Human capital development

Published October 27, 2023
The writer is a former deputy governor of the State Bank of Pakistan.
The writer is a former deputy governor of the State Bank of Pakistan.

ACCORDING to economist Julian Simon, “the ultimate resource is people — especially skilled, spirited, and hopeful young people endowed with liberty — who will exert their wills and imaginations for their own benefits, and so inevitably they will benefit the rest of us as well”.

How does a nation ensure that its people will be skilled and spirited? It must educate its people to endow them with various skills, keep them healthy, and enable them to develop into productive human beings. Economists call this process ‘human capital development’, and it is an essential part of overall economic development and growth.

As Allama Iqbal said, “While you are still immature, you are a heap of dust; When you ripen, you will become an irresistible sword.” ‘Ripen’ here embodies self-development through human capital development, which enables a nation to overcome any challenge.

Education not only develops individuals to overcome personal challenges, it also enables nations to achieve their objectives. Research papers worldwide, including in Pakistan, show that it is not just labour, land and capital that contribute to economic growth, but also human capital, which is distinct from labour and at the same time embodies it.

While labour as a factor of production and growth comes from population, human capital emerges from an educated, healthy, and skilled population. Human capital helps improve productivity, while human ingenuity boosts innovations that can increase growth manifold.

In Iqbal’s words, an uneducated nation is like a heap of dust unable to take purposeful action. The need for the population to become highly educated can’t be stressed enough.

A multidimensional concept, human capital is difficult to measure. The World Bank says: “Human capital consists of the knowledge, skills, and health that people invest in and accumulate throughout their lives, enabling them to realise their potential as productive members of society. Investing in people through nutrition, healthcare, quality education, jobs and skills helps develop human capital, and this is key to ending extreme poverty and creating more inclusive societies.”

The World Bank also constructs a Human Capital Index (HCI) that “measures the amount of human capital that a child born today can expect to attain by age 18. It conveys the productivity of the next generation of workers compared to a benchmark of complete education and full health”. This index varies from zero to one, where one represents the benchmark of complete education and full health.

It is imperative to invest more in human capital to promote growth and development in Pakistan.

Pakistan’s HCI level in 2020 was 0.41, which means that a child born in Pakistan will be only 41 per cent as productive as she could be when she grows up if she enjoyed complete education and full health.

Pakistan fares very poorly in comparison to the 130 countries for which the World Bank prepared the HCI. It ranks 118 and its HCI is the lowest in South Asia, which has an HCI average of 0.48.

The highest level was 0.88 for Singapore, and the lowest 0.29 for the Central African Republic. Countries closer to Pakistan in terms of rank were Lesotho, Comoros, Iraq, and Malawi, among others. The levels for India and Bangladesh were 0.46, and 0.49 respectively, both with better rankings than Pakistan.

According to the World Bank, there are six key components for measuring HCI: probability of survival to age five, expected years of school, harmonised test scores, learning-adjusted years of school, adult survival rate, and the proportion of children under five not stunted. Pakistan fares poorly in all.

Ninety-three out of 100 children born in Pakistan survive to age five. A child who starts school at age four can expect to complete 9.4 years of school by her 18th birthday. The education quality is poor in Pakistan, with students scoring only 339 on a scale where 625 represents advanced attainment and 300 minimum attainment.

Factoring in what children actually learn, the expected years of school is only 5.1 years. Across Pakistan, 85pc of 15-year-olds will live to age 60. This statistic is a proxy for the range of health risks that a child born today would experience as an adult under current conditions. Only 62 out of 100 children aren’t stunted. Thirty-eight out of 100 are at risk of cognitive and physical limitations that can last a lifetime.

Given this dismal situation, it is imperative to invest more in human capital to promote growth and development in Pakistan. This, however, cannot be done with our very low expenditure on education and health. According to the Pakistan Economic Survey, FY23, expenditure on education was only 1.7pc of GDP, and health 1.4pc. Not only is expenditure on education low, it has actually declined from 2.1pc of GDP in FY18 to 1.7pc in FY23. We are regressing on investing in education.

If the government focuses only on two areas, it can increase its human capital in a few years. First is the provision of clean drinking piped water to its citizens; second is increasing enrolment rates for primary education. The provision of clean drinking water will reduce many diseases, lower infant and child mortality and increase adult survival rates. More investment in primary education will reduce dropout rates from primary school and enable more students to complete secondary and post-secondary education.

According to the World Bank, the net primary enrolment rate in Pakistan was 68pc in FY18, which, going by the Pakistan Social and Living Standards Measurement survey, FY20, decreased to 64pc in FY19.

The World Bank asserts: “With over 20 million school-age children out of school, high levels of child malnutrition, and low empowerment of women, Pakistan’s human capital challenges are among the most serious in the world — it is a human capital crisis that is profound, silent and with far-reaching negative effects on the potential of the country and its people.”

Pakistan’s investment rate was extremely low at 13.6pc of GDP in FY23. It has also declined over the years. Aggregate consumption was almost 98pc of GDP. There is obviously an urgent need to increase investment.

If the government alters its priorities towards more investment in human capital, it will increase overall investment and promote economic growth and development on a sustainable basis.

The writer is a former deputy governor of the State Bank of Pakistan.

rriazuddin@gmail.com

Published in Dawn, October 27th, 2023

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