Human Capital and the Future of Economic Growth and Security

Human Capital and the Future of Economic Growth and Security

Don Pollard

More on:


Capital Flows

World Bank

Global Governance

from C. Peter McColough Series on International Economics

President of the World Bank Group Jim Yong Kim discusses strategies for promoting sustainable, inclusive economic growth, including the Bank Group’s newest initiative, the Human Capital Project, and how investing in people is imperative to maintaining stability and building equality of opportunity. 

For further reading, please see the CFR blog post “Trump, the World Bank, and the IMF: Explaining the Dog that Didn’t Bark (Yet)” by Stewart M. Patrick and the International Institutions and Global Governance Program homepage.


BLINDER: Well, good afternoon, everybody. I’m Alan Blinder. I’m hosting today. I’m a professor at Princeton. But more germane, I’m a member of the board of the Council on Foreign Relations and the head of the Audit Committee, so. (Laughter.) I think a lot of you are on Audit Committee, so you know what that is, including how thrilling it is to be—(laughter)—on an Audit Committee.

Today we are very pleased and honored to have Jim Yong Kim, the head of the World Bank, speaking as part of the Peter McColough Series on International Economics. And the series is now, and especially more germane the talk today, is focused on “Human Capital and the Future of Economic Growth and Security.”

Dr. Kim doesn’t need much of an introduction. I’ll give him a very brief one. Believe me, if I gave a full introduction, that would take up a lot of the time we have. And so I’ll be very quick.

He was born in Korea and raised in Iowa. That’s a pretty interesting start right there. His career has revolved around the subjects we’re going to be talking about today, health and education, and poverty of course. He was a professor at the Harvard Medical School and Harvard School of Public Health before becoming president of Dartmouth College. And he is now in his second term as president of the World Bank Group. And among other things, he has been a MacArthur Genius. I guess you’re always—once a MacArthur Genius, always a MacArthur Genius, right? Recognized as one of America’s 25 best leaders in U.S. News and World Report, and named one of Time Magazine’s 100 most influential people in the world—and I daresay not at the bottom of the—of the hundred.

So thank you very much for coming here to speak with us today.

KIM: Great to be here.

BLINDER: So I’d like to start with the title of the series, “Human Capital and the Future of Economic Growth and Security.” Talk to us a little bit about the changing relative roles of human capital versus physical capital in the work of the World Bank. You know, the old image of the World Bank is it went and built dams and things like that. That’s not really what the World Bank is doing now. So could you—

KIM: Well, when I first went to the World Bank Group, on my very first day I walked into the front—in the front door and one of my predecessors, Jim Wolfensohn, had put a sign. And it said: “Our dream is a world free of poverty.” So I just asked the question: So, if we’re going to end extreme poverty in the world, by when? And so we actually set a date. So at about nine months into my term we set two goals, which is to end extreme poverty by 2030, and then to boost shared prosperity, meaning we were going to really focus on inequality and focus on increasing in the incomes of the bottom 40 percent. And then, over the next few years, we came up with three main ways that we’re going to get there.

The first is, as always, inclusive, sustainable economic growth. And in that, just because the demands are so much greater—I mean, it used to be 20, 25 years ago we talked a lot at the World Bank about lack of absorption capacity. Even if we have the money, but they can’t absorb it. It’s really not true anymore. Absorption capacity has gone way up, and the demand is far greater than we can meet. And so the Sustainable Development Goals that were adopted in 2015, they’re so much more comprehensive that the bill for them, if we were going to achieve all those goals, would be about $3 trillion a year. And all of official development assistance is about 130 billion (dollars). So the need dwarfs what’s available. And so, on the pillar of economic growth, we’re really focusing on working with the private sector. That’s one part.

Another thing that we’ve done that we haven’t really done much before was really focus on some of the major crises in the world. We’re now the largest financer of climate change-related activities in developing countries. We’re going to—by 2020, we’ll be at about—our own money, and if you include the money we crowd in, we’ll be at about 30 billion (dollars) a year for climate change-related, both mitigation and adaptation. We created a pandemic insurance policy. We now work on refugees, but more focused on doing things like creating economic opportunity in places like Jordan and Lebanon that have been hosting refugees. So that’s another part of it, which is building resilience to shocks like climate change, pandemics, and refugees.

The third part, which is what we’ll talk about today, is human capital. Now, I’ve been in this—I’ve been in the business of, you know, working on global health and education for a very long time, and what I noticed was that so many countries were really just waiting for the donations to come. And we saw just ridiculously low percentages of GDP spent on health and education, and we had these real conversations. A particular country in Africa, we said, well, you’re a middle-income country now; why don’t you—why don’t you purchase your own vaccines? And then they said, no, we know that if we wait long enough the donors will purchase them, so we’re going to wait. And so it seemed clear to me that both global health and global education had become very supply-driven. In other words, many countries were saying if you give us the money we’ll do it, but if you don’t we won’t. And it’s not true of all countries. There’s many countries that are really making a commitment to it.

But I became worried because everything I saw in every country that I went to told me that the traditional path to economic development that we’d always assumed, which is countries would go through a period where they would be involved in agriculture or the extraction of natural resources, and then they would move to light manufacturing—garment industry or baking, shoes, or whatever—and then to heavy industry. And there’s not a—I mean, almost every African head of state that I can think of will tell you that we’re preparing for industrialization, but boy, the evidence is not very good that that’s going to happen in just about any African country because of the—of what we’re seeing.

You know, there was an article in The Wall Street Journal just the other day that Bangladesh is now purchasing German robots to make garments. And so, even in Bangladesh, the job creation is going down. It was hundreds of thousands before. Every year, the garment industry would create hundreds of thousands of new jobs. And last year it was 50,000, and it’s going to continue to shrink.

