World Bank human capital index — just another ranking?

NUSA DUA, Indonesia — Global development experts and civil society groups largely welcomed the World Bank’s new human capital index, the flagship initiative launched on Thursday at the institution’s annual meetings in Indonesia.

The index, which ranks 157 countries according to outcomes they achieve on health and education, is seen as the culminating evidence of a multidecade shift at the World Bank, from emphasizing investments in hard infrastructure projects, to pushing for governments to spend more on human development. World Bank President Jim Kim hopes the index will induce a race to the top among competitive country leaders, while providing a tool for civil society to hold their governments accountable for producing better outcomes.

Some believe the new index could also reframe the relationship between developing countries and international financial institutions, which have not historically valued human capital as a direct contributor to economic growth.

“This is maybe the most significant mark the meetings in Bali would leave in development history: to recognize the criticality of investing in people, [and] that government expenditures in health, education, social protection are not consumption expenditures — they are really prime-time investment,” said World Bank CEO Kristalina Georgieva on Thursday.

That message was not lost on development leaders. One factor that sets the human capital index apart from the myriad other indices that rank countries according to similar indicators is who created it, said Kevin Watkins, CEO of Save the Children U.K.

“The first difference is that it’s coming from the World Bank, and it’s directed at finance ministers — and finance ministers are precisely a constituency that have overvalued the importance of economic infrastructure and undervalued the well-being of their citizens,” he said in an interview with Devex on the sidelines of the meetings.

“It will potentially redefine the relationship between the World Bank and governments. That is to say, if the World Bank starts allocating its International Development Association resources and [International Bank for Reconstruction and Development] resources in line with a commitment to human development, that will send a very strong signal to governments about where they’re putting their resources,” Watkins said.

Civil society representatives to the meetings agreed. The new index “shines a spotlight on the right priorities,” Nadia Daar, head of Oxfam International's Washington office, said in a statement. “Governments too often overlook these areas because of short-term politics.”

Georgieva described how the World Bank came to question its own assumption that productive assets were limited to physical capital, natural capital, and institutional capital — the factors it previously took into account when assessing the wealth of nations. It was not until last year that the bank began asking how people should be incorporated into its measurements, and then determined how to measure human capital.

“It was a shock, because we discovered that two-thirds of the wealth of our planet is us. It is people, and a richer country would have a higher share of human capital in its wealth, and a poorer country would have a smaller share,” she said.

Capital versus rights

While largely supportive of the new index, civil society organizations have voiced a few concerns.

While the index puts forward a nation-wide human capital score — representing the amount of economic productivity lost through deficient health and education outcomes — it does not account for disparities within a country. That risks missing out on potential concerns about inequality, and raises the possibility that even as a country climbs up the index ranking, its poorest citizens could be left behind, some groups worried.

Others have taken issue with the bank’s decision to describe health and education as instruments for achieving economic growth, instead of basic rights that citizens should demand of their governments.

“The Bank’s advocacy to invest in people through education is built upon an argument that ignores the fact that education is a fundamental human right and a public good and as such governments have a duty to invest in education,” David Edwards, general secretary of Education International, wrote in a blog post.

“The Bank’s ‘human capital’ discourse understands people not as rights holders, but only in terms of their future economic contribution,” he added.

Some developing country representatives also took issue with the new ranking system.

On Thursday, after the index placed India at 115th — behind its neighbors Nepal, Sri Lanka, Myanmar, and Bangladesh — the country’s finance ministry released a statement rejecting the bank’s new initiative. The statement pointed to India’s efforts to expand health insurance, education, and financial inclusion through the Aadhaar digital identification system.

"The Government of India, therefore, has decided to ignore the HCI and will continue to undertake its path breaking programme for human capital development aiming to rapidly transforming quality and ease of life for all its children," statement said.

"The hasty introduction of the HCI by the World Bank may deny the larger Human Capital Project its due despite the lofty objectives of the latter," it said.

In a press conference on Thursday, representatives of the G-24 group of developing countries described concerns held by some of the group’s members. Developing countries overwhelmingly occupy the lowest positions on the index.

“Many countries have expressed concern in terms of its ranking ... that maybe it may not be completely methodologically robust,” said Marilou Uy, director of the G-24. “The request, as I understand it, is to be vigilant about this and to continuously review the methodology and the data being used by the index as it moves forward.”

Ahead of the launch, Kim anticipated that the index’s rankings might spark some controversy. Speaking to a small group of reporters on Wednesday, Kim defended the methodology.

“We have to be absolutely sure about our data if we are going to go out and rank [countries] … so we asked very specific questions and the index answers those questions,” he said.

The bank chief has also reiterated that subsequent iterations of the index might change as the bank refines its methodology.

Changing the conversation

Just as the index could provide a basis for pushing finance ministers to prioritize investments in social sectors, supporters hope it might also bring about a change of heart inside the World Bank Group and International Monetary Fund.

The IMF, in particular, has often pushed countries to limit public spending as a condition of its loan packages. Even when the fund has not explicitly directed countries to cut social spending, some of them have done so, according to research presented during the civil society forum of the meetings.

The new index has the potential to change the calculus around social sector spending and economic growth, according to its supporters.

“The relationship between the World Bank and the International Monetary Fund provides the bank with an opportunity to ensure that the IMF’s fiscal policies are aligned with what the World Bank is trying to achieve on human capital,” Watkins said.

“At the moment, what we often see is that the IMF will pay lip service to the principles of human development and human capital, but then impose budget disciplines — as they have done in Greece to disastrous effect — that will set back the human capital of a country and undermine prospects for development for a generation,” he said.

In response to a question about how the bank’s human capital agenda fits with IMF’s historic role, Kim said the two institutions are in the relatively early stages of a conversation — which also includes credit rating agencies. HCI’s findings of the correlation between health and education spending and economic growth could lead to institutions thinking differently about, for example, “how many health and education workers do you have on the wage bill?” he said.

“At times, both IMF and the World Bank have been very tough about that because it’s been a public expenditure, but I think if we can see it as a way of improving your outcomes so that … growth goes up [then] it changes the conversation,” Kim added.

Sophie Edwards contributed reporting to this article.

Catch up on what happened at the World Bank Annual Meetings in Indonesia, where Devex reporters Michael Igoe and Sophie Edwards were on the ground.