The mysteries of human capital

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To most people, capital means a bank account, a hundred shares of IBM stock, assembly lines, or steel plants. These are all forms of capital in the sense that they are assets that yield income when employed with human labor to create useful commodities.

But such tangible forms of capital are not the only type of capital. Education, specialized experience, physical gifts, natural talent, expenditures on medical care, and even attending lectures on effective organizational skills, punctuality, or on the virtues of simplicity, honesty, community, loyalty/solidarity, and conflict resolution, are also capital. That is because they have the potential, when appropriately applied, to make labor more creative and effective, improve health, or add to a person's good habits over much of his lifetime. Therefore, such expenditures are considered investments in human capital because people cannot be separated, cannot be alienated (to use Karl Marx's term), from it in the way they can be naturally separated from their financial and physical assets, or products.

Human capital is typically undervalued. (If the "investors" were all private, perhaps not.) However, a giant slice of the "investment" in human capital is public, or public-funded education and health care. We can count up the line items in a city, state or federal budget and get a COST of these investments. But because they are public goods, they have no market price that can denote VALUE. Some public investments typically dependent on degrees of corruption are "bridges to nowhere" and may be said to have a negative VALUE. But most public investments generate many times their cost in economic value over a long period of time.

Human capital is not as fungible (mutually interchangeable) as cash, nor as durable or secure as a drill press investment.

Suppose you were to propose to your employer:

"In addition to my salary, I believe I am owed, or, my parents, or, my country (as my investor) is owed, a return on the investment in my human capital, in exchange for your using it, and for my commitment to take proportional ownership and responsibility for the mission in which it is employed."

The employer responds:

"Investment gets no collateral, and assumes the risk of failure."

You reply:

"I understand that invested capital must be subject to a risk. So, I will take stock, please, in exchange -- vested appropriately, of course, but not unilaterally subject to dilution. You pay for other capital inputs with cash or stock. Why not human capital?" 

Your employer argues:  

"Human capital, like other intangibles, is too squishy and transitory to get any more than the standard labor market is prepared to spend in salary."

"OK," you say. "Agreed. Squishiness should deserve some depreciation perhaps. But, like other capital inputs, human capital requires maintenance, renewal, and even reproduction and re-investment! Salaries are not keeping up with those needs. Yes, the worker can walk out the door with his human capital. The big drill press cannot. But while you got the human capital --- as serious stakeholders -- they are deployed and motivated too. There should be a return!! There needs to be a law!"  

The boss calls the cops! All the human capital files suit for a fair share of the returns.

Photo: Walmart employee wraps cardboard boxes to be recycled. Walmart uses taxpayers to underwrite their operations instead of investing in human capital. The multi-billion dollar corporation pays low wages, forcing employees to apply for public assistance like food stamps and Medicaid. (CC)

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  • Great article thanks

    Posted by Beth Edelman, 04/09/2014 10:05pm (6 months ago)

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