Social Capital, education and other intangible capital 77% of world’s wealth

A team headed by World Bank economist Kirk Hamilton reported in Where Is The Weath of Nations?: Measuring Capital for the XXI Century that “intangible capital” represented 77% of the world’s total wealth and the largest share of wealth in virtually all countries — in developing countries it averages about 60% of wealth and in developed countries it averages 80% of wealth.  (Presumably these high percentages — somewhere in 80s or even 90s would apply across U.S. states, although their report only looks at the country level.)

To Hamilton’s team, intangible capital included raw labor, human capital (the stock of human skills and know-how), social capital and societal trust, and the quality of social institutions.  Under social institutions, they included governance elements that “boost the productivity of the economy. For example, if an economy has a very efficient judicial system, clear property rights, and an effective government, the result will be a higher total wealth and thus an increase in the intangible capital residual.”  (What the report rarely acknowledges is that social capital is a strong determinant in whether the judicial system or institutions of government operate efficiently, in whether there is less corruption, etc. )

Much more of the value of intangible capital was in the institutions and trust than it was in human capital (education).  Hamilton estimated that education accounted for roughly only 1/3 (36%) of the value of intangible capital, leaving roughly two-thirds for social capital and the value of institutions.

By rarely acknowledging the impact, they effectively underreport on the important role of social capital since they don’t count social capital under the institutional piece. Nonetheless, they  still report that: ” In the richest countries it is clear that technological change, institutional innovation, learning by doing, and social capital, to name a few factors, are fundamental drivers of the economy.” (p. xvii) 

One of the rare places where the talk about the link between social capital and governmental institutions is on p. 93 (Table 7.2) where they acknowledge the strong correlation between social capital and performance of governmental institutions.

You can read an interview of Ronald Bailey with Kirk Hamilton in Reason magazine (August 2007) here.

Complete report Where Is The Wealth of Nations?: Measuring Capital for the 21st century available here.

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