Human capital: development, basic principles, theory and problems

Human capital (HC) is a combination of knowledge and skills that are used to meet the needs of a person and society. This term has been used since 1961 thanks to the American economist Theodor Schulz. His followers developed this topic by describing factors, methods and other features of the development of human capital.

The history of the issue

In the scientific literature, information on the development of human capital began to appear actively in the second half of the twentieth century. This term and the fundamentals of the theory were introduced by economists Theodor Schulz and Harry Becker, for which they subsequently received the Nobel Prize. The emergence of the theory of human capital was a kind of response to private economic theories about the need for a real economy. The role of man and his potential in society was not fully revealed. Through in-depth analysis of economic processes, human capital was identified as the main factor in the development of society.

Over a long period of time, understanding of human capital was limited by the knowledge and skills of a person, and was also considered exclusively a social category. Any investment in a person (for example, in education) was considered unproductive. Towards the end of the twentieth century, attitudes toward this category have changed. According to Fisher, human capital embodies the ability of a person to generate income.

Having studied the experience of advanced countries, Simon Kuznets came to the conclusion that the accumulated human capital is the main condition for the development of the economy. And the economist Edward Denison focused not only on the quantity, but also on the quality of human resources (namely, the importance of education). Over time, the importance of the health, emotional state, material well-being of employees and other factors was described.

The modern theory of human capital

Based on many years of research, a definite theory of human capital has developed. It can be briefly described by the following provisions:

• during life acquires and accumulates knowledge, skills and abilities, applying them in various fields;
• the growth of material well-being affects the interest in the further development of human capital;
• in order to increase labor productivity and increase economic efficiency, it is advisable to use human knowledge, skills;
• abandonment of current needs in favor of the formation of labor potential leads to an increase in the level of welfare in the future;
• Motivation and stimulation - these are the necessary conditions for the acquisition and accumulation of knowledge, skills.

How human capital is formed

If we consider the formation of human capital on the example of a single person, we can conclude that on average this process takes 15-25 years. As a rule, it begins in 3-4 years. At this point, the child already has enough information to start the development of talents and the acquisition of knowledge. Of course, you should not write off the innate potential. Further self-determination and self-realization depends on how successful learning in childhood will be.

The most significant in terms of personal development is considered the period from 13 to 23 years (approximately). At this time, the most active general, creative and professional training takes place. The higher the level of accumulated knowledge, the more significant are the opportunities in terms of increasing one's own well-being and improving the life of society as a whole.

Types of Human Capital

There are several types of human capital. Namely:

• General - all knowledge and skills, regardless of the sources of acquisition and ways of application.
• Specific - special knowledge and skills of practical value.
• Positive - accumulated human capital, providing a positive return on investment.
• Negative (or passive) - human capital that does not give positive returns.

ChK structure

The development of human capital takes place in several directions. Its structure is given in the table:

ChC development factors

Researchers identify several groups of factors in the development of human capital. They are described in the table.

Human Capital Management Principles

Human capital management is based on some fundamental principles. Namely:

• Consideration of human capital as an asset requiring investment, and not as a liability requiring costs.
• The coincidence of the business model of the enterprise with the strategy of human capital development.
• Application of new methods, approaches and technologies in matters of human capital management.
• A balanced approach to motivating and stimulating the workforce.
• Targeting investments in the formation of human capital.
• The regularity of quantitative and qualitative assessment of human capital.
• Scientific validity of events.

Human Capital Development Index

In different countries, the situation in the field of human resource development is not the same. To conduct a comparative analysis helps an indicator such as the human capital index. It is annually calculated and published by the analytical department of the World Economic Forum together with specialists from Harvard University and an authoritative consulting company.

To evaluate how the development of human capital in a given country takes place (a total of 122 economies are analyzed), grades from 0 to 100 are set. The score is set as a result of evaluating several parameters, namely:

• income (expressed in gross domestic product per capita);
• education (calculated on the basis of the level of literacy among the population, the share of students of children and youth);
• longevity.

As of 2017, Finland and Norway became the leaders in the human capital development index. In the tail of the ranking are Senegal, Mauritania and Yemen. Russia is 51st in this list.

Cheka development measures

The level of development of human capital in a given country largely depends on the efforts of the government. Here are the most popular measures common in the world:

• ensuring the availability of housing (as a rule, we are talking about favorable conditions for mortgage lending, as well as creating conditions for the development of the real estate market);
• ensuring the availability of education (both primary, secondary and higher);
• improving the welfare of citizens (in particular, by creating a sufficient number of jobs);
• providing a sense of personal security through the development of affordable insurance programs;
• ensuring the longevity of the population by developing the medical system and ensuring labor safety;
• development of new forms of pension insurance.

Innovative approach to development

Time dictates its conditions, and therefore there is a need for new ways of developing human capital. An innovative approach involves such measures:

• establishing links between educational institutions and the business environment;
• development of new educational services and appropriate methodological support;
• introduction of modern technologies and software into the educational process;
• interstate exchange of innovative methods;
• development of a consulting base.

Features of investments in the Cheka

Studying the problem of human capital development, it is worth paying attention to investments. We are talking about financial investments in education, healthcare, science, social issues and so on. Investments in the Cheka have such key features:

• Efficiency is directly related to life expectancy. The earlier financial injections begin, and the longer the person’s able-bodied age lasts, the greater will be the return.
• They multiply and accumulate, despite the tendency to moral and physical wear and tear.
• As soon as a person loses his ability to work (regardless of the reason), the efficiency of investments decreases sharply.
• If investments in human welfare are associated with illegal activities, they cannot be considered investments in human capital.
• The return on investment does not come immediately, it can be noticeable after 10-20 years.

Features of human capital in Russia

Russia is a huge country, which is characterized by some heterogeneity in issues of opportunities for the population. So, the development of human capital in the Far East, in Siberia or in the southern regions (and so on) will be slightly different. Nevertheless, if we summarize the generalized calculations, the national average will be as follows:

• Life expectancy (based on an assessment of health and actual longevity) is 70.3 years. It is worth noting that this is not the best indicator and is at the level of countries that are characterized by the average development of human capital.
• The literacy rate of the population (based on the number of years that people spend on education) is 15 years. The expected duration of education for future generations tends to decrease and is 12 years. Despite the negative dynamics, these indicators are quite good, typical for countries with a high level of human capital.
• The standard of living (estimated by gross income per capita at purchasing power parity) is $ 23,286 (1,577,000 rubles). Such an indicator is typical for countries in which the development of human capital is at an average level.

Problems of human capital in the domestic space

Are there any problems in the development of human capital in Russia? Of course, besides there are a lot of them. Here are the manifestations of the Cheka crisis that domestic researchers highlight:

• critical situation regarding the financing of science and education, which has a direct negative impact on the quality of research and teaching;
• depreciation of human capital in some areas of the economy, which leads to intellectual unemployment;
• the formation of a surplus of highly qualified personnel in some sectors, which is associated with a reduction in funding;
• a trend towards a decrease in the income level of people with higher education, which becomes the reason for the search for side earnings or a change in profession to a low-skilled one;
• brain drain abroad;
• insufficiency or absence of market-oriented knowledge among the political and economic elite;
• the incompatibility of the qualifications of officials with the new economic and social conditions;
• lack of quality teaching staff;
• socio-psychological tension caused by economic and political instability, as well as a change in the usual behavioral model.