WASHINGTON — Health, education, and social services are not new areas of expertise at the World Bank, but the need for governments to focus on achieving quality outcomes may never have been higher.
In Bali, Indonesia, at the World Bank’s annual meetings in October, the institution will launch a new human capital index to rank countries on the outcomes they are achieving with investments in health, education, and social services. While the index is a highly visible — and perhaps controversial — element of the bank’s work on these issues, it is only one piece of a broader human capital portfolio that the institution is increasingly emphasizing.
While the World Bank Spring Meetings were dominated by negotiations around a major capital increase announced on Saturday, they also raised questions about human capital, digital economies, and internal changes at the world's largest multilateral development bank.
The basis of this effort is a growing body of research at the bank, which describes a future world in which countries may not be able to rely on the same pathways to development that other countries followed in the past, said Annette Dixon, the bank’s vice president of human developement.
“Not only is there a need to invest more in human capital to get to high-income status, the future world is actually going to need even healthier and better educated people than ever before — and that's one of the most important things that policymakers can do to prepare for a much more complex, technology-driven world,” Dixon told Devex.
Dixon spoke to Devex about the index, the growing body of research behind it, and what it means for World Bank projects. The conversation below has been edited for length and clarity.
At the World Bank Spring Meetings we heard quite a bit about the forthcoming human capital index, but I understand that's just one part of a much broader portfolio. Could you describe what that full portfolio looks like, and the new index fits into the work that you're doing?
Human development in the bank traditionally has been health, education, and social protection. It's been a traditional area of competence of the bank and actually has been pretty steady in terms of the share of the bank's activity overall. I think what has changed — and for us now is a big moment for human development — is this whole agenda around human capital development. The analytical underpinnings of our thinking about human capital are in three big places.
Those are this past year's “World Development Report” on learning and the crisis in education; the report that came out three or four months ago on “The Changing Wealth of Nations;” and this year's, on the future of work, “The Changing Nature of Work.” That story in totality is telling policymakers that not only is there a need to invest more in human capital to get to high-income status, the future world is actually going to need healthier and better-educated people than ever before — and that's one of the most important things that policymakers can do to prepare for a much more complex, technology-driven world.
So the incentive there is only increasing.
Exactly. So the human capital project is really trying to put at the center of policymakers' thinking the case for investing more in human capital development and accelerating progress on human development outcomes. The index is a way of galvanizing that commitment and giving countries an important signal on how far they have to travel in order to get to where they need to.
Some people may be surprised to hear that the World Bank Group wants countries to spend more on social services. There’s probably still a view that the World Bank and International Monetary Fund are pushing fiscal austerity. Does this human capital push represent a historic change? And do you see any potential for the lessons the World Bank is learning about the importance of human capital to bleed over into how the IMF, in particular, is advising countries on what they should be prioritizing in their budgets and how much they should be spending?
In our work on the human capital project I loosely see three groups of countries.
One is very poor, fragile countries that actually have really bad human development outcomes, but which are inextricably linked to just how poor they are — and how much help they need to get foundational investments in things which are going to improve their human development outcomes. These are countries have very high levels of maternal-infant mortality. They still have a big agenda in getting kids into school. They often have very high fertility rates that are contributing to the poverty. They need a lot of external assistance, both technical and financial.
There's another group of countries that are underinvesting, but they're not mobilizing enough resources. So they're neither mobilizing enough resources for services that their population needs, and/or need to give more priority to human capital investment in that process. And that's where the index can really help to bring home the value of making these investments at this point in a country's development. And here, a lot of the dialogue is around how much growth they are foregoing by not prioritizing investment in human capital, which I think this project positions us well to do.
Then there's a third group of countries that actually are spending high levels — reasonable levels — but are still not seeing progress on outcomes. And those are countries that are really thinking about whether they're targeting their expenditures in the right way. Are they investing in the right things? Is service delivery actually working effectively?
And then there are countries that frankly, have got this, and who are doing well at it, and who are really important for motivational purposes for others.
So, the project actually speaks to countries in all these categories, because it gives us an opportunity to look at the countries that are actually doing pretty well even in spite of being fairly modest-income level. They represent quite good models for other countries to look at and to share learning.
On this agenda, we don't have any space between us and IMF. I think they understand this as well, and are going to be really important partners for us in the human capital project. And in fact, for them and for us, for this group of countries that are not spending enough — frequently they're not mobilizing enough either. And so you have to look at both sides from that point of view.
When it comes to operationalizing this body of knowledge, it sounds like a lot of it is compelling countries to take action. Government officials are going to see the amount of money they could be growing their economy by, they're going to see where they rank, and then they will want to do these things. But are there also aspects that will influence World Bank lending, that might compel this institution to operate differently given what you're learning?
I see three parts to operationalizing.
One is the development of an index. The innovative feature of this index is it's going to put together some outcomes, which have strong evidence-based linkages to productivity and growth. It’s a subset of human development outcomes and in that sense is focused on human capital as a driver of countries' development — obviously human development outcomes are important in their own right for human well-being — but this index has a specific focus. The index will be constrained by the data that's available on a comparable basis. So the index will, by definition, be pretty simple to start with, but we hope it will evolve.
“A lot of it will be about looking beyond … the human development sectors, because the project is trying to actually ignite a whole-of-government focus on human capital development.”— Annette Dixon, vice president of human capital at the World Bank
And in that sense, the second part is working the measurement of human development outcomes around human capital development, and helping countries understand how important it is to measure and understand their human capital challenges. We think the first thing that will come up for countries when they look at the index and how they're doing is why that is, and how much more do we need to know?
