A DISCUSSION AND A PROPOSAL
 
 

Professor Desmond Cohen 

HIVDEV Consultant

May 2002
 

Not to be circulated in altered form without the permission of the author

What is the Problem ?
 

The main channels through which the HIV epidemic affects social and economic development are through its impact on the labour force and  its related effects on the level and allocation of savings. It follows that social and economic development will be most adversely affected in  those countries with high levels of HIV prevalence where morbidity and mortality will lead to severe losses of labour - with the effects being compounded in those countries where HIV infection rates rise with social and occupational status. 

Development practitioners no longer believe the naive theory that labour is in unlimited supply in developing countries - with the added corollary that labour can be replaced costlessly. Empirical data has exposed the fallacy of this reasoning, and it follows that analysis that  suggests that "unskilled" labour that is lost through epidemic diseases such as HIV can be easily replaced is based on a fallacy. Indeed there is a great  deal of evidence that supports the hypothesis that even so called unskilled labour has accumulated location and task specific skills that are very  hard to replace. 

This is most obviously true in respect of agricultural skills but also of other economic activities where it may appear as if the skills can be  easily replicated and replaced. Clearly family based producers, who account for most farmers in sub-Saharan Africa, face critical constraints in replacing labour lost to HIV and AIDS. This follows from the fact that most producers do not have access to labour markets, and are thus generally limited in the degree to which they can hire labour to meet their needs. It is far from clear how they are currently dealing with this problem, and it is equally unclear how they will be able in the future to cope with the losses of Human Capital that are involved. 

There are a set of related and very important issues such as how skills and knowledge are passed on to children, and other problems related  to the gendered nature of many tasks in agriculture. In most country situations there are no mechanisms in place to address these critical  questions - important though they are for sustaining rural livelihoods. It is far from clear who has the capacity to deal with these and other matters -  but these urgently need to be addressed. Otherwise it is very unclear how production of food and other crops will be sustained both now and in  the future.

It is also evident that within the category of "labour" there is a range of capacities which are undervalued by conventional classification and  are often largely unrewarded by market processes. This is particularly true of those tasks that can be classed as organizational ? such as those undertaken by supervisory workers. It is well known that these workers - supervisors- often play key roles in production, and since their  skills are often derived from years of experience the losses in output due to HIV and AIDS will be much larger than that measured by their wage. The probability is that losses of key personnel with job specific skills and organizational experience will cause disruption to production and  losses of product quality. Such personnel are not easy to replace and losses of embodied human capital will impose significant constraints both on production processes and on available technology.

At least 3 broad conclusions can be drawn form the foregoing. These are as follows: -

The problems of losses of human capital cannot be confined to those skills and training that are the output of formal processes of education and professional development. There exist in all societies learning processes that create a vast range of skills adapted to specific social and economic patterns. The HIV epidemic is systematically eroding these essential capacities that exist in the population - both of women and of men. These social and economic losses of heterogeneous labour cannot easily be measured by standard economic costing, in part because society does not always attach formal values to these skills. This is especially true of the economic and social contributions of women. It follows that attempts to measure these costs by economists through valuations based on average wages or some other indicator are likely to be significant underestimates of the social and economic value of the losses of human capital that are being experienced. 

Furthermore, once it is accepted that labour is heterogeneous and often highly skilled it follows that there will be no easy adjustment in formal or informal production to the losses of labour caused by the HIV epidemic. The fact that there may appear to be a large pool of unemployed or under-employed labour in a country does not imply that the replacement process will be simple and costless. Quite the opposite seems to be nearer the truth of the matter, thus posing yet more problems for policy in attempting to sustain productive capacity through replacement of losses of human capital. 

Finally it is important to see the issues as systemic - the economic and social system depends on the parts functioning normally and efficiently. The HIV epidemic disrupts this smooth functioning of the economy and of society in ways that lead to a magnification of the initial sources of economic disturbance. For example, a functioning economy depends on the legal system working normally with business dealt with expeditiously, but losses of legal clerks, judges and so on will no longer make this possible. Or to take another example of capitalized commercial agriculture where capital assets, such as tractors and so on, depend on the ready supply of purchased inputs from specialized firms. But losses of skills in these firms will prevent the efficient functioning of commercial farms [so that their costs will be increased and production disrupted].
 

