Eliminating Poverty in the 21st Century – The Role of Health and Human Capital

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October 16, 2018, Vol 320, No. 15, Pages 1513-1612
Eliminating Poverty in the 21st Century – The Role of Health and Human Capital
Jim Yong Kim, MD, PhD The World Bank
JAMA. 2018;320(14):1427-1428. doi:10.1001/jama.2018.13709
In this Viewpoint, World Bank President Jim Yong Kim explains the World Bank’s Human Capital Index, which uses data on each country’s level of education and indicators of health status to answer a simple but powerful question: how productive will children born today be as members of the future workforce, relative to what is possible if they were in full health and had complete education?

Over the past 25 years, extreme poverty—defined as living on less than $1.90 per day—has declined at a remarkable pace around the world. In 1990, 36% of the world’s population lived in extreme poverty; by 2015, that proportion had decreased to 10%.1

Health and poverty are inextricably linked, with poverty affecting health and health affecting economic well-being. Better health contributes to higher productivity at all life stages. Healthier children attend school more regularly and for more years and learn more. Evidence from Kenya demonstrates that deworming treatments in childhood reduce school absences while raising wages in adulthood by as much as 20%, attributable to a pill that costs 25 cents to produce and deliver.2 For students with anemia, an iron supplementation program in Peru led to a 0.4-SD increase in standardized test scores.3 Healthier adults are more productive as well. In Nigeria, a program that provided malaria testing and treatment increased earnings by 10% just 3 weeks after being offered the opportunity to test.4 Poor health not only reduces the ability to earn income, but can also substantially increase household spending. Out-of-pocket spending on health care drives an estimated 100 million individuals into poverty every year.5

Even though extreme poverty has been reduced, the pace of poverty reduction has slowed. Five years ago, the World Bank Group set a deadline to reduce extreme poverty to a global target of 3% by 2030; however, current forecasts project global poverty in 2030 to be around 5% to 6%. Even if the world comes close to the 2030 target, too many people would still be poor by rich-country standards. Currently, 26% of the world’s population lives on less than $3.20 per day, which corresponds to the typical poverty line in lower-middle–income countries; 46% of the world’s population lives on less than $5.50 per day, the average poverty line among upper-middle–income countries.6 In total, according to these measures, an estimated 3.4 billion people—nearly half of the world’s population—live in poverty.

A great deal of work remains before the world is free from poverty. The most important factor in reducing poverty is economic growth, but it is clear that the benefits of that growth must reach those living in poverty. Human capital, represented as the knowledge, skills, and health that people accumulate over their lives, has been a key factor behind the sustained economic growth and poverty reduction of many countries in the 20th century, especially in East Asia. By boosting economic growth through policies that accelerate investment in human capital, governments are likely to make the benefits of economic growth tangible for those living in poverty because their human capital is often the only capital they can count on.

Investing in human capital is different from investing in physical capital such as roads or factories. Most important, quantifying the returns on investments in human capital in terms of economic growth and global poverty reduction requires taking the long view. Investments in the health and education of children today deliver economic returns in the future, when those children grow up to be healthier, better-educated, and more productive adults. To capture this multidecade horizon, researchers at Brown University and the World Bank are developing a model to simulate the effects that increased human capital could have on economic output over the rest of the 21st century.7

The analysis uses the newly designed Human Capital Index that the World Bank is unveiling.8 The Human Capital Index uses data on each country’s level of education (adjusted for quality) and indicators of health status to answer a simple, but powerful, question: how productive will children born today be as members of the future workforce, relative to what is possible if they were in full health and had complete education?9 Full health is defined as an absence of stunting and no mortality prior to age 60 years. Complete high-quality education is defined as 100% completion of preprimary, primary, and secondary school, with the average student reaching the Trends in International Mathematics and Science Study benchmark for advanced achievement.

The good news is that, over the last decade, many countries have been making progress in closing the gap between their Human Capital Index and what it would be if those entering the workforce had full health and education. A country that makes progress on each of the components of the index as fast as the median country did over the last decade will reduce their Human Capital Index gap by 4% every 5 years. For successful countries at the 75th percentile, the gap closed at a rate of 9% every 5 years, which corresponds roughly to rates of progress in countries such as Poland, Ecuador, and Albania.

What would happen if countries continued to close the gap at this “typical” rate of 4% per 5 years or an “ambitious” rate of 9% every 5 years? The research7 uses an economic simulation model to estimate income and poverty in these scenarios over the next 35 years, relative to a baseline in which the gap never changes. In the typical scenario, estimated global gross domestic product per capita would be 5% higher by 2050 than in the baseline. In the ambitious scenario, estimated gross domestic product per capita would be 11.5% higher globally, and 21.8% higher in low- and lower-middle–income countries, than it would have been under the baseline scenario. In the ambitious scenario, estimated global poverty in 2050 would be nearly half as low as in the baseline, with the benefits concentrated in low- and middle-income countries. To realize the same value of income gains as investments in human capital as in this ambitious scenario, the simulation model7 projected that investment rates in physical capital would have to increase by 4.5% of gross domestic product in low- and lower-middle–income countries (Figure).

The economic benefits from investing in human capital of new generations of children materialize slowly. Even in the ambitious scenario, global poverty in 2030 would be reduced by less than 1 percentage point relative to the baseline. This reflects the reality that building human capital takes time; for instance, most children who benefit from better health and education today will just begin entering the workforce by that year. Better policies can increase the returns to investments in human capital. Investments that target the poorest, especially early in life when the returns are often the highest,10 can have a much larger effect on poverty reduction. For instance, high-quality early childhood interventions that target the most disadvantaged raise incomes and reduce inequality.

The World Bank Group is helping countries to identify cost-effective policies that can help children from the poorest background to have a better start. Additionally, the World Bank Group supports countries in enhancing the human capital of existing workers through improved health service delivery and coverage as well as skills upgrading because this can lead to a faster economic payoff to human capital investments. At the same time, countries cannot neglect policies that allow the most vulnerable in society to insure against major risks, such as a health shock or a job loss.

Investments in human capital are critical for long-term growth, prosperity, and health. Physicians, nurses, community health workers, researchers, and public health advocates can be effective in improving the socioeconomic status of people living in poverty. When they improve people’s health and well-being, they do more than immediately improve lives; they also build the foundations for lasting economic growth and poverty reduction, and drive progress in the ongoing project of human solidarity.

Citations at title link above.