Human Capital Formation and Development
Abstract
This
paper concentrates to see the relationship between the human capital and
development reviewing papers around the concern. The emphasis on human capital is gearing development addressing multiple areas of concerns. It
is reported that the areas which were left behind by early developmental
practices like: inclusions, social
ownership, conflicts, environmental issue and social transformations are better addressed by human capital development approach. On contrary, human
capital is often reported fluid and can migrate based upon the labor needs, job
satisfaction, country's policy, geographical proximity, and culture, create challenges to the development. Developed economies have identified the
challenges and are investing more to retain skill and continually update
workforce in their countries. The lessons from the past recessions have been captured
in the new policies. In turn the human capital and development is also
contingent to politics making negative or positive impacts on development.
Keywords: Human capital, Development,
Education and Trainings, Economy, Labor.
I like to start the paper from a
sharing from 'The Economist's' quote, which immensely talks about the
development achieved by China, sooner I will turn to the human capital study
revealing the changes in between 1955-99 (in China)by Wang and Yao (2001), a
study by World Bank and will couple this information with other studies.
The
Economist (2001, p. 23, March 10) writes,
“Ask what has been the most stunning economic event of
the past century, and many people might cite the case of China in the two
decades since it opened up. In that time the economy has grown more than
fivefold, incomes have quadrupled, and 270m Chinese have been lifted out of
absolute poverty. Yet with a couple more decades’ hindsight, that achievement
might be superseded by what may now be about to happen in the world’s most
populous country. ……The coming two decades, on the other hand, offer the
possibility of an even more extraordinary pace of economic change.”
Wang
and Yao ( 2001) reports China’s performance in economic growth and poverty
reduction has been remarkable and is an on-going debate about whether this
growth is mainly driven by productivity or factor accumulation. The two author has tried to explore the
whether the human capital stock during 1952-1999, has accounted the growth. The
study from the two senior consultants to World Bank reveals the human capital
in fact has contributed very positively to the growth of China. In the
discussion, human capitalization is reported always positive to development at
the mean time the study also reports the human accumulation (population)
remained problem to china during reform period, 1952-1977. But moving ahead of
the time means 1978-1999, the human accumulation were gradually converted to
the human skill, the paper even takes about the processes within it. “After
incorporating human capital, the growth of total factor productivity still
plays a positive and significant role during the reform period 1978-1999” (ibid.).
The study establishes, “A higher educational attainment indicates higher
quality of workers” (ibid. p. 7 para.4). The scholars have collected data from
variety of means and are cautious to define the reason of rapid development of
China. On previous exercise on the developing human capital, they have even
brought the history. Quoting the different survey, the study reports around 70%
of China’s population were without formal schooling after World War II
(1937-1945) and the civil war (1945-1949). In the 1950s, there was a widespread
movement to eradicate illiteracy. In the 1960s, the implementation of an
obligatory/mandatory nine-year education policy began. The 1960 policy for
compulsion schooling though not materialized to rural areas but was able to
produce required human capital for developing new China. The march remained
continued and China at present has a good human capital, contributing to the
development. Scholars make inferences from the data that a good number of
people accumulation including human capital is moving away from China, ‘The
recent declining rate of human capital accumulation is a matter of concern, if
China is to sustain its growth and welfare improvement in the next decade,
reports Wang and Yao (2001). The article has clearly messaged human capital
accumulation can lead to accelerated development even in a challenging condition.
The replacement of physical capital
accumulation by human capital accumulation as the prime engine of economic
growth has changed the qualitative impact of inequality on the process of
development. The physical capital role in development not merely stood positive
in all directions. Galor (2011) reports in early stages of industrialization,
as physical capital accumulation was a prime source of economic growth,
inequality was enhanced but it still enhanced the process of development by
channeling resources towards individuals whose marginal propensity to save is
higher (p. 1). In later stages of development, however, as human capital has
become the main engine of economic growth, a more equal distribution of income,
in the presence of credit constraints, has stimulated investment in human
capital and economic growth. This indicates that the human capital development
not only relatively accelerated development only but also supported for equal
distribution of the development to different cluster of the society.
