The hidden cost

Mansoor Ahmad
Sunday, May 28, 2023

LAHORE: Our economy has reached its lowest point due to bad governance, internal strife, and corruption, but primarily because of a lack of quality human resources. It is time to prioritize human capital over all other segments of the economy.

The most important resource in any economy or organization is its human capital – the collective knowledge, attributes, skills, experience, and health of the workforce. We have been unable to achieve sustained growth due to weak human capital.

Despite being one of the fastest-growing economies between 1960 and 1985, Pakistan could not fulfill its true potential. Over time, it failed to improve its productivity due to poor human capital. Unlike us, the East Asian economies, which lacked natural resources, surpassed us by miles in the 1960s.

Their significant endowments of human capital, in terms of education and health, were the main drivers of their growth. In 1960, for example, our per capita income was double that of South Korea.

Today, South Korea has one of the highest per capita incomes in the world, while Pakistan is among the poorest countries. In fact, per capita income in Pakistan is declining. Rich human capital is paying dividends in the tiny island of Singapore.

The supply of inadequate human capital results in imbalances and poses serious threats not only to the economy but also to social and political stability. Human resources can be either an asset or a curse depending on how a nation nurtures them. Highly skilled, educated, and healthy human resources elevate countries to new levels, whereas an illiterate, unskilled, and unhealthy population becomes an unbearable liability. In corrupt societies, the quality and quantity of health and education services are undermined, leading to poor human capital.

The importance of human resources can be observed through the performance of the textile sector in China, India, Vietnam, Bangladesh, and Pakistan. Manufacturing garments is typically a low-skilled job, so garment buyers might not be particularly concerned about the skill level of the workforce.

However, having skilled labor in managerial positions increases the efficiency and productivity of a factory, which can shorten lead times. Vietnam's human capital surpasses even that of China, the world leader in textile trade.

Vietnam has replaced Bangladesh as the largest textile exporter due to its stronger human capital. India lags behind both Bangladesh and Vietnam in both textile trade and human capital, and Pakistan is positioned even lower than India in these aspects.

Now that we need to rise up, we must prioritize our human capital. Enriching human resources cannot be achieved in a few months; it takes at least a decade to lay a proper foundation for its enrichment.

Unfortunately, we have done nothing in this regard. Weak human capital leads to inequality of opportunity, reducing social mobility from one generation to the next and creating persistent inequality traps. Therefore, governments must invest significantly more in high-quality universal healthcare and early childhood education since inequality largely begins in childhood. Only by supporting the creation of human capital from an early age can we ensure that inequalities in one generation aren't passed on to the next.

Pakistan has long been a victim of capital flight, but recently, the flight of human capital has accelerated as we face a shortage in our country. Capital flight is driven by greed for higher earnings, while human capital flight is driven by necessity, desperation, and the pursuit of safety.

Both material and human capital tend to move to more affluent and developed economies from poorly managed countries. The outflow of money depletes the nation of the wealth needed for growth, while the departure of human capital reduces a nation's capability to move forward.