The case for inclusive wealth

Inclusive economies recognise interconnectedness of three capitals, ensuring benefits for all segments of society

Listen to article

ISLAMABAD:

Inclusive wealth (IW) offers a comprehensive measure of a nation's productive base by evaluating stocks and per capita changes in human capital, natural capital, and produced capital.

Unlike the traditional gross domestic product (GDP), which focuses solely on economic output, IW provides a holistic view of a nation's sustainability and overall well-being. An inclusive economy recognises the interconnectedness of human, natural, and produced capital, ensuring that economic progress benefits all segments of society.

Currently, Pakistan's GDP is based primarily on the produced economy, narrowing its base and overlooking key contributors to long-term sustainability. The Pakistan Inclusive Wealth Report (IWR) revealed that between 1992 and 2019, Pakistan's inclusive wealth increased at an average of 2.3% annually. Human and produced capital was the primary driver of this growth, with rates of 2.9% and 3.2%, respectively.

However, natural capital experienced a slight decline of 0.1% annually during the same period. Encouragingly, the last five years of the assessment showed signs of natural capital recovery, attributed to initiatives such as the Billion and Ten Billion Tree Plantation Programme in Khyber-Pakhtunkhwa (K-P) and the restoration of mangrove forests in Sindh.

The interdependence of the three capitals – human, natural, and produced – is strong and synergistic. Each is vital to economic stability and growth. Natural capital, for instance, would be of little use without human capital to harvest, process, and market it as produced capital. Recognising these interdependencies is crucial for Pakistan to move toward a more sustainable and inclusive economic model.

Produced capital

Produced Capital (PC) encompasses all human-made assets, including machinery, infrastructure, and intellectual property, that contribute to economic productivity. While PC forms the basis of GDP calculations, relying solely on it is unsustainable.

Major challenges in this sector include budget deficits, fluctuating global oil prices, climate change, structural inefficiencies, recurrent fiscal shortfalls, protectionist trade policies, an unproductive agricultural sector, and a financially unsustainable energy sector.

Inflation and chronic debt are persistent problems, compounded by high fiscal deficits, non-development expenditures, and weak debt repayment capacity. Other hurdles include frequent tax policy changes, low investor confidence, and a lack of economic diversification. The impact of these gaps on Pakistan's economy is severe. Low investment levels hinder foreign direct investment, while the country struggles with a lack of export competitiveness. The agricultural sector remains outdated, plagued by insufficient infrastructure and limited access to financing. The energy crisis—marked by high demand, low supply, and mounting circular debt—further exacerbates economic instability.

To address these challenges, Pakistan must undertake comprehensive economic restructuring. Key steps include promoting investment by creating a stable business environment to encourage both local and foreign investors; reducing fiscal deficits through prudent budgeting and financial discipline; right-sizing state-owned enterprises to reduce government involvement in the economy and simplifying regulations to attract new businesses and streamline operations.

Human capital

Human capital (HC) refers to the skills, knowledge, and experience possessed by individuals and the workforce at large. Education, training, healthcare, and innovation play a critical role in human capital development. However, Pakistan's HC remains underutilised, limiting its contribution to GDP growth.

To fully integrate HC into economic planning, Pakistan must focus on investing in early childhood education, vocational training, and higher education to build a skilled workforce. The government must also ensure universal healthcare coverage and promoting preventive care to maintain a healthy and productive workforce. Encouraging innovation through increased investment in technology, incubators, and startup accelerators is also crucial.

Additionally, striking a balance between job security and labour flexibility to foster a dynamic economy, and promoting workplace inclusivity to leverage a wide range of skills and perspectives is the prime role of HC in Pakistan's economy.

Engaging policymakers, businesses, and civil society in human capital development can create meaningful change. Advocacy for policy reforms, multi-stakeholder partnerships, and awareness campaigns will be essential in prioritising long-term investment in HC. Collaboration with international organisations to share best practices and establish standardised HC metrics can further strengthen efforts.

Natural capital

Natural capital (NC) includes all natural resources such as air, water, soil, forests, biodiversity, and minerals. Pakistan is endowed with a rich and diverse landscape, from the fertile plains of Punjab to the mineral-rich mountains of Balochistan. The country's marine biodiversity and vast mangrove forests also provide significant economic potential.

However, NC is under severe threat due to climate change and human-induced degradation. Key challenges include deforestation, where unsustainable logging and land-use changes reduce forest cover, leading to biodiversity loss as unregulated hunting, habitat destruction, and pollution endanger wildlife. Air and water pollution from industrial emissions and untreated waste pose serious threats to public health and ecosystems. Additionally, climate disasters such as floods, droughts, and heatwaves are increasing in frequency, disrupting livelihoods and infrastructure.

Addressing these issues requires immediate action through conservation efforts, including expanding protected areas, restoring degraded ecosystems, and implementing reforestation programs. Sustainable agriculture and industry must be prioritised by promoting eco-friendly farming techniques and green industrial policies.

Climate resilience programmes are essential to strengthen disaster preparedness and mitigation strategies. Public awareness campaigns play a crucial role in encouraging sustainable practices among individuals and businesses.

Pakistan has already taken steps towards integrating IW into its economic planning. The Pakistan Inclusive Wealth Report serves as a strategic tool for aligning national policies with sustainable development goals. The launch of Uraan Pakistan, an innovative economic transformation programme, marks a step toward inclusive growth.

To maximise the benefits of IW, Pakistan must reassess economic reforms by evaluating fiscal policies in accordance with IW principles. Promoting technological innovation through expanded funding and incubation facilities will support entrepreneurs and digital transformation. Enhancing workforce training to align with the evolving job market and emerging industries is crucial.

Finally, tackling climate change through policies that mitigate risks while fostering green economic opportunities is imperative for long-term sustainability. Pakistan has the potential to broaden its GDP base by integrating HC and NC alongside PC as key drivers of economic growth.

THE WRITER IS A PHD IN NATURAL RESOURCES AND HAS AUTHORED THE FIRST INCLUSIVE WEALTH OF PAKISTAN REPORT FOR UN ENVIRONMENT