Is there a special problem with losses of Human Capital of those with higher professional training and education?

While evidence on the social class gradient of infection is very partial, and mostly absent for most countries in sub-Saharan Africa, there is some data that supports the argument that HIV infection in the past decade or so did positively correlate with income, educational  level and occupational status. There is also a good deal of partial information from many sources and countries that suggests that the epidemic is systematically eroding the stock of human capital across all sectors in the worst affected countries, with losses proportionately highest for skilled, professional and managerial labour. Thus recent studies of the education and health sectors in a number of countries in SSA point to exceptional and large losses of human resources ? with further losses predicted during the coming decade. The challenges facing many countries in maintaining key social and economic sectors in the face of severe losses of human capital are extremely daunting - and most seem not to have understood the scale of the problems that they face. 

Now past modeling of the effects of the epidemic confirms what is fairly obvious, that the impact on the growth of GDP of the HIV epidemic is greatest where the losses of labour are concentrated amongst those with scarce skills and higher professional and managerial training. In part this reflects the inadequacy of the present stock of those with these capacities in developing countries, such that the losses of Human Capital due to HIV and AIDS will have a major impact on the processes of development. It being long accepted by development professionals that increasing the stock of human capital is essential for development, and that losses of human capacity due to epidemic diseases will impede what countries can achieve in terms of poverty reduction and other development objectives. Indeed the countries in SSA with highest HIV prevalence are already showing sharp reductions in Life Expectancy, and further sharp declines are predicted over the coming decade.

Improving the stock of human capital has been a major objective of developing countries, and of international donors, precisely because of its assumed causal significance in the processes of development. Achieving this objective has absorbed large quantities of both public and private resources ? both national and international in origin. It follows that the erosion of human capital due to HIV and AIDS has not only personal costs for those affected, but also significant social costs in terms of lost output due to morbidity and the premature mortality of those who have been educated and trained at great expense. 

The HIV epidemic not only reduces the stock of those with higher level professional and managerial training and experience but it also reduces the capacity to maintain the flow of those with needed skills and training. There are at least 3 main reasons for this reduction in capacity. 

The most important direct effect comes from the losses of those with appropriate training, experience and education who have the task of maintaining the flow of newly trained labour. This follows from the fact that institutions with training and educational functions are themselves losing staff due to HIV and AIDS so that their capacity to meet demands is reduced [including the need to replace their own staff who become sick and die from HIV?related illnesses and AIDS]. 

It is also the case that significant improvements in the quality of the labour force occurs through on the job training and experience and for various reasons it is likely that this process of enhancement of skills will diminish due to HIV and AIDS , most obviously because of pressure on labour costs of all enterprises due to AIDS, and less obviously because the capacity for on the job training will be diminished by labour losses within the enterprise [due to the turnover of experienced workers due to HIV-related illnesses]. The opportunity to learn by doing and by observing other more experienced workers will simply be eroded by the organization's experience of the epidemic. 

In so far as personal and other savings are reduced through pressure on both incomes/sales/tax revenues and increases in expenditures such as health, welfare support, and so on, there will be a reduced flow of savings to finance the maintenance of the stock of human capital. Plus a diminished incentive to do so both by the personal, private and public sectors - given that the epidemic will reduce both private and social rates of return on investment in education and training. 
 

How to Respond ? A Proposal Relating to Maintaining the Stock of Human Capital 

It is proposed to undertake in a collaborative way with local institutions in SSA, and ensuring that local capacity is strengthened by the  activities that are supported, a series of applied and action oriented studies. There will also be associated follow-up to ensure that policies and  programmes are developed and implemented that are effective in responding to the epidemic. The objective of these activities is to lead to practical  proposals that inform policies and programmes - it is not to undertake academic and curiosity driven research. The need in SSA is for information and subsequent action that will enable countries to maintain productive capacity in the face of the HIV epidemic. 