While Wang & Yao (2001) warns China to
check the movement of human capital to retain development growth; Beine,
Docquier, & Rapoport (2001) writes on the evidences of brain drain its
impact on economic growth, comparing the theory and the practices. At the end
of the day, the scholars have developed the model and calculated the impacts of
migrations on human capital formation and growth in the source country of
migrants of developing world. According to their model, The first impact,
is that migration opportunities foster
investments in education since it is awarded a higher expected return when the economy is opened to
migrations; The second impact, undoubtedly detrimental but which should not be
the sole consideration, is due to the departure of some, if not all educated
agents. They evaluate the sign of the total impact depends on which effect
dominates. At the theoretical level, they have derived the conditions for a
Beneficial Brain Drain (BBD) to be observed. Their model show a BBD is likely
to occur in two cases:
a.
When
the economy is originally closed to an underdevelopment trap and that migration
probabilities are not too high, and
b.
When
the economy already exhibits a relatively high growth performance and that
migration probabilities take intermediate values (ibid.).
Both
of the probabilities concern that the economic benefits remains high when the
brains are retained in the country. The scholars have deployed the entire
article to see the impacts of different drivers initiating the migration. The
summary with the article articulates with the concern that higher economy can
retain the brains or the economy closed to underdevelopment trap can retain the
brain and thereby making positive change in the economy of the developing
country.
A study commissioned by European Union, and
conducted by Fuente & Ciccone (2002) expands the scope of human capital
wider to the economic development. It has clearly marked the link in between
the knowledge economy and human capital. It evaluates an increase in human
capital contributes to widen the social capital thereby easing to address
different social challenges. The study team evaluate if, societies are marked by a high level of mutual trust
and cohesion, effective regulation of conflicts of interest, a high degree of
civic mindedness and respect for law and standards of conduct, participation of
individuals in community life and their involvement in public responsibilities,
they will also deliver a higher standard of well-being. These are all possible
with the increased human capital. The report at the end of the research with
much analysis recommends different knowledge and skill undertakings to increase
the livelihood standards of European community. The recommendations include;
...extending education and training to ensure that the technical and
scientific personnel are available to allow new technologies to be developed
and adopted; supporting lifelong learning in order to counter the increasingly
rapid obsolescence of skills in a period of rapid technological change;
improving the basis for accumulation of human capital for scientific research;
since much of this capital derives from research itself, policy should
strengthen the existing link between higher education and private and public
research; concentrating public spending on improving the skills of those from
disadvantaged backgrounds; promoting action to improve educational outcomes,
both by reviewing teaching programmes and methods and by increasing
expenditure, if necessary.
The education and training is a key
to human capital, to create knowledge based economy. The north had identified
and made the policy aligning to knowledge based economy and foster human
capital through education and trainings.
A discussion paper
series edited by Cervallati and Sunde (2002) tries to find the relationship in
between human capital formation, life expectancy and process of economic
development. The paper argues that the idea that human capital is a central
factor of production and at the same time helps to improve the longevity and
productivity of future generations. In turn, individuals make their decisions
concerning human capital acquisition by taking their life expectancy as well as
the economic environment into account. At the individual level, becoming educated
is costly in terms of time, which induces a complementarity between the returns
to human capital and the remaining lifetime available to enjoy those returns.
Human capital-driven technological progress reinforces this complementarity.
This leads to a potential virtuous circle. The paper to its summary concludes
that;
This paper provides a unified theory of the transition in income, life
expectancy, education and population, experienced by the Western world when
passing from an environment of economic stagnation to sustained growth. The
transition is based on the interplay between human capital formation,
technological progress, and life expectancy. A positive feedback between human
capital accumulation and longevity is eventually triggered when endogenous skill-biased
technological progress provides sufficiently high returns to human capital for large
fractions of the population to outweigh the costs in terms of lifetime spent on
education. (Abstract, ibid.)
This type of study
brings a greater hope in the global transition where, some parts of the world
still are striving for basic needs. The human capital fostering knowledge
economy and people life expectancy and again creating a positive loop would
definitely create more sustainable future.
