Key findings of a quarter-century review of Human Capital
An effective way to understand the differences in the global workforce is to analyze the quality of human capital being generated by different countries. But how does one measure and compute the level of human capital in absolute terms? One country could have a more productive workforce, but how do we find out how much more productive is it? A recent study published in the international medical journal The Lancet might have an answer. Titled, “Measuring human capital: A systematic analysis of 195 countries and territories, 1990 to 2016,” the study attempted to measure and rank countries according to their level of human capital based on a systematic analysis of an extensive array of data from numerous sources, including government agencies, schools, and health care systems.
The definition of ‘human capital’, as explained by the World Bank President, Dr. Jim Yong Kim, is “the sum total of a population’s health, skills, knowledge, experience, and habits.” The concept acknowledges the fact that “not all labor is equal, and the quality of workers can be improved by investing in them.” It was Dr. Kim who asked the Institute for Health Metrics and Evaluation (IHME) to develop some sort of scale to measure human capital, and as a result, the study was born.
In a unique and complex methodology, the study calculated the number of productive years that individual in each country can be expected to work between the ages of 20 to 64, by factoring in the years spent in education, learning, and functional health.
Change in human capital since 1990
Over the last 26 years, Finland has maintained its position as the world’s most human capital rich country. The country’s expected human capital was gauged to be 28 years in 2016. Iceland, Denmark, and the Netherlands (27 years each) follow, and Taiwan (26 years) rounds off the top five. During the same period, Turkey has made the most improvement in its human capital; rising from 8 years of human capital to 20 years. A healthy increase has also been seen in sub-Saharan African countries and the Middle East. A few Asian countries like China, Thailand, Singapore, and Vietnam have also dramatically improved their performance.
In what may come as a surprise, a few developed countries, like the USA, have actually witnessed a dip in their 2016 ranking as compared to 1999. This points to a limited progress in building human capital in countries that started on a high baseline. In the USA, for instance, educational attainment decreased from 13 to 12 years, which was one of the factors that led to the country dropping to the 27th position in 2016 from 6th in 1990. Nonetheless, in 2016, 44 of the 195 countries studied had average expected human capital of more than 20 years.
India’s performance has been lackluster
In terms of ranking, India has made diminutive gains since 1990. However, overall, some improvement has definitely been made. In 2016, India ranked 158th on the list, improving its position by 6 places from its 1990 ranking of 162. The expected human capital at 7 years has more than doubled from the 3 years, back in 1990. While Indians fared well in life expectancy and educational attainment, the improvement in learning scores and functional health scores was rather muted.
India is placed right behind Sudan and just ahead of Namibia. Some other developing nations like China (44), Brazil (71), Malaysia (79), and Mexico (104), and performed notably better than India. One could argue that India’s vast population has negatively impacted the rankings, but Bangladesh (161), Pakistan (164), and Nigeria (171) are the only other top populous countries that rank below India. However, there is a promise of a better tomorrow. India’s endeavors in the last few years to help its workforce gain vocational skills, alongside the very recent universal health coverage insurance, can substantially boost the quality and quantity of human capital in the country.
How other Asian nations fared
While most major Asian marketplaces have improved their performance in all individual factors, the same doesn’t reflect in their rankings proportionately. For instance, despite recording an increase in all the parameters and boosting its expected human capital years from 6 to 10 years, Indonesia witnessed a drop in its rank from 130th to 131st. Similarly, in the Philippines, the human capital years increased from 7 to 10 years and the functional health status score also went up from 52 to 58, and yet, its rank dropped from 124th to 130th.
However, several major Asian countries recorded astounding success as well. Malaysia, for example, jumped from 106th rank in 1990 to 79th in 2016 on the back of increasing its human capital years from 8 to 15 years and also enhancing its educational attainment duration from 8 to 12 years. In a similar fashion, Thailand jumped from 103rd rank to 72nd in 2016, by doubling its expected human capital years from 8 to 16 years and increasing its functional health status score by 10 – from 57 to 67. However, probably the maximum gains have been made by Singapore, which catapulted from 43rd rank to 13th. The nation has managed to improve its expected human capital rate from 17 to 24 years and registered an impressive improvement across all other factors as well.
Prolific policymaking builds human capital
Policymakers now have a clear incentive to focus on building their human capital because the study confirms that countries “that have improved the production of human capital tend to have been more successful in fostering economic growth.” Countries that made the maximum improvement in human capital in the last 26 years also had a 1.1% higher median yearly GDP growth rate than the countries that made the least progress. This had a very real and tangible impact on people’s incomes. For instance, an additional 1.1% increase in the GDP in the year 2015 and 2016 resulted in an extra $163 per capita in China; $268 per capita in Turkey; and $177 per capita in Brazil. Interestingly, there is also a gender dimension to human capital formation as well. While life expectancy for females was generally higher, they also tended to be healthier than males in average in low-income countries. “In terms of the overall measure, for countries below 10 years of expected human capital, rates of human capital tend to be higher in males, while countries above 10 years tend to have higher expected human capital for females.”
The study mentions a few noteworthy examples of policy reforms undertaken by countries that have registered rapid improvement in their human capital. While Brazil started focusing on its education system and improving learning among its population in 1995, Singapore begins the academic journey of students with ‘Thinking Schools’. Similarly, the educational reforms of Poland in 1999 helped students gain language and vocational skills. By focusing on healthcare, countries like Thailand and Turkey have made remarkable gains. While the former achieved universal health coverage much earlier than other middle-income countries, the latter overhauled its healthcare system in 2003 with the Health Transformation Program.
The findings of the study reveal interesting macro-level trends. While some countries have been really successful at improving their human capital, others, who started at a high baseline, have shown slow progress. However, the progress made by countries has been backed with robust policymaking and an intent by the state to remedy a challenge. While 18 countries progressed less than 2 years, 35 countries showed a progress in their human capital by over 5 years. The World Bank concludes that, on the whole, countries are not investing as much as they should be in health and education. The results prove that a “wider implementation of targeted policies and funding focused on improving health and education can accelerate human and economic development.” Advocates of business, economics, health, and education need to identify the profound relationship between education, health and building human capital. Dr. Christopher Murray of IHME aptly points the urgency to do so, “Our findings show the association between investments in education and health and improved human capital and GDP – which policymakers ignore at their own peril... As the world economy grows increasingly dependent on digital technology, from agriculture to manufacturing to the service industry, human capital grows increasingly important for stimulating local and national economies.”