World Bank Report

Education and health investments are key to nation's wealth

wealth, germany, us
Boy, I could use a device like this in some of my tougher negotiations. Source: Reuters

For centuries, economists and policymakers have been stumped by one economic puzzle: what makes some countries rich, while others remain relatively poor? The World Bank is now attempting to answer this quandary in a new report that gives the main credit to what it calls “human capital:” investing in a nation’s people by such measures as increasing the years of education and spending on health.

Not surprisingly, the report, entitled The Changing Wealth of Nations 2018, cites countries like the United States and Germany as the global leaders in human capital achievement. Germany, for example, has $467,668 per capita human capital, as measured by the World Bank, compared with $415,851 in France and $460,082 in Finland. Switzerland is way ahead with $1.02 million.

“There is no sustainable and reliable development if we don’t recognize human capital as the most important component of the prosperity of nations,” said World Bank chief Jim Yong Kim.

“Wealth is starting to spread to a larger set of countries.”

Glenn-Marie Lange, World Bank economist

It’s no coincidence that at the same time, the German government is forecasting economic growth to accelerate in 2018, rising 2.4 percent even after 2.2 percent GDP growth in 2017. “What I really did not expect until recently was that the upturn that started in the early summer of 2009 is accelerating even more,” said Bert Rürup, head of the Handelsblatt Research Institute.

Mr. Rürup thinks growth will be even higher than government estimates, coming in at 2.5 percent, while the Ifo Institute predicted 2.6 percent growth this year.

The World Bank report tries to calculate wealth by breaking down the total into several components: produced capital, by which it means machinery, equipment and buildings; natural capital, meaning oil, gas and mineral deposits; human capital, and net foreign assets.

According to World Bank estimates, overall global wealth rose by two-thirds between 1995 and 2014, from $690 trillion to $1,143 trillion. For Germany, the numbers were particularly impressive, growing from $43 trillion in 1995 to $60 trillion in 2014. One measure of wealth, net foreign assets, increased by eight fold to $1.4 trillion.

A big change in wealth status came from the sharp rise in the share held by middle-income countries from 19 percent to 28 percent, primarily tracking the huge boom in Asia, while the share of high-income countries declined from 75 percent to 65 percent.

“Wealth is starting to spread to a larger set of countries in the middle and at the top,” said Glenn-Marie Lange, one of the report’s authors. “As a group, low-income countries appear to be lagging behind, but this trend masks divergent tendencies among these countries.”

In fact, some low income countries such as Cambodia and Rwanda have pulled ahead, while others such as Tanzania have fallen further behind.

The importance of human capital was illustrated by the fact that poorer countries owe much of their wealth to their natural resources, such as oil and gas deposits.

Nearly half of the total wealth of this group was natural capital. In the Middle East, for example, almost a third of their wealth consists of carbon revenues. The World Bank economists said this was extremely risky in light of the dramatic price fluctuations taking place in the sector. Because of the increased use of renewable energy, the Middle East stands to lose 40 percent of its oil revenues.

 

Torsten Riecke is Handelsblatt’s international correspondent. This article was adapted into English by Charles Wallace, an editor for Handelsblatt Global in New York. To contact the author: riecke@handelsblatt.com

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