BUILDing a Better Economic Future Requires People, not just Infrastructure

By Alicia Phillips Mandaville and Kristin Lord

 

Last month, heads of state from around the world gathered in New York City for the UN General Assembly to discuss, among other topics, global development goals. This year, there was no shortage of whiplash for both policy makers and American citizens who prioritize the United States’ engagement in the world: just after President Trump’s General Assembly address caused hand-wringing in New York, a momentous global development event unfolded in Washington DC with the bi-partisan passage and White House support of the BUILD act, which establishes a new U.S. International Development Finance Corporation (USIDFC).

 

Designed to enable infrastructure investments in emerging and developing economies, this new DFI can create new market opportunities for Americans and economic growth for our partners. But to fully reap the potential, we must ensure fresh, actionable thinking about the fundamental relationship between human capital and infrastructure in long-term economic growth. Based on prior experience with the Millennium Challenge Corporation (MCC) and the discussions around the USIDFC so far, this may not happen without an explicit and intentional focus early on.

 

Investing in infrastructure is important. It directly impacts economic growth and signifies progress to all who observe it. As anyone who has traveled to major urban centers or economic hubs knows, infrastructure is the nerve system through which an economy operates. Whether highways, sanitation, or telecoms, infrastructure enables transactions and information to move at the speed needed for a modern economy.  And, despite the noise and the dynamism, if you have ever stood in the middle of a busy industrial port anywhere in the world, there is something quietly reassuring about the resonant buzz of that operation. It is as if you can feel the growth happening around you.

 

But if there is one lesson that economists and humanity have learned over and over, it is that the economic growth equation fails in the absence of human contribution; no matter how well it is equipped, an economy without dynamic human resources is a recipe for stagnation. Development organizations know this: the historic, multilateral, “if you build it they will come” model of public goods provision led to roads-to-nowhere and was roundly critiqued by academics and development technocrats alike early in the 21st century. This was in part what led the US to stand up the MCC as an effort to put resources in those countries already investing in human capital and sound governance, and therefore was able to provide an environment in which investments in public infrastructure could have maximum impact. It is also why World Bank President Jim Kim’s efforts to focus on human capital so revolutionary.

 

The BUILD Act, and the USIDFC it creates, is built on this and other hard-learned lessons of development. But it emerges at a point in time when nearly everything we know about the nature of dynamic human contributions to an economy are in question. The global labor market is changing, and with the rise of automated systems, artificial intelligence, and employment platforms, so are our expectations about the very role of humans in a labor market. Common wisdom is that the jobs of the future in all economies will center around complex, creative, and interpersonal skills – but no one quite knows what it will take to get there. 

 

Looking at this uncertainty, it could be easy for a newly minted USIDFC (and other US levers of economic development) to cause the US to focus exclusively on the physical capital side of investment. That would be a mistake. To succeed, the USIDFC will need to apply one of the most complicated and least glamorous lessons of the MCC: investing in both the human and physical side of economic growth. Without that, it will fail to leverage this obvious moment for American economic leadership in a dynamic sector, and neglect opportunities both at home and abroad. To put it more pithily, US foreign assistance needs to invest in people as well as in stuff. 

 

What does this mean? The USIDFC needs to make a tangible commitment to rigorously designing and evaluating the human capital side of its investments. It may require new research and creativity to assess the evolving effect of secondary and higher education transitions, or the role of informal education, apprenticeships, or other employment focused interventions at the young adult and adult level. But to be successful over time, the DFC’s economic assessments must articulate their assumptions about the role of people in making economies work, and impact evaluations of that work should create the same type of robust experiments that MCC depended on to explore investment returns in agriculture, transport, and power sectors. That may also mean pulling other foreign assistance agencies as well as private sector and philanthropic partners in to make complementary investments in human capacity that align with their own mandates.

 

We know there are a tremendous number of ways for individuals to actively participate in an economy, and that this participation is necessary for growth as well as for political and social stability. Genuinely evaluating the ways US investments and foreign assistance support this crucial participation will invariably lead us to some positive conclusions and some painful realizations – that is the nature of robust impact assessment. But we all see the future of work changing. It would be inexcusable for the development community to believe that has no implication for the way we work too.  

 

Alicia Phillips Mandaville is Vice President of IREX, and a non-resident Senior Associate for the CSIS Project on Prosperity and Development. Kristin Lord is President and CEO of IREX, a global development and education nonprofit celebrating its 50th year.

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