And so what will people do? You know, we’re—we started with the notion that we have now got to step back and say, OK, so what are going to be the drivers of economic growth in these developing countries? Because if you have lots and lots of people with nothing to do, and if you add to that the idea that by 2025 at the latest all 8 billion people on the planet will have access to broadband and a smartphone—they may not own their own smartphone, but they’ll certainly know somebody. The number of smartphones in Africa is going—from 2015 to 2020 will triple, from 200 million or so to 700 million. So there’s going to be a process where, as everyone gets access to smartphones, they are going to—at first they’re very happy. But then a study we did at the Bank showed us that the other thing that happens is that when they get access to the internet and a smartphone, their reference income goes up. So the income to which they compare their own goes up. A perfectly natural thing. That’s what happens.

And so, everywhere in the world that I go, I’m seeing this sort of rise and convergence of aspirations. Everyone’s having higher and higher aspirations. So if you have increasing aspirations while at the same time technology eliminates the low-skilled jobs, what are people going to do?

And so we came to the conclusion that we have to shift the way we think about human capital and not make it based on whether donors decide that they want to support this, that, or the other thing in any given year, but put pressure on every head of state, every minister of finance to desperately try to improve their outcomes in health and education. And the way we’re going to do that is we’re going to create a ranking. It’s going to be wildly controversial. They’re going to—they’re going to go after me for sure, but nothing new there. But I just—you know, we’re seeing now evidence that better health and education outcomes are very strongly correlated with economic growth. And so I see it as us simply revealing to our clients the critical importance of human capital in the past couple of decades, and then we’re going to make the point that literally with every day the quality of your human capital is going to become more and important if you want to be competitive in the global economy.

BLINDER: So I hope the U.S. is not going to be in this ranking.

KIM: They will.

BLINDER: They will?

KIM: They will, they will. Yeah.

BLINDER: Well, then I suggest you do it state by state because New Jersey will look good.

KIM: We’ll do that. We’ll do that as well, yeah. (Laughter.) Yeah.

BLINDER: I want to pick up on what you said a moment ago about the previous ladder, from agriculture to light industry to heavy industry. As you know extremely well, countries like Korea, Japan, Taiwan, many others, the successful development models of some decades back built what they build on export-led growth. So does the export-led growth model disappear with the progression you were just speaking about?

KIM: Well, to have export-led growth you’ve got to make things to export, right?

BLINDER: Yeah. That’s why I asked.

KIM: And so if light—you know, one of the—I was reading Boston Magazine. I was visiting friends in Boston. Boston Magazine, and sort of on the front page was this really sort of cool new business. And the cool new business was 3D printing of suits, right? So apparently these suits that are 3D printed don’t have seams, because the only reason you have seams is because if people are sewing them you’ve got to start with flat pieces of material. But they literally weave suits from 3D printing, right? Now, you know, it’s just a little piece, but it was the—it was the Bangladesh piece in The Wall Street Journal that really scared me. I mean, this is—this is going to happen in every industry.

If you go to China, China actually—and go to Shenzhen, that’s really where robotics and automation is probably at its peak. I mean, it’s amazing what they’re able to do with robots, and it’s getting better and better and better. And so things like weaving materials was something that it was thought that robots could not—would not be able to do, but now they’re doing it.

So export-led growth, you know, we’re going to have to look for new models of economic growth. And this is the big question we’re tackling now at the World Bank Group.

So, if you look around and say, well, are there other models that could be interesting, well, again, if you go to China, not only do they have this heavily-automated, you know, heavily AI-dependent approach to heavy manufacturing, but they also have Alibaba and Tencent and WeChat, which is democratizing access to capital, access to market, access to marketing, procurement, even accounting. So if you’re on the Alibaba network, you can get as much as 1 million renminbi in two seconds, right? So it’s $150,000 or so. And if you’ve—if you’ve shown by your online behavior that you can handle a $150,000 loan, you make an application, two seconds later it’s in your account because they’ve completely changed the KYC. You know, they do know your customer in a completely different way, purely based on your online behavior. So—

BLINDER: If they’re sure it’s you.

KIM: Well, yeah. So it has to be you. And the culture that’s built up on Alibaba is that you pay these loans back, because if you get a bad mark in the Alibaba system you can’t access capital anymore. People won’t buy things from you.

But this is now a process in which access to capital has been pretty radically democratized. Two seconds. They don’t look at you. They don’t—they don’t ask you about collateral. If you’ve behaved well online, you can get capital. And if you make a product that people like, you will get access to global markets.

So now we’re thinking, so maybe that is a possibility in places like sub-Saharan Africa; maybe by democratizing access to capital, increasing access to markets, that we could see the rise of small and medium enterprises. But, you know, the African leaders are very committed—and it’s almost like—it’s almost like they can’t say it. They can’t give up the prospect of industrialization. But I just—you know, every day I see more and more evidence that the chances for that happening are going down.

BLINDER: Let me come at it in a slightly different way, which is consistent with what you were saying. In the advanced world—in the United States and other rich countries—there’s huge concern in recent years, if not recent days, of the Luddites finally getting it right. They’ve been wrong for 200 years. And you hear a lot of people—not too many economists. Most of us economists are a little skeptical of this. But you hear a lot of other people, including knowledgeable people, talk about the Luddites finally being right, and AI and robotics are finally going to do it, even though the other innovations don’t—did not do it. I’m wondering what you think about this for the poorer countries. This feeds right into this question you have to have something to export.

