Beyond Human Capital: Why Development Policy Misdiagnoses the Problem

For decades, development policy has returned to the same diagnosis: countries are not investing enough in their people. Education systems underperform, health outcomes stagnate, and labor markets fail to generate meaningful skill accumulation. The solution, we are told, is to invest better. More effectively, more coherently, and across the right environments.

A recent World Bank report follows this logic closely. It argues that human capital is built not only in schools and clinics, but in homes, neighborhoods, and workplaces. The problem, then, is not only underinvestment, but fragmentation. Improve coordination across these settings, and human capital, and development, will follow.

It is an elegant framework. It is also incomplete.

The settings-based framework presumes that the primary constraint is how to invest in human capital. It does not consider that, in many contexts, the binding constraint may be the absence of sustained fiscal commitment to invest in it at all.

This is particularly striking given the report’s own observation that human capital outcomes have stagnated or declined across a majority of low- and middle-income countries over the past decade, despite continued public spending and repeated policy reform efforts, a pattern that suggests the constraint may lie less in how investments are organized than in how they are prioritized.

Because it leaves unasked a more uncomfortable question: Why do states persistently underinvest in human capital despite continuing to extract resources from their populations?

This is not a coordination problem. It is a structural one.

The Missing Puzzle: Stability Without Reciprocity

Standard development thinking assumes a kind of implicit contract. Citizens pay taxes, comply with state authority, and in return receive public goods such as education, healthcare, and infrastructure. When that reciprocity weakens, resistance should follow. At least, that is the theory.

Across much of the world, the pattern is different. Public provision remains limited, often uneven, and sometimes visibly inadequate. Fiscal systems continue to function. Extraction persists. Resistance, when it appears, is fragmented, episodic, or quickly absorbed.

This is not an anomaly. It is a pattern.

We might call it the Fiscal Reciprocity Paradox, a condition in which states maintain stable systems of extraction despite limited social return, without generating proportional or sustained political resistance.

Once seen, it becomes difficult to ignore. And it changes how we interpret development failure.

From Coordination Failure to Allocation Logic

The settings-based approach assumes that governments want to invest in human capital but are constrained by coordination challenges across sectors, institutions, and environments. Fix the coordination, and outcomes improve.

But what if the issue is not coordination, but allocation?

Public budgets are not neutral instruments. They reflect priorities. Those priorities are not always aligned with maximizing human development. Resources are distributed across competing demands, including administrative systems, security structures, infrastructure, debt servicing, and social services.

The key question is not whether states can invest more in human capital. It is whether they are structurally organized to do so.

To make this visible, we need a different lens. One that looks not only at outcomes, but at how resources are allocated.

Measuring the Social Contract

This is where a simple but underused idea becomes powerful: the Social Contract Ratio (SCR).

The SCR asks a basic question: What share of public expenditure is directed toward citizen-oriented goods such as health, education, and social protection, relative to institutional or state-preserving functions?

Rather than focusing only on whether human capital outcomes are improving, the SCR examines whether fiscal systems are designed to produce those outcomes in the first place.

In many contexts, the answer is sobering. Human capital is not underprovided because it has been overlooked. It is underprovided because it competes with, and often loses to, other fiscal priorities that are more directly aligned with maintaining the structure of the state itself.

Why This Changes Everything

If weak human capital outcomes are the result of coordination failure, then better policy design, improved data, and cross-sectoral integration are the solution.

But if they reflect stable fiscal equilibria, systems in which extraction is sustained without proportional redistribution, then the problem runs deeper.

In that case, improving coordination across homes, neighborhoods, and workplaces may refine the margins, but it does not address the core issue. That issue is how states allocate resources, and why those allocation patterns persist.

This is not a technical problem. It is a political economy problem.

Rethinking Development Policy

None of this makes the settings-based approach irrelevant. Homes, neighborhoods, and workplaces clearly matter. Where people live and work shapes what they can become.

Focusing on where human capital is built can obscure why it is not built at scale.

Without a theory of fiscal allocation, without examining how resources are distributed and what sustains that distribution, development policy risks interpreting structural patterns as implementation failures.

The result is familiar. Better frameworks, clearer recommendations, and persistent outcomes.

Beyond Human Capital

The next step in development thinking is not to abandon human capital. It is to situate it within the fiscal systems that make it possible or constrain it.

That means moving beyond questions of coordination and capacity toward questions of allocation and equilibrium.

Not only:

• Where is human capital built?

But:

• Why do systems fail to invest in it, even when they have the capacity?

By focusing on where human capital is formed, the analysis risks bypassing the more fundamental question of whether existing fiscal structures are designed to produce it at scale.

Until that question is addressed, development policy will continue to refine its tools without fully confronting the structure of the problem it seeks to solve.

Jo M. Sekimonyo
Political Economist, Université Lumumba