Speaking as a Unit of Human Capital
By The Economic Development Curmudgeon
Brink Lindsey, Human Capitalism: How Economic Growth Has Made Us Smarter–And More Unequal
(Princeton, NJ, Princeton University Press, 2013)
It was bound to happen.
Our ADHD-celebrity culture, leaping from one hot topic/person to another, has stumbled upon inequality. How long we focus on inequality is anyone’s guess? I suspect as long as the books sell, the speech fees are astronomical, and the polls rise we will get more than our fair share of comment on the topic. In my typical cravenly fashion, I draw some comfort and safety in following the herd, so I have decided to broach the concept in this month’s review. If the Curmudgeon is going to tackle inequality in a review, the reader might think the obvious book du jour is Thomas Piketty’s, Capital in the Twenty-First Century–but that book is almost 700 pages. That’s out of the question. So I picked a shorter book–a little over 110 pages–fairly big print also, alas no pictures. But, Brink Lindsey has the required professional credentials. The author of several excellent books, he is a former Ewing Marion Kauffman Senior Fellow who now draws a paycheck from the conservative Cato Institute. In his Human Capitalism he presents a timely thought-piece on how we got to this revolting and unequal situation.
But before we get into what he thinks is responsible for inequality, let me quickly pose the question–“Why should an economic developer care about inequality?” Is inequality included somewhere in our job description? If inequality is in our job description, what the heck are we supposed to do about it? How and with what?
Inequality probably isn’t in your typical economic developer’s job description, but increasingly many believe that other things that are in our job description may cause or compound inequality. So that means as we go about doing what we ought, we may well be purveyors of inequality. Good work fellow economic developers–put that on your resume! So what is it we are allegedly doing that promotes inequality? Creating high-paying jobs in fast-growing innovative clusters, sectors and industries for one! Promoting entrepreneurship for another. Facilitating innovation and financing productivity enhancements for area firms are additional candidates for producing inequality. Conversely, failing to solve structural unemployment and creating poor quality, low paying jobs also leads to inequality. Depending on one’s explanation for inequality, an economic developer can potentially produce inequality no matter what he or she does. If so, is this inequality debate likely to yield nothing but trouble for us economic developers? Something appears to be going wrong and unwittingly we, as a profession, might get ourselves caught in its cross-hairs.
So that the reader knows–the first step in dealing with inequality is to understand what causes it. Each solution proposed assumes a particular cause or reason for inequality. If you don’t agree with the cause, you are not likely to agree with/be skeptical of the proposed solution. At this stage in the debate many commentators assume the cause to be economic in origin–and that demands an economic solution. For me, however, inequality results from several broad forces including our contemporary culture. So when observers say inequality is economic and call for pure economic solutions, I believe we are setting ourselves up for failure. Inequality is more than economic in its cause–it is cultural as well. There is great danger in thinking inequality is primarily economic–requiring purely economic solutions.
If inequality is as much cultural as economic in its origin, no amount of limited government (conservative solution) or redistribution from the wealthy (progressive solution) will remedy the situation–and no amount of economic development will either. To make matters worse, I have a nagging fear that a currently dominant economic development paradigm, innovation/knowledge-based economic development, is making inequality worse. Could knowledge-based economics–you know innovation and fast-growing gazelles, technology and education as an economic development strategy to develop human capital–have unintended side effects which are putting inequality on steroids? Lindsey has ideas about this and that’s why I present a summary of his perspective. We do not discuss each and every element of his presentation, only those relevant to our limited purposes. For example, we will not discuss his proposed solutions to the problems he identifies–the reader is encouraged, instead to purchase of copy and delve more deeply into his argument.
Lindsey is focused on human capital and economic development and how they interrelate with inequality. So I would like to present Lindsey’s “model”, piece by piece, and react to it. Lindsey believes the cause of inequality is fundamentally economic in origin. He believes that “the main determinant of who succeeds and who gets left behind in American society today is the possession of human capital” (p. 3) . Human capital is what knowledge-based economics is all about. Human capital is an “economic” concept and it is defined as (ask economist Gary Becker who is most associated with the concept) “commercially valuable knowledge and skills”. Human capital (knowledge, talent, skill, entrepreneurship and education) according to this school of thought is arguably the most important input-factor producing contemporary economic growth. “(T)he most important assets are not plant and equipment (fixed assets) or stocks and bonds (capital). Rather, the most important assets are the ones we carry around in our heads” (p. 3). Warning! The hairs on the back of my neck spring into action when I hear or read about “human capital” economic development. The next paragraph or so is how I react to Lindsey’s human capital argument.
