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Dr. Nora Lustig publishes in Brookings blog: Making the global financial system work for all

December 05, 2018 2:30 PM
Riley Moran

Making the global financial system work for all: A message for the G-20
By: Nora Lustig

From, November 30 to December 1, world leaders will meet in Buenos Aires to wrap up the G-20s work in 2018. One of the Summit's priorities includes how to unleash people's potential in the context of a rapidly changing future of work. Investing in human capital is among its core proposals: "Making the new wave of technological breakthroughs as inclusive as possible will require considerable investment in training and skills for life and work." Education is at the crux.

Last month, the central role of human capital as a determinant of economic and social progress received three significant boosts. First, Paul Romer shared the Nobel Prize in Economics for his contributions to the theories of economic growth. In his endogenous growth model, investing in human capital and knowledge creation are key drivers of the technological innovations that determine growth. Second, the World Bank released a Human Capital Index, an advocacy and evaluation tool for assessing how far countries are from achieving their productive potential relative to a benchmark of complete education and full health, as well as encourage governments and partners to take actions to close the massive human capital gap that exists. Third, the salient importance of human capital was prominently acknowledged in Proposal 1 of Making the global financial system work for all, the new report by the G-20 Eminent Persons Group on Global Financial Governance. More precisely, the report calls for refocusing on human capital as a foundation for a stronger investment climate, building more inclusive societies, and reaching the Sustainable Development Goals (SDGs).

Investing in broad-based human capital distinctly creates a three-way win-win. Human capital is key for economic growth. Human capital investments are also key for building equitable societies. And human capital is not only ‘€œcapital‘€‘€“that is, an input for production‘€“but higher levels of human capital immediately translate into superior quality of life. Better health and nutrition, achieving literacy and numeracy, and access to modern sanitation services not only make people more productive but vastly improve their living conditions and well-being. Human capital improvements translate into longer, healthier, and more fruitful lives.

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