KIM: Yeah. So a person I’ve gotten to know very well over the past five-and-a-half years is Jack Ma, the founder of Alibaba. And so Jack puts it this way. He said, you know, my grandfather worked 16 hours a day, six days a week, and he was very busy. He said, you know, I work eight hours a day, five days a week, and I’m very busy. In the future, people will work three hours a day, three days a week, and they will feel very busy. (Laughter.)

That is fine for China, especially if they go from 25 percent of U.S. GDP per capita to 50 (percent) to 75 percent. That will work in China. But I—you know, I was just in Senegal, the Sahel, and their childhood stunting rates—meaning the children who are two standard deviations below height for age, meaning they have pretty permanent deficits in their brains that we don’t make up over time—the rate of childhood stunting is 35 percent across the Sahel. So if more than a third of your future workforce started out malnourished, not enough stimulation, and the economy of the future is going to become more and more digital over time, I don’t—you know, I don’t know what they’re going to do.

BLINDER: What are they going to do?

KIM: I don’t know what they’re going to do.

And so especially in the Sahel—right now, Sahel is a huge security risk. President Macron, Chancellor Merkel, everyone is focused on the Sahel because that could be the next place where both extremism and refugees come from. But if you—you know, right now there’s not a lot of industry in the Sahel. There are some raw materials. But, you know, we have to figure out how we’re going to create opportunities for all of these people, and I’m extremely worried about it.

BLINDER: So do you see any countries that are doing—in the developing world that are sort of doing forward thinking or even acting about this that might serve as models in the way a generation and a half ago Korea and Taiwan and so on served as models?

KIM: Yeah. You know, this argument has been going on. And a mentor of mine, I’m sure a friend of yours, Amartya Sen, has been saying this forever, that the countries that invested in health and education before the World Bank thought they should were the ones who have done the best. So China’s first loan from the World Bank when it was an extremely poor country was for education. Korea’s second loan was for education. And they were ridiculed by bank staff. They couldn’t—bank staff couldn’t believe that they would do that, because the idea was get rich first, then invest in your people. I mean, that was an explicit sort of, you know, an assumption that bank staff made for a very long time.

That’s why, in fact, in the ’90s I was part of a group called 50 Years is Enough. We were trying to close the World Bank and the IMF on its 50th anniversary. I was actually part of the protest group that tried to close the World Bank. We—(laughter)—

BLINDER: It’s a good thing you didn’t succeed.

KIM: No, we lost that argument, which was great, and—(laughter)—and, in fact, since that time—since the mid-1990s, especially with Jim Wolfensohn, the focus on health and education really grew, right? But it’s not until very recently that we’ve had enough data on health outcomes and educational outcomes that we could make the connection to economic growth much more strongly.

I was telling you earlier, Alan, that we just did a—we now have so much better data on educational outcomes. So, if you combine them with health outcomes and say—and ask the question, so, does improving your health and education outcomes over the past 25 years correlate with higher economic growth? And so, if you take the top quartile of human capital improvers and compare it to the bottom quartile of human capital improvers, the difference in economic growth over the past 25 years is 1.25 percent of GDP per capita per year, and it’s among the strongest associations with growth that you’ve seen.

And so we’re now at a place where I think we can really make the case that we don’t know what the future economy’s going to look like. We don’t know what it’s going to look like. And there will, obviously, be new jobs created, but we can probably assume that those new jobs that are created will require a pretty high level of education, a pretty high level of ability to deal with a digital world. And right now, if you’re—if you’re a stunted child in India, Indonesia, or Pakistan, the prospect of you being able to compete in that world is very low.

Now, you asked for good examples. Peru, incredible. They were able to reduce their childhood stunting rate by half in about a seven-year period.

Senegal has made a huge—they have the lowest stunting levels in all of Africa because they committed to it, and they used local community health workers to really focus on it. Now, you know, Senegal still has the problem of finding out how it’s going to drive its economic growth in the future. But I think they’re much better prepared than almost, you know, any other—certainly any other country in that—in that region for the future. They’ve got to really focus now on improving educational outcomes.

But what my hope is is that, in showing this connection between growth and health and education, that I—you know, I look forward for the day when the ranking comes out. I hope heads of state and ministers of finance come to me and say, hey, you know, there’s chaos back home because we came out so low on the ranking; what will it take to improve my ranking? And the answer is, well, you actually have to improve your outcomes. Putting more in your budget is not going to help you. You actually have to improve your outcomes.

And then I think they’re going to ask, so how do I do that? And that’s the conversation we want to have.

BLINDER: Yeah. You see this with rankings.

KIM: Oh, absolutely.

BLINDER: Well, you were the president of Dartmouth. I’m sure you were working on your ranking when you were doing that.

KIM: You know what’s the strongest correlation to your ranking in the U.S. News and World Report ranking for colleges? The strongest correlation by far is what you were ranked the year before, right? (Laughter.) Because there’s no way that—I mean, I was—I did it, and you’re ranking all these schools that you really have no idea of, right? And so what do you look at as you’re ranking your schools? You look at last year’s.

BLINDER: You save a lot of labor by looking at last year’s ranking. (Laughter.)

KIM: Not to say it doesn’t matter, but that—

BLINDER: I want to—I want to pull you a little bit to the other—briefly to the other end of the human capital spectrum. When we talk about this—and it is the way you’re talking about it—in the context of poor countries, you’re mostly—you’re worried mostly at the bottom, getting literacy and completing high school. But I want to just for a minute ask you about the top. I mean, there is this old idea about the brain drain, of people getting educated very well from poorer countries, and often they come to the West—they come to the United States and elsewhere to do that, and many of them don’t go back. The second language in Princeton’s Ph.D. program in economics, after English, barely, is Chinese.

KIM: Really?

BLINDER: Yeah, yeah. And a lot of them are going to stay.

