The Human capital Debacle – Dr Ashfaque H Khan

The Population Association of Pakistan, in collaboration with the National University of Sciences and Technology (NUST), organised a two-day conference with the theme, ‘Population: New Realities and Challenges for Human Development’ on November 20-21, 2013.
The conference was held at the NUST campus in Islamabad and was attended by senior government officials, eminent social scientists, parliamentarians, representatives of NGOs and civil society, demographers, and faculty and students of NUST. This was the second conference of its kind, held during the last three weeks, on the broader areas of human development organised by NUST – reflecting the university’s commitment towards human development in Pakistan.
The purpose of this conference was to sensitise the country’s political leadership and senior government officials on the challenges and opportunities that lie ahead on account of the rising population. It is well-known that a strong human capital base makes a country more prosperous; the concept of human capital is thus more relevant to a labour-surplus country like Pakistan, as it is endowed with more labour owing to the higher population growth rate. The surplus labour of Pakistan is its human resource which can be transformed into human capital with effective inputs of education, health and moral values.
Pakistan is a relatively young country with nearly 50 percent of its population below the age of 20 years. Pakistan’s population at the time of independence was 33 million; by mid-2013, the population is estimated to have reached 184 million. Therefore, in roughly two generations, Pakistan’s population has increased by 150 million, which means it has grown at an average rate of 2.6 percent per annum. Interestingly, Pakistan adds one New Zealand to its population every year and one Australian in every five years.
By 2050, Pakistan’s population is likely to increase to 350 million from the current level of 184 million, of which over 235 million will be of working age (15-64 years). Most importantly, Pakistan has over a hundred million youth today and this number will keep on rising as we move forward in time. Pakistan stands to benefit from its large population, provided that it transforms them into productive citizens by investing in education and health (popularly known as the demographic dividend). Pakistan stands to lose enormously if it fails to invest in its people because the large population, particularly the youth, will then serve as high-octane fuel, igniting repeated cycles of social and political instability (popularly known as demographic disaster).
Given its current demographic structure, investing in people – in education and health – is necessary for Pakistan. Education develops the capacity in a country to absorb technology and health is essential for increasing productivity. It has been observed empirically that countries that invested heavily in people and built a strong human capital base have witnessed rapid economic growth and prosperity (East Asia as an example).
It has also been observed that the causality between prosperity and human capital indices runs in both directions. With higher income, people and the government can afford to spend more on education and health, thus improving human capital which leads to higher productivity and more incomes. Better quality of education and health services are also essential for empowering people, enhancing resilience to withstand adverse shocks, and reducing vulnerabilities.
Building human capital base alone is not enough. The country’s macroeconomic policies should be aligned with promotion of growth and job creation. But what kind of growth should developing countries like Pakistan strive to promote? Growth should be broad-based, inclusive and sustainable. Growth which does not benefit the majority of the population is of little good to the country.
Unfortunately, the future of our younger generation does not look promising because of the overly restrictive policies being pursued by the government under the new IMF programme. It is well-known that Pakistan’s economy has been stuck in a low growth mode (on average 3 percent per annum) for the last five years and it is expected to grow in the same range in the next five years as well, particularly during the IMF programme period (2013-2016). During the last five years, its real per capita income grew on average by less than one percent per annum, with the population growing at an average rate of 2.2 percent per annum. This is expected to grow more or less at the same pace in the next five years as well.
With labour force growing at an average rate of 3.5 percent and economy growing at the rate of 3 percent, more than one-half of the new entrants including the youth (over two million new job seekers enter the job market each year) in the job market will join the league of the unemployed each year in the next five years. Similar numbers of job seekers have already joined the pool of the lost generation in the last five years.
How long will these people remain unemployed? Naturally, they have been seeking low-paid and vulnerable jobs in the informal sector to survive. There is a limit to how many job seekers this sector can absorb. This is one of the key reasons the country is witnessing an upsurge in violence and crime in all major cities. There are troubled areas in Karachi where youth unemployment is between 40-60 percent; educated youth are found to be involved in crime in various cities of Punjab as well.
The growing frustration and anger of the youth can be seen on the streets of Pakistan where they try to burn whatever comes in their way; this is an ominous development. It appears that demographic disaster (as opposed to demographic dividend) is already at hand because of our prolonged neglect of education and health on the one hand, and the economy on the other. We can still put a brake on the path of destruction, provided we change our thinking regarding education and health.
It is in this background that I have been criticising the heartless stabilisation policy under the dictate of the IMF. A slow growing economy like Pakistan will continue to face resource constraints and will be forced to cut spending on education and health, thus weakening the country’s human capital base further. A relatively poor quality of human capital will further reinforce the slower economic growth and hence a vicious cycle of deteriorating human capital and stagnant economic growth will continue. Pakistan’s macroeconomic policies cannot ignore growth and job creation anymore.
There is no short cut for a developing country like Pakistan to attain the status – in terms of economic development – that the countries of East Asia have. To do so will require extraordinary commitment from the country’s political leadership. The leadership will have to demonstrate their will or commitment by changing the composition of budgetary expenditures – that is, by investing heavily on education at all levels as well as on health services. The leadership must be seen through their acts as committed towards human capital development. Mere slogans have not worked in the past and will never work in the future.