Human Capital

Human-Resource Capitalism

The concept of human capital stems from the economic model of human-resource capitalism, which emphasizes the relationship between improved productivity or performance and the need for continuous and long-term investments in the development of human resources. This model can be applied on a broad scale where investments in human capital are viewed as affecting national and global economic performance, or more narrowly, where investments in people are viewed as crucial to organization performance. This differs from a more traditional and instrumental approach where human resources are primarily seen as a cost to be contained beyond immediate and short-term needs. This short-term view often addresses change or poor performance by seeking government intervention to offset competition, and by [Page 420]using cutback methods for keeping wages down, contracting out, and automating jobs.

A human-resource capitalism model argues that the principal source of productive capacity, whether in an economy or organization, rests in the capacity of people. Therefore, strategies need to be developed to capitalize on the potential of this resource by developing learning systems that will cause the capacity of human capital to grow into the future. For a national economy, this may entail reforming educational institutions to ensure the provision of a quality workforce that fits the needs of industry for high economic productivity and the maintenance or improvement of the national quality of life. For an organization, this model suggests that high productivity and performance depend on developing learning systems that reflect the commitment of an organization to its human resources. As a result, ongoing investments in training, skill development, and job enrichment (versus expansion) engender a reciprocal commitment among members to organizational goals and objectives.

This represents a shift in thinking away from the notion that human resources are to be consumed, as are other nonhuman resources, and that members of an organization need to be controlled to ensure compliance with organization norms. Instead, human resources are to be nurtured to arrive at a mutual commitment where tangible investments by the organization are favored and then reciprocated by its members with higher levels of performance. Human-resource capitalism recognizes that the key factors of performance depend on having an adequate supply of high-quality human resources, management strategies that emphasize quality and productivity, and patterns of work organization that foster both of these goals. The emphasis on human capitalism in an organization goes beyond recruiting and compensating the highest-qualified people possible, by investing in their development heavily, managing them wisely, and ultimately, retaining them for the long term.

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