The increasing human
capital formation and driving knowledge based economy has been accepted as an
upcoming practice by most of the countries. Professor Diamond (2008), the execuitive
of The Economic and Social Research Council evaluates governments all over the
world want their countries to have high skill economies and are in the
direction to have a well-educated workforce. Some Europeans have made a policy
address, appreciating the connection between economic success and education and
has widened the participation of University, as well as lifelong learning. Diamond
(2008) takes quotes of Prime Minister Gordon Brown, "already our Asian
rivals are competing not just in low-skilled manufacturing, but in high-tech
products and services. Once, we worried about a global arms race. The challenge
this century is a global skills race and that is why we need to push ahead
faster with our reforms to extend education opportunities for all". This
manifests the north concern of increasing skill as to compete with south; and
economy is being driven by the knowledge over early convention of materials and
production. The study by the council (2008) has clearly marked a positive
correlation in between education and economy. A comparative graph from their
study substantiates it.
Source: Source: Economic and Social Research Council (2008),
London.
This shows the
globalization of high skill. One can clearly mark the reasons of prompt
recovery of recession across USA and non-stooping economic growth in BRIC
economy. Further the delayed addressed to recession in UK and France can be
linked to above graph. This is legible comparison that evidence that high skill
are important component for sustained economy.
Human capital and
knowledge economy role for development is an established theory. Furthering the
scholars are now attentive on distinguishing different of form of human capital
and the relative impacts it makes to the different facets of development.
Iversen and Stephen (2008) note that there are different forms of human capital
formation across different advanced democracies. In their research, they evaluate the politics
is also determinant for influencing the type of human capital formation.
Looking human capital formation from power resources theory and welfare
production regime theory they see three different worlds of human capital;
one
characterized by redistribution and heavy investment in public education and industry-specific
and occupation-specific vocational skills; one characterized by high social
insurance and vocational training in firm-specific and industry specific skills
but less spending on public education; and one characterized by heavy private investment
in general skills but modest spending on public education and redistribution (ibid.).
All three human capital
developments have increased investments on education and training, but there is
a relative difference within the education and training sector. Pose and Bufi
(2005) were early to Iversen and Stephen (2008) marks 'the market' equally
important in defining the need of human capital. Definitely education stock was
important for the development and economy but it was not alone the most
important to perform, job satisfaction and control migration. Working entirely
with the secondary data of European Community the scholars conclude that the
factors such as the matching of educational supply and local labor needs, job
satisfaction, and migration may have a stronger connection to economic
performance than the traditional measures of educational stock (ibid.). This is
quite simple; the human capital in turns would also have reciprocal effects of
the other economic and social actions. The authors even claim the same to be
the reason for the regional disparities; it has challenges in the EU-counterpart
has its root of not understanding this interactions and effects (ibid.). The
concern of migration of skills has heavy impacts on the economy, and
development. Boschma, Erikson & Lindgren (2008) evaluates this drive is not
only the result of economy and others but is also because of geographical
proximity.
Conclusion
All articles reviewed put emphasis on human capital gearing development
across the world, in addition it even has been able to address other social
challenges; inclusions, social ownerships promotes social capital, transforming
for the change in the society. But on process this has also generated some
challenges, viz. agriculture. Economic policy and condition of a country is
determinant for migration. So countries have to be cautious defining the policies
as well as creating migration trap for brains to accelerate the
development. Europeans have increased
the investment on education and training to compete in developing world. The
concern of human capital approach for development becomes more relevant with
some of the literature which finds a positive interlink in between human
capital development and life expectancy in addition to economic development.
These interlinks of the human capital have compelled countries like UK to have
policy and Universities to produce skill human workforce and continually update
all for new innovative programs. This does not merely mean that human capital
is a magic wand to heal all development challenges rather it is also affected
by several others; especially the labor needs, job satisfaction, migration,
etc. Further the factor like migration is even linked with geographical
proximity. Human capital is an important asset for sustainable economic growth
and development and is equally contingent to various economic and social action
and actors; in addition the politics and geography also shape the outputs of
the human capital and development.
References
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Parbat Dhungana
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