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Beyond natural, human, physical, and social capitals, ingenuity emerges as the vital ‘fifth capital’—the stock of ideas and innovations that sustains societies in the Anthropocene.
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Classical Political Economy highlighted three major factors of production—namely, land, labour, and capital—and later added entrepreneurship or enterprise as the fourth one. Land delineates all the stock of natural resources that can be used for the production of goods and services. Labour refers to the extent of human efforts, both physical and psychological, that are used in the production process. Capital, often defined as the ‘produced means of production’, entails equipment such as machinery, tools, factories, and other infrastructure, used in the creation of various goods and services. Entrepreneurship provides an institutional framework to govern, combine, and manage these factors in the production process.
Interestingly, the discourse of Classical Political Economy and the subsequent schools of thought emphasised economic growth through enhancing the productive capacity of the economy as the primary intent of the capitalist system. There were two detractions, however. The first was the Marxian and Neo-Marxian schools that highlighted the critical question of distribution and equity in this wave of capitalism. The second detraction emerged from the Classical School itself in the form of the acknowledgement of the scarcity of resources or the factors of production, especially land, as a constraint of this unbridled growth story. The notion of scarcity was made central to the practice of Economics when Lionel Robbins highlighted the canonical definition of the discipline as “… allocation of scarce resources among competing ends”. However, over time, the Club of Rome thesis emerged as a doomsayer, emphasising the neo-Malthusian creed that overexploitation of natural resources will not only stifle growth but also lead to a significant decline in the planetary capacity to provide for critical services to life forms on earth, including humans. Unfortunately, reductionism in the study of economic development prevailed for quite some time, with land (or natural resources) considered as given, leading economists to persistently study the rates of technical substitution between labour and capital.
Ingenuity is the meta-capacity of societies to adapt, innovate, and respond to complexity. It is neither reducible to human capital (skills and education) nor social capital (trust and institutions), though it draws from both. Rather, it is an emergent property of the system — the ability to continually invent new pathways for sustaining prosperity amid shifting constraints.
The Club of Rome thesis, despite being criticised, was important for spelling out the criticality of natural resources subsumed under the nomenclature of ‘land’. It found salience in The Earth Summit of 1992 that adopted the Brundtland Commission Report’s definition of ‘sustainable development’ (as “meeting the needs of the present without compromising the ability of future generations to meet their own needs”). Lately, with the adoption of the Sustainable Development Goals (SDGs) in 2015, the pre-conceived trade-offs between development and conservation goals had to be circumvented and treated as complementary to each other in the global development governance.
Interestingly, the discourse on SDGs has acknowledged diverse forms of capital that underpin productive efficiency and intergenerational well-being. The World Bank in 2006 and subsequently, the United Nations Environment Programme (UNEP)’s Inclusive Wealth Reports codify Produced, Human, and Natural Capital as the foundational triad of assets sustaining long-term prosperity. Over time, scholars added Social Capital to this matrix of a nation’s total or inclusive wealth, emphasising the roles of institutions, trust, and networks in facilitating the efficient deployment of the other capitals.
One can find a reverberation of the factors of production identified under the Classical Political Economy here – land as natural capital; labour as human capital (though there is a fundamental difference, as labour is categorised as a flow while human capital is a stock); capital as manufactured or physical capital; and institutional mechanisms under entrepreneurship or enterprise seemingly replaced by social capital, which represents a more holistic phenomenon. Despite this multidimensional view of an economy’s productive capacity, a critical dimension that is increasingly determinative of survival and success in the 21st century seems to be left out: Ingenuity.
Thomas Homer-Dixon, in his seminal work The Ingenuity Gap, defined ‘ingenuity’ as the ideas, innovations, and institutional mechanisms required to solve complex and emergent problems. He distinguished between technical ingenuity, which encompasses advances in science, technology, and engineering, and social ingenuity, which manifests through governance systems, social contracts, and institutional innovations. Homer-Dixon’s central thesis was that modern societies are caught in an “ingenuity gap” — the demand for novel solutions to environmental, social, and political challenges outpaces the capacity to generate them.
Ingenuity is the catalytic fifth capital — an enabling force that amplifies the productive efficiency of the others. Without ingenuity, the returns on produced, human, and natural assets stagnate; with ingenuity, they expand non-linearly.
In essence, ingenuity is the meta-capacity of societies to adapt, innovate, and respond to complexity. It is neither reducible to human capital (skills and education) nor social capital (trust and institutions), though it draws from both. Rather, it is an emergent property of the system — the ability to continually invent new pathways for sustaining prosperity amid shifting constraints.
The question that arises here is: why should ingenuity qualify as a capital? For an asset to qualify as capital in the economic sense, it must represent a stock that generates a flow of benefits over time. The production of ingenuity is a flow – a process that entails scientific discoveries and social innovations through experiments conducted under controlled environments or under practical conditions with all assumptions removed. These ideas or ingenuity, thus created in the form of a stock, get stored in scientific institutions, research and development (R&D) systems, knowledge networks, think tanks, creative industries, and cultural openness. These stocks, or the ingenuity capital, expand the productivity frontier of other capitals in the following ways:
In this sense, Ingenuity is the catalytic fifth capital — an enabling force that amplifies the productive efficiency of the others. Without ingenuity, the returns on produced, human, and natural assets stagnate; with ingenuity, they expand non-linearly.
The problems of the 21st century are becoming increasingly complex to be handled by traditional linear thinking. Climate change, pandemics, financial instability, and technological disruptions are not merely problems of capital depletion; they are problems of adaptive insufficiency. A country may have abundant natural wealth and skilled labour, but if it cannot innovate institutions to manage water scarcity or devise vaccines at speed, its well-being falters. The “resource curse” phenomenon prevalent in several parts of the Global South is symptomatic of the problem of a lack of ingenuity to utilise abundant natural capital productively. What matters here is the capacity to generate new solutions under conditions of uncertainty. Here lies the normative case for Ingenuity as capital: it is not only a capability, but a stock that societies can nurture, accumulate, and utilise.
The “resource curse” phenomenon prevalent in several parts of the Global South is symptomatic of the problem of a lack of ingenuity to utilise abundant natural capital productively.
The challenge, however, lies in measuring ingenuity. Though it is often suggested that consideration of proxies such as expenditure on R&D, rates of patenting and technological adoption, density of think tanks, universities, and research institutions, and institutional innovation indices may help, a better way to estimate the role of ingenuity is through the estimation of the Total Factor Productivity differences between two economies. This might be a starting point for a methodological breakthrough.
Given the emerging complexities, ingenuity capital is indispensable for sustainability. Sustainability, therefore, is not merely contingent upon societies passing on sufficient produced, human, and natural assets to the next generation, but also on bequeathing the capacity to solve the problems of tomorrow. Technological lock-ins, institutional inertia, and epistemic closure can all erode this capital. Conversely, societies that invest in creativity, pluralism, and innovation systems strengthen their adaptive potential. In this framing, the greatest risk to humanity is not only resource depletion but ingenuity depletion — the erosion of problem-solving capacity at precisely the moment when complexity deepens. Ingenuity as the fifth capital extends the Inclusive Wealth framework into the terrain of adaptability and creativity – a need to combat the complex problems of the Anthropocene.
Nilanjan Ghosh is Vice President - Development Studies at the Observer Research Foundation.
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Dr Nilanjan Ghosh heads Development Studies at the Observer Research Foundation (ORF) and is the operational head of ORF’s Kolkata Centre. His career spans over ...
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