Human Capital Development

Human capital development is the process of investing in people, to increase their academic abilities, skills, and financial potential. As such, human capital can be defined as a person's ability to generate income or wealth for work.

A key tenet of most national employment policies in developed countries is that it is important to invest in human capital with a view to increasing its productivity and potential for generating income. This belief was first put forward by Adam Smith who said "The greatest improvement in the productive powers of labor... seem hitherto to have been the effects of the division of labor."

This article will explore how human capital development helps build societies and economies. It will look at the importance of human capital development from a historical, political, and philosophical perspective. It will also explore the main challenges of human capital development in developing countries.

"The greatest improvement in the productive powers of labor up to this time" is defined by Adam Smith. Adam Smith's seminal works 'Wealth of Nations' and 'The Theory of Moral Sentiments' have been influential in shaping human capital theory today. In the first work, he explores the link between human capital and increased productivity and discusses how an "agricultural revolution" led to a "great improvement" in this area, producing "an immense increase both in quantity and quality".

His second work explores the "divergence of natural humanity and social humanity" and how this leads to an "enormous improvement in the productive powers of labor". Smith argues that both avenues are important in regard to human capital development. By looking at the divergence between natural and social humanity, it is possible to see how they relate to the human capital theory.

"The Wealth of Nations" focuses on class tension, while acknowledging the importance of education for all levels of society from agricultural laborers through to university graduates. Smith claims that education plays a crucial role in helping people climb through different levels and increase their productivity in the labor market. Williams writes that this book is "the most comprehensive statement on human capital development yet written".

The importance of human capital development in developing countries is relatively new, and the concept itself is still being developed. Development scholars such as Ravi Kanbur believe that human capital development could be a way to reduce poverty in developing countries and an important factor in efforts to increase economic growth. He notes that "the emergence of the notion of human capital as an engine for economic growth owes much to the influence of economist Nicholas Bloom".

In his book "Economics", Bloom argues that "human capital represents one of the largest growing productive sectors" and it is important to strengthen this sector because it leads to higher standards of living through growing productivity.

In particular, Bloom believes that human capital development is an important strategy in reducing the levels of global poverty. This area is difficult to address because there are various factors involved in poverty; however, he argues that "growth, especially growth fuelled by human capital formation, is the most effective long-term way of eradicating poverty".

Bloom's key argument is that human capital development helps build a more inclusive society and increases social mobility. By investing more in education and health systems it is possible to promote income growth among poor workers. This can lead to higher levels of economic growth through higher levels of productivity. Bloom stresses that human capital development would be a good way for developing countries to overcome many of the problems they face such as low productivity and high levels of poverty.

Bloom also believes this area is important in terms of technological innovation, which is critical for economic growth. He notes that "the best economic growth in the world has been achieved by small, open economies with a strong emphasis on education and research" and that these countries have had increased levels of technological innovation. For example, he notes that Japan and Germany are two countries that have shown great economic success through their investment in human capital development.

Human capital development is also important in terms of sustainable development goals. Bloom believes that human capital development is necessary for countries in order to close some of the gaps between developed and developing nations. He notes that it is apparent that "the more developed countries have today, the more they need to invest in human capital formation and research and development. And then it's a virtuous circle because countries with more income will invest more in health, education and so on." He also points out that "if you look at where we will be doing business or how we will travel within one or two generations there's no technology available yet. We're still inventing things, we're making discoveries all the time. I think we may be building a self-fulfilling prophecy of the country that takes the lead in technology. That's going to be the winner, that's going to be the country that invests in technology."