In this perspective, just like capital (a dollar bill), each human (actually only his “head”) is a unit of human capital, the equivalent of a dollar bill. This human unit of capital is what produces economic output. Without sufficient knowledge, education, skill, talent, or willingness to take risk, the unit of human capital is less productive and, critical to our topic, is unable to compete with more knowledgeable and skilled human capital. The latter command higher incomes, and the former less. The reader senses no doubt how this overlaps with inequality.
So educate everyone and the problem goes away? Doesn’t it? I don’t think so and neither does Lindsey. But before we go any further, let’s deal with some of my concerns with this human capital concept.
I am not a dollar bill–a unit of human capital! I, the Curmudgeon, am a basket of pathologies, character traits, DNA, scars, ego, id, memories, hopes and lots of fears. I have a personality (fortunately a bad one–it keeps other people at a distance) and unlike a dollar bill, I make decisions using my personal version of “rationality” to accomplish my own set of goals.
It appears with all this irrationality I am a lousy piece of human capital. Human capital has additional qualities which differentiate it from supply, demand, investment, capital and the other economic drivers of growth and decline. Human capital contains large doses of imperfect rationality (irrationality?) and independent decision-making capacity. I and the other units of human capital are not an economist-abstracted commodity. I will not respond as a commodity responds–give me a reason and I’ll do something stupid. That is why I believe that the root cause (not the only cause by any means) of inequality is not economic–but cultural, i.e. personality, character, traits, a family, past experiences and future hopes. Economics can affect/shape my decisions, to be sure. But in the end, I decide what my goals are and act accordingly and enjoy or suffer the consequences.
OK! Now let’s move on and digest Lindsey’s next point. Lindsey develops a position that our “increasingly complex social environment” (society, politics, economy) forces each unit of human capital (that’s you the reader) to devise “mental strategies for coping with complexity”–“special skills that allow us to make sense of the blooming, buzzing confusion around us, form and sustain useful relationships in a world of anonymous strangers, and impose coherence on our unruly, conflicting impulses and desires” (pp. 3-4). Doesn’t that sound a lot like what I was babbling on about in the previous paragraph? Yes, so let’s add one more Lindsey point. The problem is (my words) that our contemporary world is so very, very complex the only way we can cope effectively is to acquire more knowledge and skills and obviously this strains our personal motivation, mental capabilities, and individual talents and traits. If we don’t, or can’t, acquire the necessary knowledge and skills to cope with all this complexity, we are going to be left behind. To master complexity each unit of human capital must acquire knowledge.
Lindsey asserts that contemporary “capitalism has morphed into ‘human capitalism’–a social system in which status and achievement hinge largely on possessing the right knowledge and skills” (p. 4). Inequality, according to Lindsey, occurs because “the relationship between economic development (i.e. economic success) and cognitive development has broken down for large sections of the population”.
For those in the upper third or so of the socioeconomic scale, the virtuous circle continues; increasing complexity has led to greater investments in human capital and widening opportunities for putting those investments to productive use. The rest of America, through, is being left behind; human capital levels are stagnating, and so are economic prospects. This state of affairs is unstable. In any game where most of the players feel they are on the losing end, and where the players themselves have the power to rewrite the rules, sooner or later the pressure to change the rules will grow irresistible …. What is needed instead are rule changes that expand the number of people who are able to compete and thrive in the game of human capitalism. (pp. 4-5)
Does that bring us back to the “usual suspects” of solutions called for by most knowledge-based advocates: better schools, better teachers, more $ for education, get (graduate) more people into college in the right disciplines and programs?
Well, let’s insert more of Lindsey’s thesis before we go there. Not all skills are created equal for Lindsey–one skill especially is essential. That skill is abstract thought!. “Abstraction is our master strategy for dealing with complexity. