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Wealth vs. Income On a Global Scale

By RUSHWORTH M. KIDDER / May 21, 1990



SUPPOSE I ask, ``How much did you spend last year?'' You say, ``$90,000.'' ``Wow!'' I respond. ``But wait,'' you insist, ``It's not that simple. I earn only $30,000 in salary. The other $60,000 I took from my children's savings accounts.'' Question: Are you a $90,000-a-year person or a $30,000-a-year person? How do you think of yourself? How do your children think of you?

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The answers are important, because they affect your key financial decisions - where you live, what kind of car you drive, how you spend your leisure time. If you think you're a $90,000 type when you're not, you'll quickly run amok.

The point? It matters how you count. As boring as statistical analysis may seem, the way you measure your resources is absolutely crucial. If, in fact, you've already run amok, your remedy must start with changing the way you measure.

What's true for individuals is also true for nations. How and what you count as a nation's wealth has tremendous significance. That's nowhere more true than in a nation's relation to its natural resources. The point: There are an awful lot of $30,000 nations - including the United States - living $90,000 lifestyles. Chopping down their forests, polluting their atmospheres, fouling their waters, stripping their land of minerals and topsoil, they're chewing up their children's wealth. For the moment, they're living well. Why? Because they're ``mistaking a decline in wealth for a rise in income.'' The result is a ``confusion likely to end in bankruptcy.''

Those are the words of Robert Repetto, head of the economics program at the Washington-based World Resources Institute and author of a new report entitled ``Promoting Environmentally Sound Economic Progress: What the North Can Do.''

Long on analysis, and refreshingly short on flash and dazzle, his suggestions probably have more potential for resolving environmental issues than any other set of changes you could imagine.

His central point: You've got to start measuring things accurately. Why? Because as it now stands, a nation gets credit in its national accounts for every acre of rain forest it converts into salable timber, every bottle of water its citizens have to buy to replace polluted well water, every engineer hired to clean up a toxic waste dump.

``Like other forms of capital,'' writes Dr. Repetto, ``natural resources provide a flow of economic benefits over time. Nonetheless, activities that deplete or degrade them are represented as generating income, rather than reducing wealth. A country could sell off its timber and minerals, erode its soils, pollute its aquifers, deplete its fisheries, and the national accounts would treat all the proceeds as current income.''

Bizarre? Indeed. Yet this is no fictional tale of a surreal, Kafkaesque world. He's talking about the way things are really measured in today's global economy. Small wonder, then, that we have such difficulty urging nations to stop the activities that ravage the world's resources. The more you ravage, the better you look.

Until, that is, the accounting methods change. Can they? Alas, not immediately. The United Nations Statistical Commission (whose methods are used by most market-economy nations) is completing an every-20-year review of its policies - and has decided against implementing changes in the ``core'' accounts that are its basic accounting tools. ``Faster reform is warranted,'' comments Repetto, with dry understatement.

Yet the subject is increasingly coming up for discussion among environmentalists. In these post-Earth Day months, it's not usually front-page stuff. Accounting methodology rarely is. It deserves more attention. When it becomes a ``big'' environmental story - right up there with global warming, ozone depletion, and acid rain - we'll know that real global progress is at last at hand.