Developing human resources

In formulating an international strategy for the 1990s it would be prudent to assume that the third world will have to rely largely on its own resources to finance development. Foreign capital is likely to be meagre; domestic savings are also unlikely to be abundant. For these reasons alone it will be essential to make full use of the human resources available within the third world itself. People should be placed firmly in the centre of development.

The most compelling reason for doing so is that the process of economic development is coming increasingly to be understood as a process of expanding the capabilities of people. The ultimate focus of economic development has of course always been development, but at times this has become obscured by too narrow a concentration on expanding the supplies of commodities. Economic growth should be seen as merely one means among several to the end of enhancing people's capabilities. Commodities and capabilities are of course linked – for example, through the distribution of income which affects the degree to which the basic needs of the entire population are satisfied and through the system of entitlements that determines to what extent specific needs in society are met. But commodities and capabilities are distinct categories and should be kept separate. In the final analysis it is capabilities that matter, and this is underlined by putting people first. An emphasis on human development has the virtue of forcing policy makers to ask themselves the question, growth for what?

Human development also has instrumental value in accelerating economic growth. Indeed expenditures on improving human an capabilities have the potential to yield a return to society at least as high as the return on physical investment. Estimates of the rate of return on expenditure on education have made this very clear, even after making allowances for possible upward biases in the rates of return. Countries that neglect human development not only retard the expansion of human capabilities in the broadest sense, they also undermine the country's long-run potential rate of economic growth.

Considering the evidence on both educational and health expenditure, it seems clear that in the first half of this decade there was in many third world countries a deterioration in the human condition and the potential for long-run growth. Selectivity is essential. Certain activities can be regarded as strategic and hence deserving of priority: education and training, health and nutrition, and housing. If these three areas receive the attention they deserve, it is likely that human development as a whole will proceed at a rapid pace.

The recommended approach is to emphasize those aspects of expenditure on human development which are akin to capital formation and to give lower priority to the purely social welfare aspects of expenditure programmes. Such an approach will have several advantages. First, the development of human resources in almost any form will inevitably contribute directly to the well-being of the poor. Secondly, an emphasis on human capital formation will help to create a more equal distribution of income. Thirdly, it will create an environment in which equality of opportunity is not likely to lead to great inequality of outcomes.

Fourthly, by providing comprehensive health, nutrition and educational services, complementarities between the various services can be exploited. For example, better health for the poor (as a result of primary health care services) increases the efficiency with which the body transforms calories into improved nutrition (the calories possibly obtained from a grain-rationing programme) and improved nutrition, in turn, leads to increased attendance at school (funded by the state) and improves the ability of children to learn. Similarly, there are important linkages between women's health, female life expectancy, the education of young women, the birth rate, and population growth. There are linkages between literacy and health between education, literacy and labour productivity etc. Indeed, because of the complementarities between different types of human development programmes, there may be increasing returns to expenditure on human development over quite a large range.

Finally, there are complementarities between physical and human capital which a strategy of the type being suggested can exploit. Investment in modern industry requires skilled labour agricultural mechanization requires people who can, for example, operate and repair irrigation equipment: modern services (banking, tourism, public administration) require a literate and numerate labour force. Thus an emphasis on human capital formation can, in principle, yield high returns in the form of an increase in the productivity of investment in physical assets.

Development and utilization of human resources, notably in Africa, are constrained by the interplay of several socio-economic factors. These include: the high rate of population growth with implied high level of unemployment and under-employment; the deficiencies of the existing educational systems, both in terms of relevance of education in response to national development needs, and the production of adequate numbers of skilled and trained manpower, and in alleviating the high level of adult illiteracy; and the lack of coordinated policies and programmes of human resources development as well as the scarcity and misallocation of human and financial resources in several fields. The erosion of living standards and social welfare is associated with civil strife, environmental degradation, growing open and disguised unemployment, declining real per capita incomes and the collapse of already inadequate and overburdened social and economic infrastructure. As governments are squeezed, public spending on social services such as education and health continue to suffer in real terms. The youthfulness of the population in developing countries has very serious implications for the development of human resources. In the first place, the task of education expansion is enormous; and second, there are proportionately few adults in the working population to shoulder the burden of educating the younger generation under the age of 15.