Intangibles
According to “Where is the Wealth of Nations?,” a 2005 World Bank study by Kirk Hamilton, solid goods amount to only about 20% of the wealth of rich nations and 40% of the wealth of poor countries.
Worldwide, natural capital (cropland, pastureland, forested areas, protected areas, and nonrenewable resources, such as oil, natural gas, coal, and minerals) accounts for 5% of total wealth, produced capital (machinery, equipment, structures, infrastructure, and urban land) for 18%, and intangible capital (raw labor; human capital, which includes the sum of a population’s knowledge and skills; and the level of trust in a society and the quality of its formal and informal institutions) 77%.
The World Bank has devised a rule of law index that measures the extent to which people have confidence in and abide by the rules of their society. An economy with a very efficient judicial system, clear and enforceable property rights, and an effective and uncorrupt government will produce higher total wealth. For example, Switzerland scores 99.5 out of 100 on the rule of law index and the U.S. hits 92. Nigeria gets a score of just 5.8, while the Democratic Republic of the Congo scores 1. The members of the Organisation for Economic Co-operation and Development — 30 wealthy developed countries — have an average score of 90, while sub-Saharan Africa’s is 28. According to Hamilton’s figures, the rule of law explains 57% of countries’ intangible capital. Education accounts for 36%.
The rule of law index was created using several hundred individual variables measuring perceptions of governance, drawn from 25 separate data sources constructed by 18 different organizations. The latter include civil society groups, political and business risk-rating agencies, and think tanks.
The Ugandan government reports that it spends 2 or 3% of GDP on education but one study found that approximately 13% of that money made it to the schools. In the U.S. the figure is about 60 to 65%.
As countries get richer they’re using smaller and smaller amounts of natural capital — minerals, energy, soils, forests, fish, etc. Richer countries are increasing their efficiency faster than they use up natural resources, so development does not necessarily entail the depletion of the environment and natural resources.