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Time to invest in human capital

The contemporary concept of a “nation state” revolves around a nation, community and/or society that is politically organized under a sovereign government having exclusive right of taxing its citizens within a well-defined and geographically-demarcated territory, and not subjected to any external control. Many centuries back, the famous Greek philosopher Aristotle aptly noted, “The state comes into existence originating in the bare needs of life and continuing in existence for the sake of good life”.

A state imposes responsibilities and obligations on its citizens and offers them in return fulfillment of rights of health, education, security, financial inclusion, and growth. The developed economies keep human capital development as a core element of their overall strategy as it directly contributes towards increased growth and productivity. However, even though the role of human capital in sustainable growth and development is recognized and undisputed, underdeveloped and emerging economies have yet to realize its importance. The recent report on Pakistan’s Human Capital Review by the World Bank stresses the significance of increasing investment in human capital in order to address the severe gaps in education and health.

The Human Capital Index (HCI) is a measure of the amount of human capital that children born today can expect to achieve by their eighteenth birthday considering all the risks of incomplete education and poor health that prevail in their country of birth. The report states that our Human Capital Index value of 0.41 is among the world’s lowest, with Bangladesh at 0.46 and Nepal at 0.49. Our ranking is termed as lower than the South Asian average of 0.48, more aligned with an average of 0.40 in case of Sub-Saharan Africa.

Moving forward we, as the fifth most populous country in the world need to focus and channel our efforts toward building a skilled, dynamic, healthy, and resilient population with the ability to put in their share in high economic growth. The role of women cannot be ignored in this regard. By providing a secure and enabling environment at educational institutions and in workplaces, with easy accessibility to jobs in all parts of the country can bring more women into education and labor force, which will ultimately offer a greater pool of educated, more skilled, and more productive labor force.

Linking the impact of HCI on the growth of a country, the report estimates that if Pakistan continues its current trajectory in human capital development, its GDP per capita would grow overall by a mere 18% through 2047. However, if it transforms its human capital framework at par with its peers, Pakistan’s per capita GDP could grow by 32%.

The report covers mainly three elements i.e., survival, education, and health. “Survival” is about assessing the probability that children born today will survive until the age of 5 i.e., “under-5 mortality rate”. On this account, Pakistan index value is 0.93 which is like Sub-Saharan Africa and lower than other regional groups. The report estimates that about 7% of newborns in Pakistan do not live to their fifth birthday and around 40% of children under 5 are stunted, leading them to a lifetime of physical and cognitive challenges for them.

The second component, “education”, takes into consideration the “expected years of education a child can expect to complete by age 18” along with a measure of “quality of education” available to him/her. It is estimated that 75% of Pakistani children are in learning poverty, unable to read and understand a simple age-appropriate story by age 10. Our HCI value on “expected years of school” is 9.4, lowest as compared to other regional groups. Pakistan’s harmonized test score is also the lowest on HCI as compared to other regions with value of 339 on quality of education.

The report further highlighted that Pakistan was ranked as the lowest performing country in science and mathematics due to its fourth graders’ performance measured in the regional assessment made in 2019. It says a lot about our quality of education. The third main component of HCI is health which considers two indicators to assess a country’s overall health environment. The first is the “fraction of children under 5 not stunted” and the second is the “survival rate from age 15 to 60”. On this front Pakistan has HCI values of 0.62 and 0.74 respectively. These statistics and results clearly state that on most of the HCI components, Pakistan is lagging behind the South Asia region and even Sub-Saharan Africa’s average.

The report mentions that Pakistan’s human capital crisis emerged due to its low utilization. It states that economic gains from human capital can be realized when people effectively use their skills and ingenuity in productive activities such as gainful employment in the labor market. Pakistan’s ranking on UHCI value is only 0.20, much lower than expected, given its economic development, and virtually at the global bottom.

These rankings show that our investment in social sector is very poor. Investment in human capital defines the future of any country which on the one hand plays an important role in the development of any country and on the other, it boosts bilateral relationships between states, generating foreign exchange reserves through the export of skilled labor force.

Our rulers spend more time hunting down their opponents rather than focusing on the narrative that comprehensive public policy will not only improve our education system but also ensure best health facilities. It is unfortunate that a country with nuclear assets is being ranked low in all social sector improvement indicators. Our neighbouring country India with a population of close to 1.5 billion is ahead of us in investing in human capital development and its percentage of expenditure in the social sector is better than us. Therefore, its people are working as top executives in US corporations and are in forefront in designing strong bilateral relationships as well as contributing substantially in the form of remittances in the development of their country.

We need to understand that investment in human capital can transform our economy, however, it must be taken as a long-term national strategic objective that will only be achieved with comprehensive, and collective efforts and cohesion among all key stakeholders.

Huzaima Bukhari, Dr Ikramul Haq and Abdul Rauf Shakoori, "Time to invest in human capital," Business recorder. 2023-05-12.
Keywords: Economics , External control , Financial inclusion , Capital development , Sustainable growth , Capital crisis , Public policy

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