We are hearing more and more about ‘human capital’ at the OECD. This is good news. It may sound counter-intuitive. Human and Capital. Man and Machine. Opposites surely, or at least complements, unless you’re in some sort of modernist fantasy?
But the phrase, while not the most literary, does make sense. In the same way as tools, machines or other forms of tangible capital allow us to work and produce things of value, it’s things like skills and knowledge – also known as ‘intangible capital’ – that enable us to make better use of the resources at our disposal and raise our living standards.
At a time when the working-age population is shrinking in most developed countries, it will increasingly be the development and effective use of human capital that will dictate the countries which will be globally competitive.
This is not a new area – a quick search through the OECD’s own back catalogue reveals that the Organisation returns to the subject roughly twice a decade. But it seems as though our understanding of human capital is going through a growth spurt.
Last week saw two OECD releases on the subject. The first was an impressively clear and insightful Survey of Adult Skills, i.e. focussing on individuals. The study shows differences in skill levels between countries, as well as the gaps between the most and least skilled, and between age ranges, within countries.
The study allows us to look at the links between education, skills and work. How much of a premium is there if you are highly-skilled? Does more education mean more skills? Are people using, retaining or increasing their skills during their working life?
Press coverage in the UK, such as Robert Peston’s BBC piece, focused on whether low scores among the young meant that England and Northern Ireland were entering an ever more knowledge-intensive world with lower skills than previous generations. On a more positive note, we appeared to be among the best for using the skills we have.
Certainly I think Deputy Director for Education at the OECD Andreas Schleicher summarises well when he says, “skills are the currency of the 21st Century“.
The second publication was the full launch of a major report on Knowledge-Based Capital – going beyond the individual to look at whole sectors and economies. In some countries, notably the UK, Sweden and the US, firms are already investing more in intangible assets – data, software, intellectual property, skills, networks and knowledge – than in tangible ones. Interestingly, intangible investment has held up throughout the crisis unlike traditional fixed investment.
The report describes how innovation is about much more than research & development. Indeed R&D may be less than a quarter of total intangible capital investment in the UK. Furthermore some ‘new’ sources of productivity, such as the value of organisational capital – the ability of people in firms to work together and act strategically – may have been underestimated to date by as much as half.
This sort of ‘capital’ may be one of the best ways to succeed in a globalised world: it is ‘sticky’ in the sense that it can’t just be shifted to another country.
These issues – skills, knowledge, human capital, intangible assets, organisational behaviour, innovation – can be hard to understand, and differentiate. But they offer important new ways of understanding how our economies function and create prosperity, and they put people at the centre of economic policy-making.