Area Economy

‘Human capital’: The critical issue is who has the power

April 24, 2015
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I was recently sent an article from The New York Times that discussed “human capital” and whether this was the proper term to describe employees and the implications for society. It discussed issues of birth rates, skill levels and the evolution of workers, and raised the issues of slave ownership. It was interesting on a number of fronts.

We use all sorts of labels to describe situations and concepts that are intended to capture an idea so one does not have to explain in detail every time you wish to address the situation. This is what a label does: It simplifies discussions.

As effective as this is, it has unintended consequences, most of which, in my opinion, are negative. One instance where a label was created to imply a negative situation was the term “ObamaCare.” Most people who used the term didn’t understand what it was about but knew it was “bad,” so the label helped to convey all the negatives associated with the program. This idea was minimized when the president turned the tables by using the label in a positive context.

That doesn’t happen often. More frequently, the terms get used and the negative downside is rarely addressed — unless someone writes an article like Paul Krugman’s “People Aren’t Androids.” His New York Times article about “human capital” set off a bit of a stir, receiving multiple responses pro and con — mostly con.

What’s important?

From my perspective, the concept that needs to be considered with the term human capital is the trend that is evolving. In the past, when people could own other people because they were disadvantaged, whether it was social, economic or due to a power imbalance, the “owned” people had no control over their work and what they received for their efforts.

Disregarding for the moment the illegal practices, the normal situation is one in which people sell their services to someone from whom they want something in return, usually money or goods. Commercial markets are where sellers and buyers exchange these commodities. It is characterized as an even give-and-take, but in reality, someone is likely to come out of the negotiations with the better arrangement.

The critical issue is who has the most power and what will those with the lesser power see as the most they will give up to get what they want. Recognizing the balance in a timely fashion or in a thoughtful manner is the essential element for the longer-term perspective and longer-term success.

The evolution

The first step in the commercial process was someone bringing something to market to sell or trade. When that individual wanted to make more money or obtain more goods than they could produce alone, they learned they needed the help of others. They became the buyer of labor. The cheaper the cost of those workers, the more money could be made.

This is the underlying premise of the economies of the labor market. Those who need help from others to produce a good or service must find a way to get that output at a price where the money earned will exceed the investment. Even with slaves, there was a cost to obtain or maintain them, however low.

As times evolved, the concept of indentured servants came into play; time was served to learn a trade or gain some other value. The servant was in the weaker position, but they made a bargain that set them on a path they wanted. These programs evolved into skilled trades apprenticeships. Other workers provided some form of service seeking the best possible circumstances based on supply and demand, but still they were in the weaker position.

Then the concept of group pressure via unions began to change the balance of power. Now we get to the crux of the current day. When labor is too expensive, those who are buying still look for the cheaper means, which often means technology. It may cost more up-front, but over time it changes the balance of power one more time — again in favor of those who have the capital to buy the technology. 

Managing the labels

Labels that have been used up to this time are: farmers, tradesmen, slaves, owners, servants, industrialists, laborers, union members, capitalists, entrepreneurs, human resources, human capital. All have connotations, some good, some bad, depending on various perspectives.

You can spend lots of time debating how the various people should be referenced and being politically correct. However, understanding the power of each described group or individual and where the power associated with the label will lie in the next critical timeframe is what will allow people to plan for and manage work with the other people in the power equation.

The relationships in the power balance are also influenced by the economy, both domestic and international, and the supply and demand of “labor” with needed skills. Workers with skills are at the heart of what needs to be addressed. Someone with needed skills is different than any other commodity in the commercialization process. When the person has the ability to come and go as they please — such as a free agent in sports, or an engineer with patents, or the scientists who can develop new products — that is power. 

As long as the supply of skilled workers is less than the demand, the power has truly shifted. And then there are the long-term demographic trends and who is getting the necessary skills. So for individuals who are sellers, power lies in the skills and experience gained that are not transferable. As buyers, power lies in managing the environment for those with skills or helping develop new skill owners so they are available as needed.

It can be a sharing of power in a win-win equation, but it takes a mentality that is not about labels.

Ardon L. Schambers is principal at P3HR Consulting & Services.

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