THE BLOG

Capitalizing on Human Capital

01/21/2014 06:29 pm ET | Updated Mar 23, 2014
  • David E. Bloom Clarence James Gamble Professor of Economics and Demography, Harvard School of Public Health
  • Saadia Zahidi Senior Director and Head of Gender Parity and Human Capital at the World Economic Forum
  • Ciara Browne Associate Director, World Economic Forum

Imagine a country with large mineral deposits. Government and business would naturally seek to create an environment within which those deposits can be extracted and refined to generate returns, ideally for many. Let's extend that analogy to people. What are the key investments that need to go into generating and deploying talent? Health and education are imperative. And how can that talent generate returns in the marketplace? Employment and a salutary, enabling environment are critical.

Scholars call such talent human capital. And human capital, like any other resource endowment, will generate returns in the right settings -- and otherwise lie dormant.

Common sense, theory and evidence all point to the importance of human capital as being among the most powerful long-term determinants of economic growth and wellbeing. Developing and deploying human capital efficiently is thus the core of good economic and social policies.

We know what doesn't work. Policies and social mores that discriminate against girls and women, racial and ethnic minorities or older workers -- that diminish the value of human capital, provide disincentives for its accumulation and thwart natural processes of economic growth and development.

We also know what works, namely policies that expand access to education at all levels, that promote educational quality and relevance and that lead to continuing investments in workers' skills. It also involves policies that encourage efficient and enduring matches between workers and jobs. And it involves policies that spur healthy behaviours and that develop health systems that protect us from diseases that can be avoided and provide early and effective treatments for those that cannot. Although the design and implementation of such policies is costly, those costs pale in comparison to the costs of inaction.

But in most countries, policies and norms across the key areas of human capital are often at cross-purposes with each other. Policymakers routinely miss an important point: that human capital development depends on a series of interventions across a person's lifetime in the areas of health, education and employment. And businesses, as a key consumer of human capital, often do not see their own role in human capital development clearly.

As the renowned physicist Freeman Dyson once said, "There is great satisfaction in building good tools for others to use." In this spirit, the World Economic Forum's Human Capital Report 2013 provides a tool that policymakers, business leaders and others can use to objectively benchmark their stocks of human capital and identify opportunities for improvement.

The tool takes account of 51 country-level indicators of human capital, which it rolls up into a single summary measure: the Human Capital Index. The Index points to the need to approach development as a complex challenge that calls for human capital policies whose coherence and effectiveness demands collaboration across multiple government departments, including finance, planning, education, labor, health, and women's issues. It also highlights the need for public-private cooperation in developing the unique human capital profile of each country and realizing its potential. Above all, the Index is evidence-based and transparent, helping to take development policy out of the shadows.

Whether or not one chooses to rely on the World Economic Forum's data and new index, the indisputable reality is that human capital is fundamental to the process of economic growth and development, as both an indicator and an instrument. And unlike some other influences on economic wellbeing, like geography and natural resource endowments, human capital is not fixed and will respond positively to the will of political leaders intent on improving the welfare of their constituents.

In relation to the overarching human capital theme, the World Economic Forum's Global Agenda Council on Education and Skills is launching Education and Skills 2.0: New Targets and Innovative Approaches this week at the Annual Meeting 2014 in Davos. The book provides the latest thinking on the importance of education, with a special emphasis on the education-skills nexus. It does this by taking us on a journey through the life cycle of learning, beginning with the earliest days of life, then formal schooling at primary, secondary and tertiary levels, the transition from school to career and finally on to mature workers -- who may want to acquire new skills or to stay working longer in response to greater longevity and population aging.

Education and Skills 2.0: New Targets and Innovative Approaches is the product of collaboration among a number of Global Agenda Councils, including the Global Agenda Councils on Africa, Pakistan and Japan, as well as the Council on Youth Unemployment and the Council on Population Growth.

This post is part of a series produced by The Huffington Post and The World Economic Forum to mark the Forum's Annual Meeting 2014 (in Davos-Klosters, Switzerland, Jan. 22-25). Read all the posts in the series here.