Human Capital

WE USUALLY THINK OF CAPITAL as money that is kept in banks, invested in shares or stocks, or concretely represented by material goods such as a car, a house, or industrial infrastructures. However, investing in training courses, education, and healthcare can be equally productive forms of investment to relieve poverty.

The expected returns of such investments can be higher salaries and the improvement of medical care. These, then, are all investments in human capital, usually described as the most valuable yet elusive of assets. Human capital constantly reevaluates itself as knowledge increases with practice. It is also easily transferable across individuals and national boundaries. Chicago School economist and Nobel Prize laureate Gary Becker was one of the first to theorize the existence of human capital in his eponymous 1964 study. Becker compared human capital to “physical means of production,” such as factories and machines. Of course human capital cannot completely replace land, labor, or capital, but it can substitute for them to a certain extent.

The exponential growth of Asian economies in the 1980s and 1990s is a clear example of the way human capital can create wealth and fight poverty. Although Japan and Taiwan lack natural resources and import almost all their energy from abroad, these countries grew rapidly by relying on a well-trained, educated, hardworking, and conscientious labor force that made excellent use of modern technologies.

Studies have shown that training and education can substantially improve people's salaries. In addition, in developing countries, these can be means to make their citizens the protagonists of their countries’ development. Investments in human capital could be a first step to shifting from a mere “assistentialist” model, where developing countries are dependent on industrialized nations not only for financial help but also for professional know-how, to one that could enable a more independent development.

Healthcare programs also play an important part in human capital investments. Scholars have argued that the health of a population matters greatly. A healthy person not only works more efficiently but can also devote more time to productive activities. Microeconomic evidence suggests that, like education, health can produce variations in wages. Macroeconomic research has pointed out that health capital positively influences aggregate output. David Bloom and Jaypee Sevilla have demonstrated that up to one-third of annual Gross Domestic Product (GDP) growth can be attributed to health capital, and an increase in life expectancy of one year is associated with an increase in the long-run growth rate of up to four percentage points in both developing and industrial countries. Good health also promotes better education.

While Asian countries have reduced poverty through economic growth, African countries have made uneven progress and are still vulnerable to pandemic diseases, including HIV/AIDS. Healthcare projects that can upgrade human capital are imperative. Corruption still plagues the provision of services associated with the improvement of human capital, and policymakers have pointed out that increasing public spending cannot always be the best of solutions if it is not accompanied by increased levels of efficiency and renewed labor policies. For example, human capital investments in education should also be paralleled by an increased demand for skilled labor. Investments in human capital are vital for the development of the poorer regions of sub-Saharan Africa.

...