KIM: Yeah. Brain drain’s always an issue. I mean, when I was doing a lot more work in global health and when I was the World Health Organization, we thought about this a lot because, you know, there were—there are many countries that were training medical doctors and investing in them, and then they would go away. And there was this discussion about whether, you know, reparations should be paid by the countries that the doctors go to. It’s a real issue.

But some of the things that we’ve seen, Chinese students, many, many more of them are going back now.

BLINDER: Going back, yeah.

KIM: Because there’s opportunities. In Korea, my parents’ generation, a lot of them came to the United States and stayed. But now many more of them are coming to the United States for education and then going back because, you know, the society is so much more interesting. And I think that the same thing could happen even in African countries, but we’ll need to develop things. I mean, we need to develop—

BLINDER: So you think it is happening, or the—

KIM: Oh, yeah, absolutely. It is—

BLINDER: Or do institutions like the Bank and others need to promote it more?

KIM: Well, you know, is brain drain happening? Yes. I don’t actually—I don’t have specific numbers on it, but it is happening.

And so, on the one hand, yes, they’re losing some of their talent. But on the other hand, you know, remittances are a huge part of the economies of, you know, some 400—between 4(00) and 500 billion a year in remittances. I mean, you know, a huge part of the Philippines economy is remittances. And the Philippines had a specific strategy. They had a(n) export strategy. They’d train nurses and send them abroad, and the remittances have supported the economy. And, in fact, Prime Minister Modi is actively pursuing a strategy of training nurses and others who speak English, and then literally exporting them so that they’ll send remittances back.

So are they losing talent? Absolutely. But if we develop the countries more, there is the possibility that they’ll go back.

BLINDER: An economist is always glad to hear the market will take care of this. (Laughter.)

I’m watching because I’m going to turn this over to the audience in a few minutes.

KIM: Yeah.

BLINDER: Just a couple more.

In the developing world—not just the United States but most prominently in the United States, the slowdown in productivity growth is a very big story. And that has to—that is slowing the increments to our living standards, but we’re already rich. So what I’d like you to talk about a minute or two is whether you see this—you, the Bank, sees this slowdown in productivity as a problem for the developing world, or is it—is there still—it’s not obvious that it is because there’s still a lot of catchup room before poor countries get into the technological frontier. And so worrying that the technological frontier is not growing fast anymore may be way, way down the list of many of these countries.

KIM: You know, I’m not an expert on, you know, how different countries and industries are tackling the total factor productivity issue. But I can tell you most people that are experts on it will tell you that the way to really improve productivity is though artificial intelligence and automation, which at the same time eliminates jobs. So that’s the great—that’s the great conundrum that we’re in.

And this is why Jack Ma says we’re going to work three days a week—three days a week, three hours a day. And so I—you know if you ask him, so then what are people going to do? And he said the things that will never go away are entertainment, right? The things that never go away are the care industries, you know, people caring for others. And so the humanities and the arts are going to become more important over time because people will spend a lot of time entertaining each other. I mean, this is—this is the guy—you know, he’s a genius, and he built this incredible company, and this is where he is right now. And if you talk to folks in Silicon Valley, they will tell you that they’re very worried about the social instability that’s going to come from the absolutely incredibly rapid change in the world of technology.

You know, Tom Friedman wrote this great book called Thank You for Being Late, said that this was the first time that every three months he had to go back and talk to people that he’d interviewed because it would have changed in that time. And a friend of mine, Rob Nail from Singularity University, one of the think tanks in Silicon Valley, always starts his speeches by saying: Today is the slowest day of innovation you will ever experience again for the rest of your life—every day. And, you know, now he tells me that very soon there are—there are incubating companies doing this—the way that you will buy shoes is that you will take your camera on your smartphone, take a few hundred pictures of your foot, send it to—or it may be a local shop, and you pick out the color, you pick out the style, and then you push a button, and they print it for you and you go pick it up.

So that’s great stuff, but, you know, it is those things, the reality of jobs being eliminated and high-rates of stunting and poor educational outcomes, I—you know, that, to me, is the future source of instability, conflict, fragility, violence, extremism. And, you know, it’s something that we all should be worried about. So the urgency of tackling this issue I think is still not appreciated.

BLINDER: That’s why I brought up the Luddites earlier.

KIM: Yeah. So I don’t know if the Luddites are correct or not correct. And they’re—it’s half and half. Jack has his view. Jack Ma has his view. Most people in Silicon Valley think that there’ll be huge job elimination. And they’re—a lot of people there are talking about, you know, universal basic income.

BLINDER: Well, he’s talking about—Jack Ma—that’s job elimination. If you shrink to a nine-hour day instead of—a week instead of a 40-hour week, that’s a way of sharing the job elimination.

KIM: Yeah. You know, most people will say most muscle power jobs will be eliminated through automation. Jack says most knowledge jobs will also be eliminated through automation. And so—

BLINDER: Right. We professors don’t want to hear about that. (Laughter.)

KIM: And I—that I had not heard. He thinks that all knowledge related—you know, you look at a field like radiology, and training, and medical school. You know, radiology now, so much of it is done through artificial intelligence. And you look at a particular image, and what you want is a really—you know, a really brilliant radiologist to tell you all the things that they had seen in their experience that could—that could potentially be the image that we see. But one radiologist is one thing. But now through artificial intelligence, you can get every single—with that particular kind of image—you can get every single thing that has ever been related to that particular image, with the—you know, with the likelihood right there. And that—we go to a radiologist to get what we call a differential diagnosis. But AI is already, I think, able to do it better than just about anyone. And so if that—that’s just the beginning. And we used to say, ah, but robots won’t ever do surgery. But they are. They are doing surgery right now, so.

BLINDER: Not on me. (Laughter.) Maybe not on you either. But it’s coming isn’t, it?

KIM: Well, you know, I don’t—just to stress, I don’t know where it’s going. I’m not in this world enough to know where it’s going. But it’s my job to help our clients prepare and be more competitive in the future. And I just worry that we’re getting it wrong. And, you know, a good friend of mine at the Bank told me that about 25 years there was a heated debate inside the World Bank Group about whether we should invest in telephone poles for India. And luckily, we decided against it, right? And so what I keep telling my own teams is are we doing the equivalent of building telephone poles in India right now because we haven’t seen around corners enough. And we just don’t know the answer yet.

BLINDER: Yeah. Hard to see around corners.

KIM: Yeah.

BLINDER: So at this point I’d like to invite the members present to join our conversation to the extent that they wish to by asking questions. I want to remind—I should have said this in the beginning. A lot of you have been to many meetings at the Council that are off the record. This is on the record. So don’t ask a question if you don’t want it reported in The Washington Post. (Laughter.) Now, I don’t believe that will happen, but just be aware that it’s on the record. There are microphones around. Wait for the mic to arrive. And state your name and affiliation. And please make it a question, not a speech. OK. There are lots of questions. Let’s start right over—my God, we have four in a row here. I may have not stay in the same place. Who wants it most. This—there you go. (Laughter.)

Q: Oh. I want to thank you, Dr. Kim, for a very broad talk. And I’d like to—

BLINDER: Say who you are.

Q: Oh, Patricia Rosenfield, Rockefeller Archive Center. We share a mentor in Arthur Kleinman.

KIM: Oh, no kidding? Yeah.

Q: And it’s really his perspective and your perspective and anthropologists that I want to draw on. Not—excuse me—but not as an economist. I’m trained in economics and anthropology. So I’m wondering, as you talk about the Senegal example and the local stores, and the local—if you could talk a little bit about a challenging area for the World Bank, which is really working at the local—very local level. Having been a Bank consultant, I know how difficult that is. And partnering not—with a different part of the private sector, namely community foundations, and working with local enterprise, not small or medium but very local-level activities in building up local capacity, because I think there’s a lot of innovation, and the sustainability for all of the higher-level things will come from there. But how is the Bank going to tackle that?

KIM: So we now have a very active collaboration with faith-based organizations and also we have something called a global program on social accountability, where we are giving money directly to community-based organizations in different parts of the world. And it’s not—it’s not large. But it’s hard for us to do that, just because of the structure of the organization. You know, we’re basically a collective of nation-states. And so we have—our public-sector financing goes to nation-states. And then our private-sector group has more flexibility. And I think that’s one of the ways that we might be able to get things going.

So just as an example, right, the impact of community health workers is just absolutely—you know, the impact of community health workers on everything from tuberculosis outcomes to maternal and child health, to maternal mortality, there’s lots of good evidence to say that they’re very important. But most countries are very resistant to putting them on the payroll, because they’re—you know, and, frankly, the Bank and the IMF is always pounding on them. Keep your wage bill down. You know, this is—you can’t afford this, this is going to get you in trouble.

But if in fact the most important factors for growth, especially in the future, are the quality of your human capital, then we may have to completely change the way we think about paid community health workers. And if, in fact, other jobs are going to be gone—I mean, even agricultural jobs are going to be automated away, a lot of them. If that’s the case, then what we might have to do is to really change our perspective on this and say: Oh, we have to listen to the Amartya Sen’s of the world who told us that this is the right thing to do. And, you know, if someone were to come to me and say: I really need to improve health outcomes, I really need to improve educational outcomes. I think you can make a good case for paying for this different kind of thing.

So our role is not necessarily to train them. You know, I’d love to see our private-sector group put money into women-led organizations that do childcare, daycare, health workers, and then have, you know, governments pay for them. But the—you know, treat this as potentially an area of growth—even private sector growth, right? So that’s sort of the things we do. And so we have to get our house in order. You know, the human capital ranking is going to have a—it’s going to be very controversial. But it’s going to raise very fundamental questions. Will S&P and Moody’s change their bond ratings based on our human capital ranking? I hope so, OK. Will the IMF begin to incorporate it into their Article 4, which is, at least partly, an assessment of potential economic growth? I think they’re going to have to. If all those things happen, then I think we would be able to—we would see the money going much more to the community level, because they will have to improve their outcomes.

BLINDER: Joan. Then I’ll come to you next. There’s a mic, Joan.

KIM: Good to see you again.

Q: Good to see you. (Laughs.) Joan Spero, Columbia University.

When Alan and I were in government in the 1990s, the Bank published reports saying that one of the quickest ways to develop human capital was to educate women, that women then educated the family and beyond. What’s the thinking today? And what kind of programs do you have about educating women?

KIM: Absolutely. Sort of the biggest bang for the buck I think you can—you can imagine is educating women, all right? And so we have focused on women’s education and lots of—we now applied a gender filter to all of our different projects. And so we strongly encourage countries to do this. But, Joan, here’s what I would say: We can’t—we can’t continue to let responsibility for women’s education, for childhood stunting, for educational outcomes—we have to get away from thinking that the responsibility for that lies in international institutions and donors and philanthropists, all right? I want to create terror in leaders in developing countries because they’re not improving their health and education outcomes, right?

I hope—I think that in some countries this could lead to lots of unhappiness among citizens when they see their ranking being lower than the country next door that they’ve always felt superior to, OK? I mean, I think the only way to really make progress on this is to make it count. And so 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. Because there’s just plenty of great data saying that investing in girls’ education actually is linked to economic growth. But it’s just—it’s just that all these studies never had an impact, really, on creating, you know, overwhelming demand. It’s still very supply-driven.

BLINDER: Did you say exactly when the rankings are going to be published?

KIM: October.


KIM: October.

BLINDER: We’re waiting, and I hope S&P and Moody’s is alert.

KIM: Well, I hope so.

BLINDER: They haven’t always been—

KIM: So, you know, so S&P and Moody’s, I asked him, do you—do you take these things into account? And they said, well, we do a little bit on health, but we just we’ve not had any good education data. And so at the Bank we released our World Development Report. It was on education. And for the first time, we now do quality-adjusted years of education. And that’s when the—that’s when the correlation to growth has become much, much stronger.

BLINDER: Mmm hmm. A woman right here in the front. Then I’m going to look to the back. So people in the back, you’re not going to be ignored.

Q: Thank you. Laura Taylor-Kale for the Council on Foreign Relations. I’m also the deputy director of the Council’s independent taskforce on the future of the U.S. workforce. And we’re hoping to be able to brief you and your team in the coming months as the report is released in April.

I wanted to ask you a little bit about—

BLINDER: Hold the mic a little closer.

Q: Sure. I wanted to ask you, Dr. Kim, about this tradeoff you talked about between investing in health and education and investing to pursue growth. And it seems like even with this human capital index that there’s still infrastructure that’s very germane and very important for growth, and for—and in order to be able to capitalize on any human capital development. So I wanted to get your thoughts on where the Bank is headed in terms of smart infrastructure, broadband infrastructure, the type of infrastructure that’s necessary for countries to be able to be successful in the digital economy. Thank you.

KIM: So I get in a lot of trouble when I say this, but it just—it happens to be true, so I keep saying it.

BLINDER: Go ahead. It’s good to get in trouble for saying things that are true.

KIM: If there is a project in a country that is easy to prepare, that has a very clear income stream, most of the multilateral development banks will, like, run after that project and try to provide a sovereign-guaranteed loan, because it’s easier. I mean, you get it through the board. It’s easy. It’s straightforward. But those are precisely the projects that should be done by the private sector, right? So, you know, broadband, the incentives are so clearly aligned on broadband. You know, when a cellphone service in Africa—we had to make some of the first investments, but then we could get out of it because the market forces, you know, drove that forward very nicely. And broadband will be the same. I think broadband—we may have to invest maybe in putting some fiberoptic cable down, but I think after that, I think that’s going to just go, you know, based on market forces.

And we’ve learned that there’s a lot of other things that can be done through almost purely private means. So we built a toll road in Dakar, Senegal. And everyone said, that’s crazy. Why would you—this is going to be bad. It’s going to worsen inequality. And it had exactly the opposite effect. So what happens was this toll road—which was about 25 percent government investment and 75 percent private sector investment, the—a certain group of people used the toll road. And what’s happened is it—by having now more and more people using the toll road, the regular road we decongested. So the transport time from Dakar to the rest of the country was lowered for everybody. And we didn’t know if toll roads would work in Africa.

But what does that mean? That means that instead of putting a billion dollars of debt into—you know, taking a billion-dollar loan with a sovereign guarantee and then reducing your space to do other things, they were able to take a much smaller piece of it. And the government is now actually getting revenue from the toll road, right? So there’s no simple solution. These are not easy. You know, the Queen Alia International Airport in Jordan, you know, they wanted a sovereign guaranteed loan. But we thought we could definitely do this on commercial terms. And we did it without the Jordanian government putting a penny—a billion-dollar airport.

So instead of taking a loan and paying the loan back and then trying to run the airport, with all the problems that that can create, they sold the license to—now it’s a French company. It was totally financed through commercial terms. And so without putting a penny into the airport—which they were going to take a loan for—they now, over the past eight years, have over a billion in revenue coming from that airport. So we’re not walking away from infrastructure at all. We need to build infrastructure. But there’s so much of that can be done with the private sector.

Now, in terms of, you know, I know I’m going to get the complaint: Well, you know, you’re putting all this pressure on us. But where are we going to get the money to invest more in health and education? I have ideas. If you get rid of regressive fossil fuel subsidies, right? And fossil fuel subsidies benefit the top 20 percent six times more than it benefits the bottom 20 percent. Get rid of fossil fuel subsidies. Agricultural subsidies, many of them are extreme regressive. Get rid of those. Tobacco tax—tobacco taxes are incredibly—I mean, we’ve seen tobacco taxes work now so effectively. Put the tobacco tax on. And then finally, finally, finally, collect taxes, right? So many countries, the only people who pay taxes are the ones who are too weak to refuse to pay taxes. So if you get your tax base up to 15, 20 percent of GDP, you will have enough resources to pay for the kind of transformative investments in health and education.

In the meantime, we will really do everything we can to, what we call, crowd in that private sector cash—$10 trillion today in negative interest rate bonds. For those of you not in finance, you give your money to the Japanese central bank, and you pay them to keep your money. Same with the European central bank, same with the German central bank. Ten trillion dollars of capital that is losing money every year. Another 25 trillion (dollars) in very, very low interest government bonds, and 5 trillion (dollars) in cash, right? Literally probably thousand-year-old bills sitting in people’s safes. Another 5 trillion (dollars) that’s moving from baby boomers to Millennials. And I’ve been meeting with these high net worth Millennials. And they’re saying, we want—we want to do good things with the capital that we inherited. So I think there’s a great opportunity. But more to the point, there are no excuses anymore.

BLINDER: Right on the aisle in the back.

Q: I’m Craig Charney. I run a survey research firm that works on international development projects, including some interesting ones with the Bank.

What I was wondering, though, is something you didn’t talk about. Do you really see a viable non-manufacturing path to development? We see India, for example, has rapid growth through services more than manufacturing, and rapidly increasing inequalities. The poor get left behind. If not, should the Bank be looking at ways to palliate this? I’m thinking of things like redistribution, for example either within countries, as Brazil and South Africa have done, or, if you wanted to help them in Senegal, stabilizing ground nut prices, and perhaps even increasing them internationally? Or would the other possibility be bringing people to jobs? You mentioned Senegalese and Filipino workers going outside their countries. Should the Bank be exploring ways to stimulate permanent or temporary migration?

KIM: So the Bank wouldn’t be able to do something like stimulate migration. It’s just—and part of the reason why is that one of the strict sort of rules in the Articles of Agreement is that Bank employees can’t get involved in internal politics. So immigration policy gets immediately to internal politics.

BLINDER: You think it’s controversial?

KIM: (Laughs.) Well, so you know, from my perspective, though, it—the African continent has lots and lots of young people. And there are countries, like the one I was born in, Korea, that desperately need people to do the jobs that the Koreans don’t want to do anymore. And I think that’s going to happen over time. But the question that you asked originally, what are people going to do? What are the—what are the new drivers? It’s something that we’re actively looking at. And so, for example, I think Alibaba is probably going to go to its first African country. And I have been pushing Jack to do this. And so now he’s made a commitment. He’s now bringing African entrepreneurs to China, training them in China, and then is going to try to set up this kind of Alibaba system where you get access to capital, to mentoring, to accounting, to marketing. And then he gives you access to the entire global market.

I’m hoping that that’s a possibility for Africa. You know, there are other industries that are very job rich—tourism, for example. I was just—you know, just being in Senegal, you know, the coast is being eroded away very, very quickly. So we have to now take rapid action on the climate change adaptation front to try to—to maintain those places so that they can grow the tourism industry. So we are looking around at what are the sort of job-rich professions that we could invest more in to prepare people for. The topic today, human capital, no matter what you look at, you know, higher-quality human capital is going to—is going to be, you know, a great asset. But, you know, if you have good ideas, let us know, because, you know, I don’t think this is a question that anyone’s answered. And it’s one that is—I think over time is going to change the way we do our business.

BLINDER: The gentleman right there.

Q: Yes. Thank you very much. About 12 years ago—

BLINDER: Introduce yourself?

Q: Mario Calvo-Platero with an Italian newspaper. I’m a columnist.

I was interviewing a predecessor of yours, asking him what was his worries looking towards the future? This was about 12 years ago, was Jim Wolfensohn, in fact. And he said, well, one thing that worries me the most is an exodus of 50, 60 million people moving all together from Africa towards Europe, for example. Not the 300,000, the 1 million that we have today. Now, that didn’t happen so far, but we did have huge waves of immigration that did change also the political structure. So number one, do you still think that that could be a worry, and how one would deal with that? And if not, what is your biggest worry at this point, looking in the future? Thank you.

KIM: So, you know, I was just in your country, in Bari, for the—it was the G-7 finance ministers meeting. And I visited one of the centers that was receiving refugees. And everyone there was from Africa—sub-Saharan Africa, not the Middle East and North Africa, right? This is something that leaders in Europe are very focused on. That’s why the major development effort coming out of the German G-20 in Hamburg was the so-called Compact with Africa. And the idea there is that if we don’t really focus now on creating jobs and creating opportunity and preparing Africa for the economy of the future, that that—something like that, maybe not in those numbers—but something like that could happen. And we hear European leaders saying all the time, if you thought the Middle East and North Africa—if you thought that migration was troubling or difficult, you know, wait till one of the large African countries, you know, gets into trouble.

So I worry about that, but not from the perspective of the migration. OK, I’m a migrant. I’m an economic migrant. So I think migration is fine in many ways. But my concern is that there are so many people—and the population’s growing very rapidly. There are so many people that I look at them, they have high aspirations, but I just don’t know what they’re going to do, getting back to the other question. That’s the thing that worries me the most. What are people going to do? They’re going to have smartphones. They’re going to be on broadband. They’re going to be able to tweet, they’re going to be able to organize. You know, the recruitment of extremist groups happens when you have broadband. You know, that’s the—that’s the tool. So, yeah, that’s the concern.

Now, the solution, from my perspective, is not to build walls. No walls are going to work in this case. The solution is to just urgently take advantage of all the opportunities, including all this capital sitting dormant on the sidelines, and move as quickly as we can to find the new drivers of economic growth that will create opportunities. I think that’s the only option. I think it’s actually—I think it’s extremely urgent. And we have to move.

Q: What worries you the most?

KIM: All those things. All those things.

BLINDER: Now, back here. Are you all together?

Q: No.

BLINDER: No. (Laughter.) All right. This is independent. Just happens to be a cluster of questions right here. This woman here in the brown sweater.

Q: Bettye Musham, Gear Holdings.

Have you done any work with the military? Are anybody developing robots that could be soldiers?

KIM: Not that I know of. And if that’s the case, I think they probably wouldn’t share that information with me—the likes of me. But we do work with the military. And I’ll tell you why. So the military and American military leaders, very much aware of the problems that I just talked to you about, about the fact that poverty, inequality, poor education, poor health care could lead to instability. And so I have to tell you that among the people that I talked to in the U.S. government, the military leaders are the most focused on these issues. And so they’ve been—they’ve been great allies for us.

BLINDER: Woman right here in the white.

Q: Thank you. I’m Pascaline Servan-Schreiber with University of the People, the world’s first tuition-free not-for-profit, accredited university. You mentioned that in 2025 the entire planet will be connected. What do you see the role of online education? And specifically, you talked about African countries that don’t necessarily have the potential to educate their students. Can online help? And what can the Bank do in this area?

KIM: So one of the—one of the people I really admire, and I call on a fairly regular basis just to see what he’s thinking, is Sal Khan from Khan Academy. And we—there was a private sector education group that became controversial that used Sal Khan’s materials. And they took their philosophy of education from Sal Khan. So Sal says that what he does in his own school—they have a school in California—is that groups of students sit around a tablet computer and they go through the lessons. And the teacher walks around and helps the students who need help.

So the individual students actually get a lot more attention from the teacher, and the outcomes are astoundingly good. And the private sector group called Bridge Academy that we’ve supported in some African countries, it’s become controversial because the teacher’s unions hate these guys. But their outcomes are much better. And the interesting thing that happens—OK, so one study—I don’t know if I mentioned it, but one study showed that we did this with some Swedish economists. We looked at the achievement levels of primary school teachers in six East African countries. And only one-third of these primary school teachers could pass the second-grade exam, right?

And so if you get Sal Khan in the classroom—I do Sal Khan classes myself, right? If you get Sal Khan in the classroom, and have the teachers walk around, what will happen over time, I think, the students themselves will get a better education because they have one of the best teachers in the world teaching them. And the teachers will also learn, as they walk around and as they do the Sal Khan curriculum. So he has—he has an entire school. He has a pre-K-to-12 curriculum. And one of—the two areas that have invested more in education in the world without getting much better outcomes are Latin America and the Arab world. So a few years ago I went to the UAE and talked to Sheikh Mohammed Bin Rashid and said: You should translate all of Sal Khan’s materials into Arabic, and then make him available. And he did it. It was—they had, like, hundreds of people doing this. So they translated all of Sal Khan’s materials—and he’s working with them now—into Arabic. And I think it could be a key part of improving outcomes, because their educational outcomes have not gotten better. I think Carlos Slim also paid for the translation into Spanish. And so you are seeing some better outcomes. I think it’s really important, and it could be the key. Teachers unions, even in poor African countries, have been resistant in many of the countries we’re working in. But I think it’s just we have to have that conversation with them.

BLINDER: You’ve been very patient. The gentleman here.

Q: I’ll get the mic. I’m John Hirsch with the International Peace Institute.

Well, first of all, thank you. But you’ve given a very downbeat view of Africa. You didn’t give their names, but you mentioned three leaders who you thought didn’t understand anything that you represent. You’ve just sort of knocked the unions there, so on. I have a very different view. (Laughter.) And I’d like you to speak more about the new leadership in Africa.

So big changes are happening. Zimbabwe, Angola, South Africa, election coming up in Sierra Leone, very hopeful, Liberia a new leader. I’ve also been with a lot of African students here who I think understand everything you’re talking about and want to improve matters. So are you really so downbeat about the leadership? And, if so, what do you think needs to be done? Or do you have a more nuanced view than I’ve sort of maybe unfairly summarized? Because I think there’s a lot of new leadership that understands the need for good development.

KIM: Yeah. Well, you know, let me—let me be clear. I wasn’t—you know, I wasn’t attacking unions. I’m just giving you a very specific instance where the teachers unions were really angry about this particular private-sector solution.

And I don’t know what it will take to disrupt education to improve outcomes. And so what I’m trying to do, then, is through the ranking to create pressure to improve outcomes. And then, once that pressure is there, I think we’re going to have a different conversation.

Yeah, and my view on Africa is not downbeat or upbeat. I’m just giving you data as I see it. And I hope I didn’t make ad hominem comments about any individual African leaders, but the problem is that African leaders are being hopeful and they’re trying to say we are going to industrialize. But the evidence is just not there that that’s going to happen. That’s really what I’m saying.

New leadership in Africa? Absolutely. I mean, there are some—there are some great leaders in Africa—you know, President Ouattara, Macky Sall. President Kagame, you know, runs his country like a corporation. President Kaboré from Burkina Faso, I think he’s really thinking hard about how to go forward. Issoufou—President Issoufou from Niger, very serious guy, right? A very serious guy.

So I work with all of them. I work with every single one of them. And the places where the regimes have changed after a very long time, I’m very hopeful, right? But it’s going to be a tough climb, because look at what’s happening in the global economy. If these—if the low-skilled jobs are really going away, and they’re going to go away as fast as we think they’re going to go away, then it’s time to get on really an emergency footing.

And I know that President Macky Sall and President Kagame are totally onboard with this. President Ouattara, he is a former number two at the IMF. He knows exactly what’s going on, right?

But it’s going to be different. It’s going to look different. It’s not going to be about more aid. It’s not going to be about concerts and celebrations. It’s going to be about hard-headed attempts to make the private sector work. It’s going to be about hard-headed commitments to improving human capital. And that’s not going to be easy.

BLINDER: Well, everything reminds me of some line from “Hamilton.” (Laughter.) And what we’ve just—everything does.

KIM: I can’t get tickets! I can’t get tickets to “Hamilton.” (Laughter.)

BLINDER: Really? I can help you.

KIM: I tried. (Laughter.)

BLINDER: The line that’s been running through my head for the last hour was immigrants get things done. And we want to thank you for coming to America all these many years ago—(laughter)—for your years of service to the United States of America, to your recent years of service to the entire world, and to the last hour and a half of service to the Council on Foreign Relations.

KIM: Thank you.

BLINDER: Thank you very much. (Applause.)

KIM: Thank you. (Applause.)



Explore More on CFR

Donald Trump

The Trump administration must address its problems of process and personnel if it is to contend with a world in disarray.

Energy and Climate Policy

South Korea

South Korea must capitalize on its diplomatic push to bridge the divide between its longtime ally and its combative neighbor.