Human Capital in 21st Century

By: Bikal Dhungel 

The Encyclopaedia Britannica defines Human Capital as follows: “intangible collective resources possessed by individuals and groups within a given population. These resources include all the knowledge, talents, skills, abilities, experience, intelligence, training, judgement, and wisdom possessed individually and collectively, the cumulative total of which represents a form of wealth available to nations and organizations to accomplish their goals “. Simplified, it means your capabilities through which you earn money. The human capital can be categorized into three main sources: health, education and nutrition because they are the origin of abilities and skills.

Human Capital in the form of Health can lead to many other aspects. Healthier people can learn better and efficient. When you are not healthy, your focus goes on your health, you spend your time to cure your health and you miss the time to acquire skills. They say health is wealth because better health would generate better income. Health is then related to Nutrition. When you supply your body with better nutrition with vitamins and minerals, you are likely to be healthier. When we fall short of nutrition, when better nutrition is not available for whatever reason, it will impede our health and as a result you will be unable to participate in economic life and fail to generate income. The vivid picture of some poorest countries gives us feeling how this actually is. Mal-Nutrition is a terrible problem which leads to poor health, worse learning ability and the poor will continue to remain in poverty trap. One can see this by indicators like Life Expectancy. Countries like Central African Republic have life expectancy of less than 40 whereas Japan has more than double this number. As Life expectancy is related to better health, better healthcare system, better nutrition, it is an indicator of wealth. That is why, countries with highest life expectancy are also the richest. Their richness in turn help them to maintain better health because they can afford better foods, healthcare etc. I have written a separate article about it called “Wealth is Health “in the blog.

Second factor that is related to Human Capital is education. Education means you are acquiring skills, so that you can later use your skills to earn an income. Without education, the wage rate will be very low as you can only employ your raw labour and with every additional year of education, your wage increases. The returns to human capital can also be measured by looking at people’s wages. Data shows that in both developing and developed countries, school enrollment is increasing and few countries have already achieved a 100% enrollment rate. Especially the education for girls have helped to reduce the wage gap, to empower the women and have gave them more freedom and the power of self-determination. No time in history were women more empowered than today. Still, we should not forget that there are countless countries where women are still kept backward based on cultural and religious grounds. The education of today is also not like in the past. We have employed modern day technologies in the curriculum. A child cannot learn from copies and books alone. Today, multimedia technologies like Computers, Projectors and other advanced tools are used to educate people. Also the total number of years of education has increased. People no more leave school with 16. They can go further to the University for higher education and highly specialize in a field. University enrollment in high and middle income countries has crossed the 40% threshold. Also in developing countries it is increasing.

So, these three things, Nutrition, Health and Education are the prime drivers of Human Capital. But the question is, is it enough ? Are there other factors that play a role so that people can achieve their best ? Indeed, there are. To start a discussion, we have to go bit further than human capital itself.

The problem is not knowing what drives human capital, but by ensuring how we can employ these factors. Large number of people especially in developing countries do not have any access to healthcare. If healthcare is available, it is only within the reach of wealthy. Poor are deprived of it. Though we have achieved a lot in health issues, the way forward is more complex and still billions of talented minds just go wasted. The similar story goes for education. We have increased the number of school enrollment but just knowing how to read and write is not enough, there should be specialized knowledge to make living from that. To provide education, there are many financial constraints, there is less political will to make health and education policy accountable, health infra-structures are missing and many other problems remain. As long as the bottlenecks are not resolved, the likelihood of technological advances in the future will be less. We can see the characteristics of countries that score highest in Human Capital Index. These countries are mostly northern and western European countries with some small east Asian nations like Singapore, Hong Kong and South Korea. What they have is 1) Universal education system that is compulsory, 2) Free education at any level, 3) Universal Healthcare System, 4) Fantastic social security system 5) Just tax system to finance public expenditures 6) Training and Specialization schemes for those who choose not to enter the university. They are basic policies but the impacts are huge. Private firms in the economy train the workforce through Trainee Schemes and Internships. People specialize in tiny things and when these skills are accumulated and combined, great technologies come out. After everyone has basic education, they must not posses knowledge about everything. In the western world at least, little specialization has driven economic growth. For example, the tribes in Amazon Rain Forest are among the people with most skills. They can survive without cloths in the jungle, can hunt their foods, know how to deal with wild animals, and how to make foods in any situation. These people have probably more skills than a young person in London who would starve to death if he goes to Amazon Rain Forest. The cloths he is wearing was not made by him, neither the computer he uses but somebody in the society he lives knows how to make it. How to sew cloths and how to make computers, and they are produced in mass scale. This allows him not to care how to do things rather concentrate on what he can do better. 

The whole computer was not invented by one single person. Visual techniques was invented by one person, another invented microchips, another one wiring, yet another one the mouse and the rest. Combined, it makes a computer. Hence, the source of success is the network and cooperation between these little inventors. The more inventors there are, and the more they cooperate, there will be better finished products. The problem of developing countries is that there are too few inventors. There might be somebody who has an idea how to make wires, but nobody who knows how to connect it with other appliances. So, this fails to generate a result.

In the field of economics, Adam Smith first published his book ' An inquiry to the Wealth of Nations ' in 1776. In subsequent years, his theory was used by others to find other things. For example Milton Friedman contributed a lot about monetary economics. Another one spent his life on institutions, another on ideas, another on development economics, another on economic psychology etc. Combining all these ideas, we understand human decision making processes better. We also understand the dynamics of poverty and development better. The findings by thousands of other researchers have added in our knowledge which helps us to understand things better. So we have a large stock of knowledge. Once we know this, this becomes our human capital and we try to contribute our part in it. The privilege we enjoy today can be attributed to many such people who spent time to give us skills, knowledge and know hows. The challenges of 21^st century is only how to disseminate these knowledge, how to spread these knowledge to everybody so that we all profit from it. The world bank and other public institutions have continually campaigned for knowledge as a common good and this is why the research data and other world bank publications has also been made available to the public since recently. The role of national governments should be to provide the infrastructure for learning apart from basic education. It is cost efficient to provide information technology for free which empowers the citizen in many ways. They should also focus on global learning based on best practices instead of presenting narrow nationalistic views. However, everything cannot be applied one to one in any situation. Global practices might need to be refined, modified to better suit in local conditions. Governments should also focus on relaxing the bottlenecks of development in cultural and traditional areas. We see that culture is in fact one of the hindrances of development and it is very difficult and politically unpopular to change cultural values. But there must be a start.

To conclude everything, human capital in 21^st century is not mere education, nutrition and health, it is specialized knowledge, networks of people, it is learning infrastructures, it is a global network etc and to make this happen, institutional changes, infra-structural supports, better policies and incentives to learn and specialize is needed.