nomic development in the Third World, human resources were also left out on the grounds that labor is always ''surplus," and development was seen almost entirely as a matter of savings and investment in physical capital. Ironically, low-income countries, which are typically most dependent on natural resources for employment, revenues, and foreign exchange earnings, are instructed to use a system for national accounting and macroeconomic analysis that almost completely ignores their principal assets.

The result today is a dangerous asymmetry in the way we measure, and hence the way we think about, the value of natural resources. Man-made assets—buildings and equipment, for example—are valued as productive capital. As they wear out, a depreciation charge is taken against the value of production that these assets generate. This practice recognizes that a consumption level maintained by drawing down the stock of capital exceeds the sustainable level of income. But customary accounting methods do not value natural resource assets in this manner: their loss entails no debit charge against current income that would account for the decrease in potential future production. A country could exhaust its mineral resources, cut down its forests, erode its soils, pollute its aquifers, and hunt its wildlife and fisheries to extinction, but measured income would not be affected as these assets disappeared.

The United Nations System of National Accounts (SNA) is the standard framework for measuring a country's macroeconomic performance. The SNA includes stock accounts that identify assets and liabilities at particular points in time and flow accounts that keep track of transactions (e.g., expenditures on goods and services, payments to wage and profit earners, and imports and exports of goods and services) during intervals of time. These national accounts have become the basis for virtually all macroeconomic analysis, planning, and evaluation. Supposedly, they represent an integrated, comprehensive, and consistent framework. Unfortunately, they do not.

Although capital formation is assigned a central role in economic theories, natural resources are not treated like other tangible assets in the system of national accounts. Activities that deplete or degrade natural resources are not recorded as consuming capital, nor are activities that increase the stock of natural resources defined as capital formation. According to the United Nations Statistical Office, ". . . nonreproducible physical assets such as soil or the natural growth of trees . . . are not included in the gross formation of capital, due to the fact that these assets are not exchanged in the marketplace" (United Nations, 1975).

On the other hand, the SNA does classify as gross capital formation expenses incurred in "improving" land for pastures, developing or extending timber-producing areas, or creating infrastructure for the fishing industry. Such actions contribute to recorded income and investment, although they can destroy valuable natural resource assets through deforestation, soil erosion, and overfishing. No record is kept or appears in the national income and investment accounts of this loss of capital as natural resources are used beyond their capacity to recover. The



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement