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OPINION October 17, 2018

Investing in people for inclusive growth

Rethinking Poverty Reduction on October 17 – World Day for the Eradication of Poverty

In Lao PDR, poverty has dropped by more than half over the past 30 years. The Government aims now to cut it in half again, to 10 percent, by 2020, an ambitious and laudable goal. As a result of this progress, the country has recently met the criteria for graduation from Least Developed Country status.

Despite these impressive achievements, significant disparities still exist. While poverty has been steadily declining, the country’s GINI index, measuring economic inequality, has risen since the early 2000s. On average, the top 20 percent of the population has double the years of education compared to the bottom 40 percent, and now shows nearly five times higher consumption per capita. There are large differences in poverty among regions, with rural areas accounting for 87 percent of the poor.

What will it take to achieve more inclusive growth in Lao PDR? Evidence shows that investing in human capital is fundamental. By improving skills, health, knowledge, and resilience, people can be more productive, flexible, and innovative.

Investing simultaneously in all these areas has particularly beneficial effects. Reducing malnutrition – in Lao PDR one in three children under five years of age remains stunted – would not only reduce the risk of infant and child morbidity and mortality, but also increase the efficiency of investments in education, and boost the lifelong income-earning potential of today’s children.

Indeed, investments in human capital are becoming more important, as the nature of work continues to evolve in response to rapid technological change. Markets are increasingly demanding workers with advanced cognitive and socio-behavioral skills. The lack of these abilities can leave countries poorly prepared for the future.

Despite the evidence, policymakers sometimes find it difficult to make the case for human capital investments. The benefits of investing in people can take a long time to materialize. Building roads and bridges can generate economic benefits more quickly. But underinvesting in people is a missed opportunity to create a virtuous cycle between physical and human capital and growth and poverty reduction.

In response to the risks to long-term stability and prosperity posed by this underinvestment, the World Bank Group has just launched the Human Capital Project. It makes the case for countries to undertake more and better investments in their people, while raising awareness of the costs of inaction and improving the way we measure human capital.

As Lao PDR transitions to become a middle-income country, transforming human capital will be key for achieving a more inclusive growth pattern.

Lao PDR is already taking important steps to address unmet human development goals, including through an innovative multi-sector convergence approach to nutrition in several northern provinces, which the World Bank supports, and efforts to increase spending on health.

Behind these efforts is an important realization: that if we invest in people today, the payoff is sustainable and long-term.