Wealth: the eight capitals

Wealth: The Eight Capitals

To build a region’s wealth, WealthWorks considers not just financial assets, but includes the stock of all capitals in a region. This approach takes into account all the features of a city, town, countryside or region that make it a good place to live, work and visit. These might include:

Strong sense of community
Good infrastructure (e.g., affordable broadband, good roads, health care)
Well-trained workers with the right skills to be productive in local businesses
Unspoiled natural beauty (e.g., lakes, streams, hiking trails, parks) or natural assets like wetlands that control flood waters
Inclusive, open government
A few strong sectors with well-paying jobs and career possibilities

Each of these represents a component of a type of capital. Some components of capital—like the ones listed above—are more immediately recognizable than others. Some are less visible because they are in disrepair, not used, or taken for granted. Such “underutilized resources,” if identified and invested in, could contribute more to the region’s wealth. For example, a vacant lot considered an eyesore today could, with imagination and investment, become a productive community garden or recreational space tomorrow. Under skilled but willing workers could, with investment in training programs for skills that local firms need, become the region’s strongest asset.

The eight capitals: intellectual, financial, natural, cultural, built, political, individual and social.

WealthWorks simplifies things by organizing these local features into eight discrete capitals, which are defined in the table below and share the following characteristics:

Each capital is a collection of one category of related resources.
Every region has a stock of each type of capital—meaning the combined quantity and quality of the many components of that capital in the region.
Taken together, the existing stocks of these eight capitals constitute a region’s current wealth.

The Eight Capitals

Individual

The existing stock of skills, understanding, physical health and mental wellness in a region’s people.

Intellectual

The existing stock of knowledge, resourcefulness, creativity and innovation in a region’s people, institutions, organizations and sectors.

Social

The existing stock of trust, relationships and networks in a region’s population.

Cultural

The existing stock of traditions, customs, ways of doing, and world views in a region’s population.

Natural

The existing stock of natural resources—for example, water, land, air, plants and animals—in a region’s places.

Built

The existing stock of constructed infrastructure—for example, buildings, sewer systems, broadband, roads—in a region’s places.

Political

The existing stock of goodwill, influence and power that people, organizations and institutions in the region can exercise in decision-making.

Financial

The existing stock of monetary resources available in the region for investment in the region.

In WealthWorks, to get started, you must first get a handle on the eight capitals. As the concept of wealth-building becomes more familiar, you will see how qualities of a community or region can be captured within the eight capitals. For example, having a college or university with a specialized technology center that relates to an important local industry ramps up your region’s intellectual capital. Well-publicized and understood government processes that invite resident participation contribute to a region’s political capital. High levels of volunteerism can be counted as part of your region’s social capital. Readily accessible and affordable excellent early childhood programs for low-income residents can build individual capital in your region’s future workers and entrepreneurs.

Wealth building opportunity: Grow the region’s stocks of capital

Wealth is the collection—or stock—of all eight capitals a region has available at a given point in time. Every time economic and community developers make decisions in their work, they likely help grow or deplete the stock of one or more of these capitals. That’s why WealthWorks is designed to help economic and community developers think about wealth in terms of all these capitals—and how they interact. Each capital can be invested in and grown—or depleted—in ways that increase or decrease both a region’s current wealth and its future prospects.

It can help to picture the stock of any one of these eight capitals in your community as the water in a bathtub—and then to think about anything that might happen to change the level or qualities of that stock of water. To build that stock of water, you must pay attention to five things:

The quantity of the water in the tub
The quality of the water in the tub
The rates and types of flow into the tub
The rates and types of flow out of the tub
The results of stagnation—in other words, what happens when there is no flow?

Quantity of stock. This is simple. How much water do you have right now that you might use for some purpose?

Quality of stock. But what is that water like? Is it dirty, clean, hot, cold, hard or soft? Stocks of capital that are not in good shape, or that are not in the shape needed to use them for development, can create lots of problems and even undermine other forms of capital. For example, even if you have a lot of water in your tub, if it’s polluted, it has limited use for development and can even deplete components of other capitals—like human health. In short, a stock of capital that lacks needed quality likely cannot contribute to wealth building without more investment.

Flows into stock: Investments. If you turn on the faucet, you can change the water in the tub. The water entering the tub represents a flow of investment. Keeping any stock of capital healthy and growing requires ongoing investment—and the investment typically comes from your stocks of other types of capitals. But that flow of investment can affect both quantity and quality—and can be good or not so good, depending on its source. For example, for clean water to flow when you turn on the tap, someone had to invest in pumps and pipes and filters (built capital), and in water-quality protection (political capital) to keep the water clean enough to use.

Flows out of stock: Uses. Even as you add water to the tub, water can also flow out. The water leaving the tub is water you can use for other things. In some cases, you intentionally pull the plug and redirect some amount of water for use elsewhere. You might use some to irrigate crops, or to supply drinking water. Those represent re-investment in other categories of local capital. Ideally, using your stock of water to reinvest in another one of your capitals increases the quantity or quality of that capital’s stock—producing a return on your investment. For example, you might produce better crops that demand higher prices, or better health for those who drink your clean water. Of course, you have to be careful about how you use any water. If you used it to over-irrigate that crop and the crop failed, then you diminished your stock of water (and your crop) with no return.

