As a concept, human capital is as old as modern economics. The 18th century economist and philosopher Adam Smith described it as “the acquired and useful abilities of all the inhabitants or members of the society.” More recently, Paul Romer was awarded the 2018 Nobel Prize in economics for work that puts both human capital and innovation at the centre of economic growth theory.
The debate has moved beyond the importance of human capital for economic growth to how it affects the kind of growth a country experiences – whether it finds itself on a more inclusive, and thus sustainable, development path.
But to get the full picture about how human capital is developing in emerging economies means looking beyond interactions with the sorts of institutions traditional EM investors are most familiar, and comfortable with. It’s not enough to stick to the usual repertoire of meetings with government officials and senior business people, of being bussed from smart hotel to air-conditioned office and back again.
To get the full picture about how human capital is developing in emerging economies means looking beyond interactions with government officials and senior business people.
One way we’re developing a ground’s eye view of social and economic developments in the countries we cover is to build a partnership with EMpower, a well-respected and innovative charity focused on youth in emerging economies. Contact with its programme managers in key regions and countries gives us an on the ground perspective and puts us in touch with people we would otherwise never have access to.
One such programme is South Africa’s Mamelani Projects.2 Mamelani was founded by young community development workers to help Cape Town townships’ many homeless young people who’d grown up in institutional care, often orphans or victims of South Africa’s AIDS epidemic. Thanks to EMpower, Pictet AM investment manager Robert Simpson recently had the opportunity to spend time with Mamelani’s director, Gerald Jacob. He saw for himself Mamelani’s comprehensive approach to building the human capital of local youth by combining personalised emotional support, education and life skills training – including helping them to develop their own support networks.
“It informed my discussions with the South African government about how best to balance immediate fiscal considerations against protecting the sources of long-term growth,” Simpson said.
During other recent trips, other members of Pictet AM's emerging markets debt team have spent time with EMpower sponsored charities in Brazil and Argentina. Each meeting has added a wealth of insight to our country analysis.
These insights help us, in turn, to hold more informed and sharply focused discussions with the policymakers and business leaders who have the power to influence policies that affect human capital development. Getting the right message across will ultimately be good for the country’s people. It will also help ensure we become better stewards of our investors’ capital and, we hope, improve their long-term returns.