Governments in pursuit of economic growth love to invest in physical capital—new roads, beautiful bridges, gleaming airports, and other infrastructure. But they are typically far less interested in investing in human capital, which is the sum total of a population’s health, skills, knowledge, experience, and habits. That’s a mistake, because neglecting investments in human capital can dramatically weaken a country’s competitiveness in a rapidly changing world, one in which economies need ever-increasing amounts of talent to sustain growth.
Throughout the World Bank Group’s history, our development experts have studied every aspect of what makes economies grow, what helps people lift themselves out of poverty, and how developing countries can invest in prosperity. In 2003, the bank published the first annual Doing Business report, which ranked countries on everything from taxation levels to contract enforcement. The findings proved hard to ignore: heads of state and finance ministers faced the possibility that foreign direct investment could go down as companies chose to invest in countries with a better business climate. In the 15 years since, Doing Business has inspired more than 3,180 regulatory reforms.
Now we are taking a similar approach to marshaling investments in people. The staff of the World Bank Group is developing a new index to measure how human capital contributes to the productivity of the next generation of workers. Set to launch at the World Bank Group’s annual meetings in Bali this October, the index will measure the health, as well as the quantity and quality of education, that a child born today can expect to achieve by the age of 18.
Scholars know a great deal about the many benefits of improving human capital. But their knowledge has not turned into a convincing call for action among developing countries. One constraining factor is the shortage of credible data that make clear the benefits of investing in human capital, not just for ministers of health and education but also for heads of state, ministers of finance, and
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