Four key arguments for investing in human capital

Distinguished Professor Sirisumphand, Secretary General of the National Economic and Social Council of Thailand
His Excellency Lim Jock Hoi, Secretary-General of ASEAN
Dr. Luis Benveniste from the World Bank
Esteemed dignitaries from ASEAN countries
Distinguished guests and delegates, ladies and gentlemen
A very good morning and a warm welcome to everyone,

Let me start by expressing UNICEF’s sincere thanks to the Thai government as Chair of ASEAN and the World Bank for this important collaboration. To all the panelists who have come in from the region, we appreciate your engagement on this critical issue of Human Capital Development in the ASEAN community.

To help frame today’s discussion, I’m going to structure my opening remarks today around 4 key arguments that I believe are central to the concept of Human Capital Development. I hope they will resonate with you and be mirrored in different presentations and comments we’ll hear throughout the day.

The first argument is that social and economic development are intrinsically linked. This means that children’s health, education and nutrition is both an important end in itself, and is instrumental in nurturing dynamic, competitive, thriving economies. 

UNICEF has historically advocated for children’s health, education and nutrition as being universal rights. This year, we celebrate 30 years of the Convention on the Rights of the Child. Adopted by the United Nations General Assembly on the 20th November 1989, the Convention remains, to this day, the most widely and swiftly ratified international human rights agreement of all time. By 1995, all ten Member States of the ASEAN had signed and ratified the Convention. We look forward to launching a special report with ASEAN later this year to mark the anniversary and to take stock of progress in realizing children’s rights in the ASEAN community.

The emerging focus on human capital provides an additional argument for realizing children’s rights: in terms of the contribution those rights can make to economic success. This is a powerful and complementary argument. We’re thrilled to have the World Bank as a partner in articulating a new case for investing in children and young people, and to see human capital capture the attention of many leaders in the ASEAN community. We also view the ASEAN Community Vision 2025 as providing an eloquent example of how social and economic – and political – goals are joined by a common thread.

My second argument is that investments in human capital can yield returns, and those returns can be huge.

UNICEF has long advocated for spending well and wisely in children’s health, education and nutrition. But by framing this expenditure as high-return investments, we’re now seeing that case significantly strengthened.

Two months ago, one of my favorite economists, Nathanian Hendren, together with a co-author, published a landmark paper on the impact of government programs. They analyzed a total of 133 diverse policies and programs in the US from social insurance to education, from job training to taxes, and from cash transfers to in-kind transfers, and in each case, calculated the marginal value of public funds: in other words, the benefit to recipients, divided by the cost to government.

Their findings were simultaneously intuitive and compelling. They found that direct investments in children’s health and education have historically had the highest marginal value of all public investments, with the benefits on average exceeding 5 times the cost to government. For many such policies, the government fully recouped the cost of their initial expenditures through additional taxes collected and reduced transfers, which meant the marginal value was infinity. Notably, they found similar value for policies and programs targeting children of all ages.

This paper, and others like it, should compel governments to look at spending on children’s health, education and nutrition as not just something they ought to do, or something that is strategic, but as something that is prudent.   

My third argument is that, like with any investment, investments in human capital development need to be well designed if they’re to yield the highest returns. This puts an onus on generating good evidence and sharing information with others.

Why has progress in reducing and eliminating stunting been slow compared to other areas of development? What can be done to solve the learning crisis facing children around the world whereby many attend school, but struggle to master basic literacy and numeracy? What are the most important markers of early childhood development that we should try to measure? What are the most relevant skills we should be teaching today’s children to ensure their readiness for the work of the future?

These are all areas where our existing body of knowledge remains remarkably limited. They are also areas where UNICEF, among others, is heavily invested in generating new evidence.

ASEAN is one of the most ripe places in the world to study human capital. It is home to Singapore, the top ranking country in the world on the Human Capital Index, and to Vietnam, the world’s greatest positive outlier in learning outcomes. Not all ASEAN’s experience is positive, however. ASEAN is of course part of the East-Asia region whose development success has historically been associated with an emphasis on human development at early stages of development. And yet, ASEAN countries on average fair no better on the Human Capital Index than would be expected based on their income levels, suggesting that the region has plenty of scope to improve. Stunting remains a widespread and persistent challenge afflicting at least a fifth of all children in 8 ASEAN countries. In Cambodia, Indonesia, Laos and the Philippines, it affects 1 in 3 children.  

We would relish the opportunity to partner with ASEAN and development partners to use the ASEAN community as a testing ground for building up our body of knowledge about what works to improve levels of human capital.

My fourth and final argument is that there remain literally millions of opportunities for high return investments in human capital that remain untapped.

This is reflected in the millions of young people whose development is neglected and the vast gaps in human development that consequently exist both between and within countries. 149 million children worldwide are stunted undermining their cognitive development and their ability to learn. 263 million children are out of school, while less than half of all students in developing countries meet minimum proficiency standards of numeracy and literacy. 5.4 million children die each year before their fifth birthday. Indeed, wherever children’s health, education and nutrition is found to be deficient, this represents a tragic failure to invest. 

Nowhere is this failure more apparent than in conflict environments, where investments in children’s development is often put on hold, and affected children never have a chance to catch up. A less apparent, but equally important failure can be found in many countries where minority groups benefit less from public investments in health and education. UNICEF remains committed to working with governments to expand the reach of public investments to ensure no child is left behind, as reflected in our equity agenda and our prominent work in the humanitarian sector which accounts today for 50% of our total expenditure globally.  

These then are my four arguments that underpin the concept of human capital: that social and economic development are intrinsically linked; that investments in human capital can yield large returns; that those large yields hinge on investments being well designed and evidence based; and that there remain millions of opportunities for high return investments in human capital that remain untapped.

And if those 4 arguments are true today, it seems that they will only become more relevant in the future. We are beginning to witness important changes in the world of work as rapid improvements in emerging technologies such as artificial intelligence, networked computing and advanced robotics, shake up businesses across a range of sectors. Markets are increasingly demanding workers with higher levels of human capital, especially advanced cognitive and sociobehavioral skills that cannot be fully mimicked by machines. Investing in people will become even more important to achieving prosperity, and those investments, if made wisely, promise even greater pay-offs.

This is borne out by last year’s study of the impact of technology on ASEAN’s labour force by Oxford Economics and CISCO. They estimated that 6.6 million existing jobs across ASEAN’s 6 largest economies will be rendered redundant by technology over the next decade, and that many of the people whose jobs will be lost lack the IT skills, interactive skills and foundational skills required of the new jobs that will emerge in their place.

In conclusion, the ability of the ASEAN community to thrive in the modern global economy hinges on its ability to invest smartly in young people, to ensure they’re equipped to take on the jobs of the future. UNICEF is here today to offer our commitment to working with you to take on that challenge. I hope that the recommendations emerging over the next two days will be taken forward through ASEAN, but also put to action at national levels, through your individual engagement.