DEVELOPMENT

Development Report employs generalising measurements
of the indicators that characterise synthetic human development
in various ways. However, the World Bank has
undertaken the measurement of the wealth of nations, or
their total wealth, and the examination of the possibilities
for its sustainable preservation.
The wealth of nations, or total wealth, approach is
based on the system implemented by the World Bank. 2
According to this method of assessing the wealth of
nations, wealth is comprised of produced capital, as well
as human and institutional capital. An essential generalising
method for dealing with various types of capital is the
relationship that is applied in the theoretical framework of
economics, i.e. the value of capital is equal to the future
income flow created by the capital. Also, based on this
point of departure, present net savings are equal to the
future changes in well-being, or more precisely, the net
changes brought about by future consumption (growth
or decline) (Hamilton and Hartwick, 2005).
The concept of genuine net savings has come into
use, which is defined as savings from which negative
external influences and the costs of creating and using
the assets have been subtracted. For instance, in the
case of tangible capital, the value of the capital is the sum
of the additions made in time, the net value of which is
calculated by adding up all the investments made during
the entire period, and by subtracting the depreciation
that has occurred in the various years of the period. In
the case of natural resources, this means that the depletion
of the capital, by utilising mining or other means
of extraction, have been subtracted from the assets. The
utilisation of natural resources reduces a society’s wealth,
unless it is accompanied by investments into other
capital, such as human capital. Hamilton and Clemens
(1999) have shown that genuine savings, which take
into consideration the depletion of natural resources, the
accumulation of pollutants (representing negative savings)
and the accumulation of human capital (positive savings
that increase the value of the total wealth), are equivalent
to the changes in social welfare measured in money.
These authors have also shown that, if genuine savings
are negative, the well-being provided to society, in the
future, by economic activities, will be reduced.
The last fact is important in determining a longterm
sustainable development path -- consumption can
be maintained at the same level, and this with finite
resources and pre-determined technological opportunities,
only if the genuine savings during every time
period are nil (i.e. do not become negative). Generally,
this means that the depletion of natural resources must
be compensated by traditional net savings in other fields
of activity. Positive genuine savings are a precondition
for the growth of consumption possibilities. These facts
provide the basis, for instance, for defining sustainable
development -- a development path is sustainable if the
social welfare does not decrease at any point in this developmental
path. In this case, social welfare is defined as
the beneficial present value of future utility over the time
horizon. (Dasgupta 2001).
4.2.1
Value and structure of capital
There are two methods for measuring the value of capital.
• The value of capital is derived from the sum of the
additions made over time (investments from which
depreciation has been subtracted);
• Capital can be valued as the net present value (NPV)
of future income, i.e. the income that this capital
will produce in the future.
The World Bank Report generally uses both of these
methods, but various capital groups are usually assessed
by using one of these two methods.
Capital is divided into tangible and intangible capital
(Figure 4.2.1). Tangible capital is in turn divided between
produced and natural capital; intangible capital, on the
other hand, between human capital, institutions (the governance
of which represents the informal side of formal
and social capital) and net foreign assets (financial assets,
from which the state either receives or pays interest).
In the case of produced capital, the value of the
capital is derived from the value of the net investments.
This means that, in the case of this capital, it is presumed
that there is an average period of use, and the capital, for
a definite year, is treated as the sum of the investments
made during the average period of use, from which depreciation
has been subtracted. 3
Urban land, as one type of capital, is differentiated
from agriculture land. Since the value of urban land
varies from area to area, and also by the type of asset
involved, in comparisons that include different countries,
the value of urban land is assessed in a simplified way as
an agreed-upon percentage of the value of the structures
and equipment. 4
1 The date in Table 1 is based on the indicator for the nominal total income per capita.
2 Where is the Wealth of Nations? Measuring Capital for the 21st Century, 2006, The Changing Wealth of Nations, 2011. The Mystery of Capital. Why
Capitalism Triumphs in the West and Fails Everywhere Else (de Soto, 2000), which was written by Peruvian economist Hernando de Soto, and
generated a lot of feedback, preceded the World Bank report. De Soto considers one of the development inhibitors on the road to capitalism
to be the difficulties encountered in changing assets into capital, which were revealed in the lack of the corresponding institutions in the
developing states, which, in turn, caused the lack of economic information, the lack of opportunities to use assets in economic relations
without changing into capital (for instance, a residence that is not entered in the land registry cannot be used as security to obtain a bank
loan, etc.). On the one hand, De Soto stressed the lack of political will, and, on the other hand, the occurrence of various possible violent
regulatory incidents by the government and other economic agents, if the legal protection provided for property is lacking or defective. The
World Bank’s methodical approach to the topic of the wealth of nations places itself into the same row as the analytical and comparative studies
of the business environment that the World Bank has produced within the framework of its Doing Business reports (see p.3.2).
3 In the World Bank’s approach, the average period of use for assets is estimated to be 20 years, and, assuming the use of a linear depreciation
method, the annual depreciation rate is 5%.
4 Kunte et al. (1998) used a constant size of 0.24, and based thereon, the value of urban land in the year t is U t = 0,24 K t , whereas Kt is the
residual value of structures and equipment in the year t.
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