How well a country develops its next generation of workers is a key indicator of how well the population’s potential can be harnessed for development. In an inaugural report, the World Bank has launched the Human Capital Index, with Singapore leading at rank 1 out of a list of 157 economies. The pioneering ranking was launched at the annual meetings of the World Bank Group and the International Monetary Fund (IMF). It is a part of the World Bank’s Human Capital Project, which aims at raising awareness and encouraging countries to proactively build human capital.
HCI: What does it mean?
The Human Capital Index (HCI) itself measures the human capital that a child born today can expect to attain by the age of 18. The Human Capital Index defines human capital as the knowledge, skills, and health that people accumulate over their lives. This means that as the nature of work changes and economies grapple with a newly emerging future of work, such countries are better equipped to adapt to the new normal. The index is derived from five key factors, namely, the probability of survival to age five, a child’s expected years of schooling, test scores, adult survival rate, and the stunting rate among children. The index is measured in numerical form, 1 being the best possible score. If a country has a score of 0.5, it means that the country is forgoing half its future economic potential. This translates to a significant economic loss, over 50 years it will lead to a 1.4 percent annual loss in GDP growth.
Human capital is thus, a key driver of sustainable and inclusive economic growth, and the government plays a crucial role in helping people prepare for the future of work. Investments in health and education are also taken into consideration.
The Singapore edge
Singapore’s HCI stands at 0.88. This translates into a highly productive future workforce- it predicts that children born today in Singapore will fulfill 88 percent of their productivity-potential when they grow up, that they get a full education and enjoy good health. In fact, the HCI is found to be greater for girls than for boys. Singapore’s leading position is thanks to a number of factors.
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Education for people under the age of 18 is highly advanced, with a proficiency score of 581, as per the standards of the Programme for International Student Assessment. This is very close to the benchmark score for “advanced attainment” i.e. 625. In fact, student-potential realization in Singapore is so high that 98 percent of students are seen to meet the international benchmark for basic proficiency in secondary school. This is a huge leap from the earlier days, when in 1950, adults in Singapore had, on average, just two years of formal schooling.
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Skill training: A high focus on continuous learning and staff training, has led Singapore to develop the world’s second-highest proportion of high-skilled workers. One can see that much of the working population is engaged in expertise-based occupations.
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Public health policy: Singapore has traditionally enjoyed the position of being amongst the world’s best public healthcare systems. In the World Health Organization 2010 report, it was ranked 6th out of the 100 best health systems in the world. Subsidized healthcare services for citizens is one element, with subsidies ranging from 50-80 percent. What raises the bar in terms of quality is that the public sector hospitals are operated as private limited companies, ensuring top-notch service and quality standards. The government’s mandatory medical savings scheme, called the Central Provident Fund (CPF) is linked with medical insurance schemes, which ensures that Singaporeans have the financial resources to address health situations.
Education and health are thus heavily controlled and supervised to maintain high-grade quality and delivery standards- a major contributor to upholding a high HCI.
HCI: An Asian outlook
Asian developed economies seem to have an upper hand in the HCI rankings. Close on the heels of Singapore, followed by South Korea(0.84), Japan(0.84) and Hong Kong (0.82), at Rank 2,3 and 4 respectively. The fifth spot is taken over by a European nation, Finland, at 0.81. Other Asian countries which then follow are Vietnam (rank 48), and Malaysia (rank 55).
On a global level, the world’s organizations have developed only 62 percent of its human capital. This presents a huge opportunity for private and public entities.
The way ahead
Yet, as the world shifts towards a digital and automated way of working, even a high-HCI economy like Singapore must continuously adapt. Skill cycles are getting shorter, and a new degree of agility is expected from governments and organizations. Some of the key areas which demand policy attention are:
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Labour Demographics: Absorbing an older working population into the mainstream workforce, so as to leverage a more holistic and diverse workforce. Another element is how to integrate the significant expat population, which accounts for a significant part of the working population.
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Future skill building: The success factors six months from now are going to be very different from those required today. Continuous learning and adaptation to adopt new-age skills is the key to continued human capital advancement.
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Inequality concerns: UK-based Oxfam released a global index for outlining the unequal status of nations. The report ranks Singapore among the bottom 10 countries in the world for its efforts to reduce inequality. The reason being, the "harmful tax practices." While income tax for the rich has been increased by 2 percent, the maximum income tax slab for highest earners stands at 22 percent, which is very low as per developed economy standards.
While Singapore may have topped the inaugural Human Capital Index, sustaining this position in an ever-changing world is going to be the real test of a truly progressive economy. This means that both public and private sectors must continue to work hand-in-hand to improvise and revamp public education, health, and labor in tandem.