And then the third thing, is how do we accelerate progress? When countries get to, “so what does this mean, what do we need to do,” that varies enormously from country to country. And this is really truly a cross-sectoral challenge. It's not just within the human development sectors. It may involve, on the public expenditure side, looking at revenue mobilization efforts, at expenditure priorities. It may be about investing more in interventions that there's strong evidence will help countries to make faster progress — and that will vary enormously from country to country, based on what their needs are.
A lot of it will be about looking beyond — including, but beyond — the human development sectors, because the project is trying to actually ignite a whole-of-government focus on human capital development.
One idea we've heard a few times is that this index might have the potential to change the way countries are perceived by external groups — in particular ratings agencies. World Bank President Jim Yong Kim said that he’s been speaking to ratings agencies about how they should look at this index and take it into account. Is that something you’re also working on?
Our message to policymakers in countries, and those who look at countries from the outside in, is: “Pay more attention to human capital,” because that's a much bigger driver of a country's capacity to develop than we perhaps have understood in the past.
Another way of getting policymakers to pay more attention to human capital’s importance is by encouraging others to look at it as well. Raising the profile of human capital in the assessments that are done of countries and in policymakers' assessments of what they need to do to develop their countries — that's the whole driver.
Do you think it's significant that this project is coinciding with a capital increase at the World Bank? If you're starting to think about this new body of knowledge, where investments are needed, and where countries need to be driving resources — and then you're looking at the World Bank that's got billions more dollars to lend — do you think that the evidence you're putting together might find its way into decisions about how to allocate those additional resources?
I think that is a bit coincidental, but I think where there is an intersection between both capital increase and the International Development Association 18th replenishment — really raising the level of ambition that we have for making faster progress on global challenges. The bank has always played this role as a commentator on development, and I see it as trying to bring a more technocratic basis to the public policy discourse on development. We're trying to bring an informed understanding of what it takes to get faster progress on development outcomes.
It coincides with the bank having more financial resources targeted at the most vulnerable and poorest countries in both the IDA group and the International Bank for Reconstruction and Development group. We are able to scale up engagements in the countries that most need it, and at the same time bring a sharper focus on what it will take to help countries make faster progress — and what will define the difference between where countries are able to grow their way out of poverty and into shared prosperity for their population. It's both coincidental and an important part of leveraging, using our knowledge and technical skills to leverage better outcomes with the scale-up and financing that's available.
What do you think World Bank staff working at project level are likely to notice by virtue of this project existing? Do you think it will change either the decisions that are available, or how they're prioritizing different options at project level for the bank?
For our staff working in sectors — whether they're working in education, social protection, or health — it's another important reminder that we have to work across governments and across civil society to bring the sort of scale of solutions that are needed.
The human capital project itself will actually require the staff who are working in country teams to bring a whole-of-government focus. It's no longer enough — never has been — but it's no longer enough to just focus within sectors. Yes, it's important that within education we improve learning outcomes, but much of what needs to happen will lie in improving nutrition outcomes, or water and sanitation, or improving public financial management, improving the governance environment. A lot of the things required will involve a whole-of-government approach to actually get better outcomes.
So you might have a minister of education realizing that it's health and nutrition that's driving low school attendance for example?
That's true, but it also needs the planning minister, the finance minister, the prime minister or the president to all be on the same page for that to really happen. When we support policy reforms, they often speak to a much broader group of agencies across government and ministerial posts, and require greater coordination in order to make it happen. Countries that make progress quickly have great coordination, and so more and more we need to be thinking about how we help governments to coordinate.
If you take as a parallel the “Doing Business” report, the countries that make good progress in “Doing Business” have good coordination across the agencies of government and down to their subnational levels in order to deliver services. And it's the same in human capital outcomes as well.
What is it about this project, or the index specifically, that will bring policymakers to the realization that they need to act in a more coordinated way?
“Over time, there will be more demand for measurement of service delivery in the same way that you see in the doing business index — how do I know that health services are being delivered in a way which is getting the right outcomes?”—
When we release the index, if we say, “look, the frontier is here and you're halfway — you've made good progress and you are halfway — you are missing out on that much growth per annum when you have this size gap between you and the frontier,” that's what will compel the realization.
The world is changing rapidly around us. The pathways that developing countries have had in the past are not as straightforward as they were.
You mentioned the “Doing Business” report, and I understand some of the same people who worked on that report have worked on the human capital index. Can you give me a sense of what the index is going to look like?
It is going to be outcomes that have a direct line of sight to productivity and economic growth. It will be very different from “Doing Business.” “Doing Business” is essentially the implementation of reforms and service improvements as they are observed at the level of firms and in some cities. So it's very different. In that sense it's much easier for countries to see change from year to year.
The measurement agenda needs to evolve on human capital, because over time, there will be more demand for measurement of service delivery in the same way that you see in the doing business index — how do I know that health services are being delivered in a way which is getting the right outcomes? And that's that group of countries that are looking for more effective spending to get better outcomes more quickly.
Do you see any risk in putting something like this out there when, as you say, the measurement regime still needs to evolve and become more sophisticated?
I feel confident that we will put an index out there that is rigorous and can be substantiated — and it will be transparent to policymakers how the index is derived. That's part of what we're going to be doing in the next few months as we refine the index. The index is still in a working level. But it also will need to evolve over time.
Version one of the index will be, by definition, based on what is available today. It will evolve as the human capital project creates more demand for better measurement of human capital outcomes. I think versions two and three and four will inevitably follow from it.