Wealth And Poverty: The Wealth Between Our Ears

           We were talking a couple posts back about what I call nonmaterial wealth: Your experience, intelligence, work ethic, training (both formal and informal), etc. This is a whole lot more important than your material wealth, such as your house, your car, and how much money you have in the bank. If you have nonmaterial assets, then you’re likely to eventually get more material wealth, at least in a Free Market System. If you don’t utilize your nonmaterial assets but suddenly come into a lot of material wealth (i.e, an inheritance or winning the lottery), then you won’t hold onto it for very long. Think of the numerous family inheritances—built by an ancestor who started with nothing and ended up wealthy—squandered by heirs.

            But this applies on the “macro” level as well the “micro” level. Nations have both material assets (like natural resources) and intangible assets (like a culture that values thrift, or a respect for property rights). There are plenty of countries in Africa, for example, which have plenty of natural resources like oil or natural gas or precious minerals, but the average citizen is living at sustenance-level poverty or worse. In stark contrast, there are countries like Hong Kong or Japan which have virtually no natural resources but which have a great standard of living.

            And so I introduce to you a gem of a column by Jonah Goldberg: “The Wealth Between Our Ears,” in which he expands on this all-important concept. He starts the column by describing the Malthusian worldview (common enough on the fringes of the environmental movement) which sees a huge human population as being both unsustainable and destructive to the environment. The more people we have, the fewer resources (like food) to go around and the worse we’ll all be off. If you buy into (or at least have heard of) the alleged problems with overpopulation, you’ll know what we’re talking about.

            Here’s where I’ll let Jonah take over:

The blind spot in the Malthusian vision is humanity's bottomless capacity for innovation. The "green revolution," for example, largely eliminated food scarcity.

In other words, our wealth is really all in our heads. Literally.

In the case of the United States, for example, less than a fifth of our wealth exists as material stuff like minerals, crops and factories. In Switzerland, cuckoo clocks, ski chalets, cheese, Rolex watches, timber and every other tangible asset amount to a mere 16% of that country's wealth. The rest is captured by the expertise, culture, laws and traditions of the Swiss themselves.

These numbers come from Kirk Hamilton, a World Bank environmental economist and lead author of a new study, "Where is the Wealth of Nations?" (available at worldbank.org). In a fascinating interview in Reason magazine, Hamilton explains how, when measured properly, "natural capital" (croplands, oil, etc.) and "produced capital" (factories, iPods, roads, etc.) are the smallest slices of the economic pie. What Hamilton calls "intangible capital," which includes the rule of law, education and the like, is by far the biggest slice. The entire planet's "natural capital accounts for 5% of total wealth, produced capital for 18% and intangible capital 77%."

This makes some intuitive sense. We'd all rather be the man who knows how to fish than the man given a fish. Or think of it this way: The Malthusian thinks only about hardware, when the money is in software and design. China makes America's iPods; America collects the profits.

Also, the richer a country gets, the less it needs to live off its natural resources. And, therefore, it becomes cheaper — and more popular — to protect the environment. This has been the trend in Europe and the U.S., and hopefully it will be around the world.

This sea change in economic thinking doesn't cut easily along the left-right political axis, and its implications could be profound. "Root-causes" liberals can find a great deal of satisfaction in the emphasis "Where is the Wealth of Nations?" places on education. According to Hamilton, education explains about 36% of a country's intangible wealth. Conservatives can find solace in the importance of property rights and, moreover, in the confirmation that not all cultures are equal — at least when measured on their ability to produce and sustain wealth. And both right and left will agree that the rule of law — including fair courts and government transparency — is the single most important contributor to a nation's wealth.

A potential lesson for the World Bank may be that building roads, dams and factories in the Third World is a fool's errand until those nations have the intangible capital required to maintain such things. The Marshall Plan's success in rebuilding Europe after World War II stemmed not from the U.S. footing the bill for concrete and bulldozers but from the intangible capital locked in the hearts and minds of everyday Europeans.

In an odd way, I think this complements Weisman's depiction of a post-human future. The greatest symbols of our civilization — from skyscrapers to libraries — not only count for a mere fraction of our wealth, they would turn to dust and rubble if we disappeared. The hardware is nothing; the software, everything. All that civilization is and can become exists within us. If we forget that, we forget literally everything.

            What’s my point here? If you’re living in poverty and you fail to take into account your intangible/nonmaterial wealth, you’re not seeing the big picture. The Lord’s given you assets which you probably aren’t taking into account. Use and cultivate and hone the gifts he’s given you, first and foremost to serve him, and as a corollary to improve your situation as he gives you opportunity. Don’t miss out on what he has in store for you.