And sometimes water flows out not because you redirected it, but because there is a crack in the tub that has sprung a leak. This kind of flow out of your tub is depleting your stock of capital. In this case, to preserve your stock of water and stop it from draining, you first have to realize there is a leak, then find it, then discover what is causing it, and then figure out how to fix it. One way to think of this is as waste. If you regularly use a gallon of water to make something happen, and you discover that a half-gallon would do, you have found a crack you can fix to preserve your stock of water.

No flow: Stagnation. If you fill a tub with water and just let it sit there, what happens? Over time, the water level goes down as it evaporates. It may even change quality, get cold or hot, or start to grow scum on the surface that you simply don’t want. Just like that water, the stock of any underutilized capital, left alone and untended, will tend to evaporate—or depreciate—over time.

To increase the stock of any capital—that is, to increase its wealth-building potential—it makes sense to pay attention to all these things. If you consume too much and forget to reinvest, the bathtub runs dry. If you consume too little, the water may stagnate and lose value. If you allow flows into the tub that pollute the water, your stock of water depreciates and has fewer productive uses.

But if you thoughtfully use a portion of your stock to “water” or invest in other types of capital, you can create a win-win situation that produces multiple benefit flows. These flows then raise the reservoir stock of other capitals so that they are available for current and future generations. Controlling the water that enters from the tap and exits through the drain or leaks from any cracks—all while maintaining the quality of water that’s in the tub—illustrates one critical practice of regional wealth-building. It is the key to building resiliency.

Wealth in action: The bottom (guide)lines

By using the WealthWorks framework, economic and community development practitioners can better identify, assess and deploy their existing wealth—their eight capitals—over time. And they can gauge how their development efforts help the useful stocks of each capital either grow or diminish in the region.

Investing to train local workers for existing jobs not only builds skills but leads to better jobs, larger incomes, and greater stability for families.

For example, when you invest in training that builds the skills of local workers to match existing local jobs, you expect workers to gain improved skills and a better job, along with a larger income, more stability for their families, and the ability to invest in their children’s educations down the line. When communities invest in restoring farmland or clam flats, they expect more productive farms and flats as well as greater incomes for farmers or shell-fishers, more regional job security, more stable families and resilient communities—now and in the future. In both cases, identifying and making the most of an existing stock of capital—while recognizing its relation to other types of capital—is a necessary step toward regional wealth-building.

A few simple guidelines, if regularly considered and practiced, can help economic and community development practitioners work with and across the capitals for better wealth-building results:

Know your inventory. The starting point in any development effort is knowing what you have available to work with right now. Scanning where your region stands in relation to your stocks of all eight capitals—in effect, an inventory of their quality, quantity and flows—will surface a fuller set of opportunities to consider and may help you realize you have more tools at hand than you thought.

Look for underutilized resources. Taking such an inventory can also help you identify resources that are lying idle or depreciating due to stagnation. These underutilized resources might be put to more productive use—and present ripe opportunities for investment and wealth building. For example, you might uncover a cohort of hard-working young people in minimum-wage jobs who are looking for better jobs elsewhere. They might offer an investment opportunity—if you can help them acquire the skills needed for work in an emerging short-staffed sector in your region.

Communities that offer scholarships for youth to attend far-away universities are building individual capital, but if the youth don’t return to the region, that wealth doesn’t “stick.”

Photo courtesy US Department of Education

Think and act across all eight capitals. Considering all eight capitals systematically while trying to develop a particular product or sector or opportunity can lead to creative and resourceful thinking. You can see the capitals and their connections and flows as a “system” of critical elements in your region that have an impact on each other—for good or for ill. Being aware of this interdependence and the potential impact that your development decisions about one capital have on the other seven can make a great difference in your wealth-building results. In fact, the willingness to undertake this creative thinking can itself signal an increase in your region’s social and intellectual capital!
Make decisions that strengthen the useful stock of capital. Once you begin to “think capitals” in your development process, you can better see the capital quantity, quality and flow effects of your development decisions. Doing so can get you into the habit of making better decisions about keeping all your stocks of capital healthy, up and growing.
Avoid doing any harm. WealthWorks strives to do no harm. What does this mean? It means no capital should be built at the expense of or detriment to any of the other seven. Low wages or risky environmental regulations might attract development that yields temporary benefits, but they can actually undermine the region’s capacity to build wealth over time. Certainly, doing no harm can make decision-making more complex and difficult, forcing regions to carefully consider relationships and unintended consequences. But keeping it as an objective helps keep more stocks of capital healthy and growing.

When you systematically strike a good balance for all eight capitals, it not only increases the healthy stock of each capital, it leads to a more sustainable economy that both meets current needs and offers more potential to build wealth in the future.