China, the U.S., and Sustainability: Perspectives Based on Comprehensive Wealth

Policy makers and analysts are keenly interested in whether the performance of a national economy is consistent with some notion of sustainability. This paper develops and applies a measure of sustainability defined in terms of the change in per-capita comprehensive wealth, where comprehensive wealth includes the value of natural capital and human capital as well as reproducible (physical) capital. Compared with conventional accounting measures such as GDP, per-capita comprehensive wealth provides a better gauge of the ability of a country to maintain living standards.

Our paper advances comprehensive wealth accounting by offering a more theoretically consistent approach to valuing natural resources, an improved approach to measuring changes in human capital, and a better treatment of changes in wealth associated with environmental damages. To illustrate these improved methods, we obtain initial estimates for the change in comprehensive wealth for the period 1995 to 2000 for China and the United States. The results suggest that both nations may be meeting the sustainability criterion. As we indicate in the paper, this first effort does not capture several environmental impacts and changes in natural capital stocks whose inclusion could alter the results significantly. We conclude our paper with a discussion of how future research efforts could address these limitations.