UBS: Does wealth make us rich anymore?

Wealth can be broadly defined as the stock of assets that generates future income. These assets can be tangible and measurable – like infrastructure, factories, property, mineral wealth, or financial savings – or intangible and more difficult to quantify, such as environmental sustainability, brandvalue, health, reputation, or skills.

A thorough consideration of what wealth means is critical in the post-financial crisis environment.High government debt and weak economic growth potentially make it harder to service debt burdens or personal goals such as retirement. At the same time, new technology is changing the way the economy operates and the means by which future income is generated.

For individuals, nations, and companies today, we find that tangible forms of wealth are diminishingin importance in favor of intangible forms. The value of education, health, brand, reputation,sustainability, and the environment is rising fast. Focus and investment in these areas will thereforebe crucial.

At an individual level, wealth is now concentrated in fewer hands following the financial crisis. But technological developments are increasingly offering people access to goods and services thatwould have once required wealth accumulation. A new “capital-light” way of living has emerged,with on-demand access to accommodation, transportation, movies, or songs. However, accumulating sufficient financial wealth for retirement is getting harder, placing an ever greater emphasis on anindividual’s ability to generate sustainable income for longer. Education and health are therefore becoming increasingly crucial sources of personal wealth.

Companies are accumulating record financial wealth due to misaligned incentives and an uncertain economic environment, leading to reduced investment levels. For many companies, investment in physical plant and machinery has also become less important, thanks to cloud computing, software as-a-service, and the sharing economy. But the value of human capital – both employees and customers – is rising fast. The most successful companies this century are those that have built strong platforms, user bases, brands and other “people structures.” More companies are relying on usersto create their products, and in turn the value of reputation and brand is rising too.

For governments, tangible forms of wealth – extensive energy and transport infrastructure, a large foreign exchange war chest, or abundant natural resources – may decline in value relative tohuman skill, as the fourth industrial revolution is placing an ever greater premium on highly trainedworkers. The ways in which environmental degradation destroys wealth – via air pollution, soilde gradation, and the destruction of ecosystems – are also becoming more apparent, through shortened lifespans, or by forcing skilled workers to seek healthier climes.

In each case, the value associated with tangible forms of wealth is diminishing in favor of human capital and sustainability. In this White Paper, we look at this shift, its potential ramifications, and conclude each chapter with recommendations for policymakers to address these issues.

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