ministry of Foreign Affairs) points out:

In 2001 petroleum-linked activities made up almost 23 per cent of the GDP, while manufacturing accounted for 9 per cent.

Which leads, I think, to an interesting conclusion about the criteria that the UN uses to determine what is a good place to live, what it is that makes a nation the ne plus ultra of the human experience, similarly something that is to be praised when viewed from Planet Guardian. It's OK, admirable even, to rape Gaia, deplete the Earth's precious natural resources, boil the planet and drown Bangladesh as long as you have free child care while you do so.

Tim Worstall is a TCS contributing writer living in Europe. His upcoming book of the best of British blogging can be pre-ordered from Find more of his musings here.


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