The ultimate aim of development is to improve human well-being in a substantial and sustainable way. Human capital development-the product of education and improvements in health and nutrition-is both a part of and a means of achieving this goal.
The importance of investing in human capital has become clearer in recent years, with increasing evidence on how and to what extent such investments interact with other factors in development as forces for change. This section allows readers to evaluate how well different economies are doing in building human capital and extending human welfare.
Living standards have been improving all over the world. Globally, real GNP per capita has increased by more than 3 percent a year on average since the mid-1960s. But while only the East Asian miracle economies have been able to sustain this (or even higher) income growth for long periods, improvements in social indicators have been sustained in all regions for much of the past 25 years. Many developing countries have succeeded in reducing poverty, a few by as much as 50 percent (World Bank 1990). Average infant mortality rates for low- and middle-income countries have declined from 107 per 1,000 live births in 1970 to 60 in 1995; life expectancy at birth increased from an average 55 years to 64 years. The world today is healthier, better educated, and better fed than it was 25 years ago.
These achievements nevertheless mask vast disparities across regions and countries. Infant mortality remains above 90 per 1,000 live births in Sub-Saharan Africa and 70 in South Asia, compared with 40 for East Asia. Average life expectancy at birth is only 52 years in Africa, compared with more than 60 for other regions. Primary school enrollment in some African countries has declined, and secondary school enrollment is only 24 percent, compared with over 50 percent for some other developing regions. And as the world approaches the turn of the century, more than 1.3 billion people are living on less than $1 a day, and another 2 billion are only slightly better off. Most of the poor—about 60 percent—live in South Asia and Sub-Saharan Africa, which together account for 14 percent of the aggregate GDP of developing countries and 3 percent of the world's.
Poverty reduction requires action simultaneously to stimulate growth through sound economic policies that promote sustainable, equitable development and to invest heavily in human capital through improvements in education, health, nutrition, and other social services (World Bank 1990). While this section focuses on human capital, sections 4 and 5 look at economic growth and its preconditions.
Why does human capital matter?
Because the poor’s most significant asset is their labor, the most effective way to improve their welfare is to increase their employment opportunities and the productivity of their labor through investments in human capital. Often, the poor are unable to finance such investments. So the challenge is to create an enabling environment and to mobilize resources for human capital investments.
Human capital is critical in raising the living standards of the poor. Health care and good nutrition reduce sickness and mortality and improve labor productivity. Literacy and numeracy widen horizons, making it easier for people to learn new skills throughout their working lives, and thus ensure full participation in social and economic life. By raising productivity, investments in education stimulate growth, and by opening economic opportunities to more people, they help reduce income inequality. In turn, faster growth and greater equality increase the supply of, and demand for, education.
Better education and health enable couples to make more informed decisions about the number and spacing of their children and about their schooling, and to protect maternal and child health. The improved health of educated people motivates them to make still more investments in their education and health. The relationship between investments and outcomes is thus mutually reinforcing, justifying investments in human capital on both economic and equity grounds.
Developing countries have already made big investments in human capital development, assisted by private and official development agencies. More recently, governments have taken new initiatives to address social issues and identified specific goals, based on agreed targets, to measure progress (see box 1a in section 1).
The poverty of data
Many indicators have been proposed to measure progress in building human capital. Yet there are continuing problems with the quality of data that cast doubts on the reliability of the indicators and raise concerns about their use in decisionmaking (Srinivasan 1994). Data often suffer from conceptual problems, measurement biases and errors, and lack of comparability over time and across countries. The specialized United Nations agencies that standardize concepts and methods of data collection are underfinanced, and government commitment to data collection, including allocation of sufficient human and financial resources, often falls prey to budget cuts.
Not surprisingly, population censuses often become the main source of information on most aspects of human capital, supplemented by official estimates based on the censuses and surveys or broad generalizations. The problem is that censuses are infrequent (usually decennial), have long processing times, and fail to reflect such aspects of human capital development as access to and quality of social services. Important supplements to population censuses are specialized household surveys that gather information on the level and extent of poverty and on the impact of government policies on poor and vulnerable populations. Household surveys have other advantages. They can be conducted frequently and more cheaply than censuses and are increasingly used to measure living standards.
The indicators reported here share many of these shortcomings (detailed notes on their quality are presented with each table). With these caveats, the data nevertheless help quantify the consequences of poverty, allow intertemporal and cross-country comparisons, and highlight social problems that need to be resolved.