0.1 Economic development is about all of economics  (Page 7/14)

Such investments have a very high payoff: Worldwide, the annual rate of return on investment in public education has in recent years been on the order of 20%. And investments in the second most important component of human capital – public health – has had very high payoffs not only for economic growth but in enhancing the quality and length of life.

In countries rich and poor, education comprises the largest share of investment in human capital – all education , including primary , secondary and university education, and education within business firms such as on-the-job-training and learning by doing. So, the definition of human capital is very broad.

At this point you may be asking – what about the role of technology? Surely, you say, technology is vital for successful sustained growth. Of course it is. But in emerging nations, implementation of technological innovations – up until now, at least – has been totally dependent upon the size and quality of the human capital base. How is that? Like it or not, until the 21st Century, virtually all successful productivity-raising technologies were developed in the U.S., Europe and Japan. Unfortunately, most developing nations still trail the U.S. in technological usage by several decades . To harness technology for economic growth, developing countries have to be able to successfully transfer, absorb and adapt technologies developed abroad. There is only one proven way to do this: the technology-importing developing country must have already undertaken investment in human capital to nurture the requisite domestic labor force skills receptive to technological transfer. However, we will see that in 21st century, internet and mobile phones are technological innovations less dependent on a big human capital base.

The channels through which investment in human capital reduces poverty and increases empowerment of the poor are many and varied. This shines through clearly in the second lesson, as we will see.

For the past century, investments in human capital have been responsible for more poverty reduction, more economic equality and more economic growth than any other single factor. Simply put, absent super-abundant natural resource riches, sustained poverty reduction has not occurred where Investment in human capital has been deficient.

Pause a minute and think about what it means to be either:

1. a poor person in a very poor nation like Bangladesh, Haiti or Liberia
   
   -or-
   
2. a poor person in a relatively better off nation such as Brazil, Indonesia or Colombia

In both circumstances, the poor have to deal every month with a “Quadruple Whammy”:

1. Low Income
2. Irregular Income
3. Unpredictable Income
4. Unpredictable Expenditures (as for medicine, funerals etc.)

Results for poor inflows of money are chronically and severely mismatched over time. The first challenge in economic development is to do something about this mismatch. If you have no skills, either in Brazil or Bangladesh, you have no way of escaping this trap.

And if investment in human capital was critical before the 21st Century, it is even more important now and in the next few decades.