Countries that bolster and protect human capital will better withstand future economic shock

Investing in human development systems helps improve long-term human capital outcomes and protect people from crises.

Countries that protect their population’s education, health, knowledge, and skills – that is, their human capital – now and during future shocks will emerge with lower levels of negative economic impact than those that do not, according to a new World Bank report.

The report, Protecting Human Capital through Shocks and Crises, was funded by the European Union and reviews the impacts and responses of Covid-19 in the education, health, and social protection, or human development, sectors of countries in Eastern Europe and the South Caucasus – Armenia, Azerbaijan, Georgia, Moldova, and Ukraine, whose responses to the pandemic shared elements with those of other countries in the Europe and Central Asia region.

The report shares lessons thus relevant for countries in the region and beyond on how to protect people’s human capital, build better and more resilient human development systems, and minimise the long-term effects of recurrent crises.

“The quality and resilience of the education, health, and social services that people can access substantially affects their ability to cope with shocks and crises, especially in the case of poor and vulnerable people,” says Jamele Rigolini, World Bank Lead Economist for Human Development in the Europe and Central Asia Region. 

“Since new shocks that threaten livelihoods and prosperity will continue to emerge, it is important to invest in human capital systems with urgency now, and to protect human capital throughout the shocks themselves.”

Preparation for future crises

The lessons outlined in the report focus on preparation now for future crises such as by instilling effective health preparedness and monitoring plans; continuing responding after a crisis to close crisis-induced human capital gaps; protecting the financing of the human development sectors; boosting data, information, and evidence-based responses; and digitalisation of education, health, and social protection administration and delivery systems.

However, digitalisation can have a long-term impact only if systems are properly maintained and updated and if people know how to use digital technologies effectively.

“Strong education, health and social protection systems are able to deliver better quality services in normal times, and respond better to emergencies,” says Rigolini.

“System strengthening and resilience go to a large extent hand in hand, hence investing in human development systems helps both improving long-term human capital outcomes and protecting people from crises.”

Human capital investment must be maintained

One of the reports key conclusions is a warning that now is not the time to reduce human development investments.

A few exceptions notwithstanding, spending on the human development sectors by countries in Eastern Europe and the South Caucasus was low to begin with, and the Covid-19 pandemic has put further strain on public finances and fiscal space.

When crises are expected to recur, it is vital to protect as well as increase fragile human capital endowments to support greater productivity, growth, and prosperity. Ideally, countries should invest more in human capital given the need to both strengthen systems and close crisis-generated gaps.

At the bare minimum, they should ensure that spending does not fall any further.

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