This being the over-riding objective - the maintenance of human capital - it is proposed that a multi-stage programme of action be undertaken which will do the following: -
 

Stage 1

Undertake a rapid assessment of the situation in a selected number of high prevalence countries in SSA with respect to the losses of Human Capital, with a concentration on losses of those with higher level professional and managerial skills in both the private and public sectors. To assess the implications of these trends for the functioning of the economic, social and political system ? both in terms of the direct impact on particular productive sectors and on the systemic effects through the inter-dependence of the different parts [eg.how do losses of skilled  labour in transport affect other sectors]. The assessment would also describe and evaluate in broad terms how sectors are responding to the effects  of labour losses, and with what success. The assessment will also review policies at the various levels in regard to issues of maintaining the stock  of human capital and its productive use.

Stage 2

 Undertake a rapid assessment in the selected countries of the effects of HIV and AIDS on the capacity of key tertiary educational and  training institutions. To evaluate the impact of the epidemic on the capacity of such institutions to undertake their main educational and training  activities, given both their current and predicted losses of human resources due to HIV and AIDS. To assess the institutional policies and programmes  of such organizations and to review their effectiveness. To make recommendations as to the policies and programmes that are needed to ensure that these institutions can maintain their capacity, and also serve the changing needs of the country - in part needs will be changing as a consequence of the epidemic which will affect the supply and demand conditions facing such organizations. 

Stage 3

 In the light of the reports and conclusions of Stages 1 and 2 to develop appropriate policies and programmes for addressing the key findings.  To assist Governments and others, through the strengthening of their policy and programme capacity, in the implementation of such policies  and programmes, and to assist with monitoring and evaluation of activities that are undertaken. To develop mechanisms for the dissemination of lessons learned to other countries in the region, and to support proposals for the extension of policies and programmes that are proven to be effective to these countries. 

 Conclusions

The losses of Human Capital will not be confined to those with the greatest level of education and training so that the costs of the epidemic  will be much greater than those normally estimated by economists. Since the system requires many levels and types of skills and capacities -  both of men and women - it becomes even more necessary to ensure that mechanisms are strengthened for ensuring that the mix of skills etc. that  are needed for development are in place. This is the policy problem ? to ensure that skills are created as appropriate and labour supplies as far as possible maintained as these are eroded by the HIV epidemic. The problem is compounded by the fact that the epidemic systematically  erodes the capacity to achieve these objectives, at precisely the time that labour supplies are most threatened. This is the challenge facing developing African economies - one where there is no simple solution. But one where there are actions that can be undertaken to sustain human capital that will over time mitigate the impact on social and economic development in sub-Saharan Africa.

It is becoming clearer by the day that the actions that are needed to sustain development entail a radical break with the past. It is cannot be business as usual but rather a re-thinking of policies in many areas of development. Thus in matters relating to Human Capital what are  needed are policies and programmes that re-consider current policies and adapt these to the new reality of a world characterized by AIDS. To give a few examples: -

The objectives of the education system need to be revisited and redefined with new tasks set for formal educational organizations that reflect the changing needs of the economy; it will mean more inclusive and less hierarchical systems with fewer resources for higher education and more for primary and secondary schooling. 

Similarly with Health where losses of key human resources due to the epidemic that are as high as 40% of staff in the worst affected countries will have to lead to a redefinition of attainable tasks, together with a realignment of health training that matches a new set of health objectives and different mechanisms of delivery. 

In terms of rural development it is clear that traditional systems of social learning that passes skills and knowledge from generation to generation is no longer feasible because of the increasing mortality of parents in their prime working ages. In this case there will have to be established alternative ways of ensuring that skills are made available to children and widows together with the resources to enable production to be maintained. The existing gendered distribution of skills and tasks no longer make sense in the new conditions and have to be changed. 

New technologies need to be developed that will substitute for the increasing scarcity of labour -  both the skilled and professional and the supposedly"unskilled". So the search for more appropriate technology will need to go ahead as a planned activity rather than be left entirely to the endogenous forces of very imperfect product and capital markets. 

With the search for appropriate technologies will have to be a redefining of the output objectives of the country ? to ensure that key services and outputs are maintained and that access is ensured for all those in need. In other words re-examining development goals and ensuring that these reflect the objective of sustainable development. 
 

Des Cohen, HIV and Development Programme, UNDP, May 2000

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