Human and social capital and pathways to prosperity

Tom Aedy picks an article by Michael Milken in the FT and focuses on the importance of human capital in a competitive global economy - Milken calls this the world’s most valuable asset.

“The macro view sees the 21st century defined by global competition for the world’s most valuable asset, human capital. Nations build this by strengthening education, healthcare, access to scientific knowledge, opportunities for women and incentives that attract skilled immigrants”

What is human capital? It can be seen as the quality of labour: one of four factors of production. It is not a question of the quantity of labour, but rather the skills that a worker can bring, and is thus another way of saying productivity (although an important part of human capital may the flexibility to adapt to new jobs - so the two are not quite so similar).

Continually improving human capital is vital for economic growth, and Milken points out that China’s continuing and projected prosperity is derived, in large part, by an evolving middle class driven by a “continuous focus on education”. He goes on to demonstrate the importance of education by comparing Singapore and Jamaica: both former British colonies, with populations of 1.6m and a similar GDP/capita ($2,200, roughly). Whilst Jamaica chose invest its resources in the agricultural and mining industries (along with tourism) Singapore chose a different route. It focused on the importance of education and developed advanced technology. The two outcomes, in terms of prosperity and standard of living, show which route was best. Today Singapore’s GDP per capita is over seven times the level of Jamaica’s.