Measuring social welfare and sustainability

Abstract

Samuelson [14] suggested that the best measure of social welfare would be a ‘wealth-like’ magnitude. This paper explains the approach to wealth measurement presented in Where is the Wealth of Nations? [18]. We show how deriving a ‘top-down’ estimate of total wealth and ‘bottom-up’ estimates of produced and natural capital can reveal the importance of natural assets as a source of social welfare in low income countries. By measuring the real change in asset values (‘genuine’ saving) we can determine whether social welfare is increasing or decreasing as a result of current policies. Negative genuine saving indicates that future wellbeing will decline – i.e. that the economy is on an unsustainable path. We discuss the extensions to the System of National Accounts (SNA) inherent in this approach.