After
I wrote my blog on Gross Capital Formation- Trends for India and China (http://ramnarayanan1112.blogspot.com/2013/09/gross-capital-formation-trends-for_27.html),
I received various interesting comments. A Harvard economist, who also taught
me during my masters at London Business School, commented that” if the same
analysis were done for human capital formation (HCF) what would it look like”?
Is
HCF important? I guess so. After all human skills are very important to extract
the maximum value from any advantage that a country may possess. The Japanese,
with superior skills, have been world beaters despite lack of many natural
resources while the oil rich Middle East nations thoroughly lack skill sets and
hence have to depend on outside workers to run critical functions in their
economies.
The
World Bank Data shows that for the last decade (2000-11) the average world health
expenditure is about 10% of the world GDP. The highly developed countries lead
the pack as expected. As shown in table no.1 during the peak development period
the developed countries had an average spending of more than 8% as shown in
table no. 2
India
and China lag behind the world in health expenditure with the 10 yr averages at
4.1% and 4.6% respectively. In fact the Indian figures have shown a declining
trend since 2004 (since UPA-1!).
During
the peak development years, the developed nations like USA and Germany have
recorded health expenditures of above 10% consistently. In fact among the BRIC
nations, Brazil is the closest the global average with health expenditure in
2000-11 of close to 8%. Thus the aspiring nations like India and China need to
boost their health expenditure to sustain their growths.
One
of the main factor in having better health expenditure is the government`s
share in the entire spend pie. Even though private expenditure is advantageous
to the health systems, government intervention ensures affordable health care
within reach to all the people. The World Health Organization (WHO) is driving
the Universal Health Coverage (UHC) which seeks to increase health coverage to
all people with the help of the governments. As chart no. 2 shows developed countries
like Germany, Japan have a very share of government spending in the health
expenditure. Even China which was lagging behind in early 2000`s has overtaken
USA in terms of government spending. However with the “Obamacare” health
insurance bill, the government spending would go up in the USA. Indian
government lags far behind which explains the shoddy state of health care and
the rise of private health care facilities in India. Will this help the poor get
access to health care in India? Certainly not!
Most
of the countries do well in terms of primary education and have enrolment
ratios very close to 100% as shown in chart no.3. The average world Primary GER
(P-GER) is 104% for the year 2000-11. Chart
No. 4 shows the scatter plot of the T-GER and indicates a wide variation and a
decreasing slope. The average global T-GER is 24.7% in 2000-11.
As
table no. 3 shows, there is not much of a difference between the nations in
P-GER but there exists a huge difference in T-GER between developed and
developing countries. India and China are abysmally low in T-GER.
How
do the so called developing tigers (I am disinclined to call then developing
economies anymore) fare comparatively? Table no. 4 shows that Brazil is a
leader of the pack from a health expenditure perspective. Russia, which has
inherited most the remnants of the erstwhile Soviet Union where lots of
emphasis was laid on technology, research and vocational skills, is far ahead
in the tertiary education sector. China and India lag behind in health as well
as in tertiary education matrices. 
However
the silver lining for India and China is that T-GER has been consistently
increasing over the last decade as shown in chart no. 5. Thanks to the growing
economies there has been an increasing trend among people to upgrade their
skills to enter the job market. However both these countries lag well behind
the global enrolment numbers.
Is
the public spending the most important driver in education sector? Well, there
are mixed signals. The top 5 spenders as a % of GDP in 2007-11 are Lesotho,
Cuba and Timor-Leste! The comparison of some indicator countries is a mixed bag
as in table no. 5. USA is above the world average but countries like Japan,
Russia and Germany are lower. This lends supports to a hypothesis that for an
effective education sector, the private sector spending has to go hand in hand
with government. A higher proportion of private spending in the tertiary sector
helps in aligning the skill sets of the job seekers with the job needs.
In
terms of HCF, if we look at some of the major countries in developed world and
the developing tigers, it’s very clear why the USA is the world`s leading
nation. As table no.6 shows, The USA leads in both the health expenditure as
well in tertiary education. The health expenditure figures will further go up
once the medical insurance scheme of President Obama, which is his pet scheme,
goes into full swing. The US universities are symbols of excellence and attract
the best of the brains from across the world. 
As
we discussed earlier, primary education is for sustenance while tertiary
education is for the future sustenance of an economy. It’s better if higher
proportions of people who undergo primary education enroll themselves for secondary
and tertiary education and hence lower the difference between primary and
tertiary enrolment rates. As table no.7 shows, not surprisingly, the USA scores
way above others in the difference parameters. India and China are just below
the global average of close to 80%.
Thus
the analysis of HCF throws up the following points:
a) Leading
nations like USA, Europe, and
Japan have spent a higher figure on
health as one of the basic drivers to
sustain growth.
Japan have spent a higher figure on
health as one of the basic drivers to
sustain growth.
b)Tertiary
education is very important to
drive growth especially innovation driven
growth
as in USA.
c) China and India still lag far behind in HCF
indices.
As
is my usual habit I leave the following questions to be debated:
1. What
should be role of private sector in education especially tertiary education?
2. Should
the governments of developing countries like India and China focus only on
primary and secondary education?
3. What
should the governments, especially the Indian government, do to make health care
more accessible and affordable?
[1] GER,
Primary is defined as enrolment in primary education, regardless of age,
expressed as a percentage of the population of official primary education age. GER
can exceed 100% due to the inclusion of over-aged and under-aged students
because of early or late school entrance and grade repetition.
[2] GER
for tertiary education defined as including universities as well as
institutions that teach specific capacities of higher learning such as
colleges, technical training institutes, community colleges, nursing schools,
research laboratories, centres of excellence, and distance learning centres.[
