True wealth
The perception of what exactly makes up wealth has been shifting away from materialism. What good is money if you can’t get what you want with it, what good are things if they don’t improve the quality of your life? Economists too noticed that much of our wealth comes from factors other than labor and capital. First reported by Nobel Laureate Robert Solow, the Solow Residual is the part of economic growth that cannot be explained through capital accumulation. According to a recent World Bank study, nowadays the residual is quite large. Looking at the total wealth of rich countries, its natural resources usually account for only 1-3%, their buildings and machines about 17%, with the other 80% in intangible capital. 93% percent of this intangible capital is accounted for by the rule of law (57%) and education (36%). The rule of law is simple, what good is having cool stuff, if people keep steeling it from you. The World Bank’s Rule of Law Index rates how much different countries believe in and submit to the laws of their society. US scored 92/100. Switzerland unsurprisingly came out on top with 99. The more renegade states include Nigeria at 4.8 and Burundi at 4.3, while Iraq comes in at 0.5. Other intangible factors in this area: voice and accountability, political stability, government effectiveness, regulatory quality, and control of corruption. Education also plays a large part in a nation’s wealth, a one year increase in a poor country’s average level of school would increase its intangible capital by $838/person. Considerable, since right now their education spending averages $51/person.
The Materialism Fallacy, TCSDaily.com
The Intangible Wealth of Nations, Reason.com
Where is the Wealth of Nations? Measuring Capital for the 21st Century, [PDF] WorldBank.org