Developing human resources

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 during the next 10 years 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.