Human capital critical to boost inclusive growth

At its Annual Meetings in October, the World Bank Group launched a Human Capital Index, which measures the productivity of the next generation based on key outcomes such as child survival, stunting, learning-adjusted years of schooling, and the adult survival rate.

What’s the purpose of the new Index; what does it tell us? It’s simple. Human capital is a key driver of economic growth and prosperity, and the Index measures how much countries lose in economic productivity when not investing sufficiently in their people.

We surveyed 157 countries in the first iteration of the index. The average Human Capital Index for the world was 0.56. In other words, the total population of those 157 countries is only realizing 56 percent of its potential lifetime earnings because governments are not currently making effective investments in their people.

Not a single country scored a perfect 1 score on the Human Capital Index. All countries have work to do, regardless of where they fall along the Index.

The United Kingdom scored .78 on the Index – meaning it enables its population to realize about 78 percent of its potential. Contrast that to 88 percent in Singapore, the top-ranked country, or just 29 percent in Chad, which came in last.

Of the 157 countries ranked, the United Kingdom came in at 15th, on par with the Czech Republic and Portugal. If you look at the score for expected years of school, girls and boys in the UK on average has 13.9 years of schooling, but adjusted for learning it’s 11.5 years.

The World Bank’s mandate is to end extreme poverty, and to promote shared prosperity. For the poorest people, human capital is often the only capital they have.

We know that human capital matters for development: Early this year, in the report The Changing Wealth of Nations we for the first time sought to measure the value of human capital in our wealth analysis, in addition to produced capital (like machinery and buildings), natural capital (like energy and agricultural lands) and net foreign assets. We found that human capital accounts for two thirds of global wealth. In OECD countries the share is even higher, at 70 per cent, but in Low Income Countries, the share is only 41 per cent.

This gives policymakers compelling evidence that delivering better outcomes in children’s health and learning can significantly boost the incomes of people, and of countries. The changing nature of work only serves to strengthen the evidence. The jobs of the future will require more and better investments in people. Without human capital, countries cannot sustain economic growth, will not have a workforce that is prepared for the more highly skilled jobs of the future, and will not compete effectively in the global economy.

Fears that robots will take away jobs from people have dominated the discussion over the future of work, but our World Development Report 2019: The Changing Nature of Work finds that on balance this fear appears unfounded. What we see is that technology is bringing opportunity, paving the way to create new jobs, increase productivity, and improve public service delivery.

We see that firms can grow rapidly thanks to digital transformation, which blurs their boundaries and challenges traditional production patterns. We see that the rise of the digital platform firm means that technological effects reach more people faster than ever before. And we see that technology is changing the skills that employers seek, how people work and the terms on which they work. Even in advanced economies, short-term work, often found through online platforms, is posing similar challenges to those faced by the world’s informal workers.

So what can governments do to address the changing nature of work?

The World Bank’s 2019 World Development Report suggests three solutions:

1. Invest in human capital especially in disadvantaged groups and early childhood education to develop the new skills that are increasingly in demand in the labor market, such as high-order cognitive and socio-behavioral skills
2. Enhance social protection to ensure universal coverage and protection that does not fully depend on having formal wage employment
3. Increase revenue mobilization by upgrading taxation systems, where needed, to provide fiscal space to finance human capital development and social protection.

And what is the World Bank doing to act on the evidence? We are currently working with 28 countries from various regions and income levels to identify national priorities to accelerate progress on human capital, based on each country’s own development plans. We are taking a “whole of government” approach, partnering with the highest levels of government, as well as across sectors, ministries, and society. We are working at the country-level to emphasize efficiency and quality, as well as domestic resource mobilization, so that countries with budget constraints aren’t just spending more – but also spending better – with lessons learned that will inform future expansion. We are also seeking to harness the potential of innovation and technology; and we are aiming to tackle human capital development barriers in all their manifestations

We are focusing on evidenced-based policymaking and knowledge sharing through a Human Capital Project Network that facilitates learning across countries and from academia and leading researchers.

Jakob Kopperud is the World Bank Special Representative to the UK and Ireland

To stay up to date on the human capital conversation, please follow #InvestinPeople