Preserving Influence in a Changing World

Picture: World Bank. Credit: UKinUSA, via Wikimedia Commons

How do leading international development organisations attempt to retain their influence over healthcare policy-making when faced with the threat of being sidelined by the ‘private turn’ in development financing? In this post, Ben Hunter shares findings from a recent Third World Quarterly article with Jon Shaffer where they discuss the World Bank’s Human Capital Project. In the article they show how the World Bank’s leaders used the idea and measurement of ‘human capital’, tied to threats of redirecting funding from other investors, in order to exert pressure on national governments to adopt Bank-preferred reforms in healthcare and other sectors.

Crisis at the World Bank

Since its establishment in 1944, the World Bank has been an important source of development funds for many national governments. But alternative options are growing in range and size. Amongst these, private sources of investment is being advocated by several leading organisations (including the World Bank) on the basis that there is otherwise insufficient funding to achieve the Sustainable Development Goals; this was one of the key points that were made in the 2015 Addis Ababa Financing for Development conference.

While potentially increasing the overall funds available for development, the growth of private and other forms of development finance also loosens the grip of organisations like the World Bank that have historically been influential though their own lending to governments. This shift has come at a time of wider crisis for relevance and credibility at the Bank, and the Human Capital Project represents one attempt to respond to these converging pressures.

Capitalising humans

While many of us might typically think of ‘capital’ as referring to things like buildings and equipment (physical capital) or money (financial capital), economists and leaders at the World Bank have been keen to apply this kind of thinking to humans. From this perspective, we represent ‘human capital’, where health and education are resources that we can invest in, in order to lead healthier and more productive lives. The World Bank has produced information and guidance on a ‘menu’ of policies and programmes which governments can use to encourage investment in health and education for these purposes.

After going to great lengths to define human capital and to justify its relationship with development, World Bank economists set about measuring human capital for whole populations. They compared national data for health and education against benchmark values, to show the human capital shortfalls for each country due to lack of investment in health and education. In an attempt to make these scores more tangible for policy-maker audiences, they then estimated how much productivity is likely to be lost in future due to the incomplete education and poor health that exists in each country at the moment. The result is a set of national scores published regularly as the Human Capital Index and which attempt to jolt governments into making human capital investments.

Shocks and disappointments

World Bank leaders had high hopes for the Human Capital Index and the public action it might achieve. They would not only publish scores, but also a ranking of countries that would shame countries into action – an approach that was felt to have already worked well with the World Bank’s (recently disbanded) Doing Business rankings. The World Bank President at the time when the Human Capital Project was developed, Jim Yong Kim, suggested the Human Capital Index could lead to political shocks in countries with low scores and rankings. He hoped to enlist the support of influential global organisations such as credit ratings agencies who might incorporate Human Capital Index scores into their own rankings and ratings, amplifying the impact. The vision was one in which the World Bank could use its Human Capital Index to leverage financial resources far beyond its own lending:

‘if an unexpectedly low rating on the human capital index leads to, you know, a change in your sovereign bond rating, and all of a sudden your overnight borrowing costs go up, and your foreign direct investment drops, and people are on the streets saying why haven’t you invested more in people, then I think finally we’ll be at a point where people will take these investments, like girls’ education, seriously enough’ (Jim Yong Kim, speaking at the Council on Foreign Relations)

However when the first Human Capital Index was published in 2018, the outcome was somewhat less dramatic than hoped. Many low-scoring countries rejected their Human Capital Index scores and the process that produced them. The following year, Kim resigned from the World Bank and joined a private equity fund. His successor, David Malpass, has been noticeably less vocal on the idea of human capital and in 2020 the World Bank quietly dropped the rankings (but not the scores) from the Human Capital Index.

Staying relevant

While the Human Capital Index might not have had the immediate political impacts that its advocates envisaged, it has normalised and expanded use of ‘human capital’ as a concept in development policy. In doing this, the World Bank can claim authority not just over the concept, but also over the tools through which governments should invest in human capital. In an era where the World Bank’s own lending is being over-shadowed by alternative sources of funding, the Human Capital Project has offered a new mechanism through which the organisation can try to retain influence over development and over human capital-generating sectors such as healthcare and education.

The research described in this blogpost is based on an open-access article published in Third World Quarterly in 2022: Human capital, risk and the World Bank’s reintermediation in global development.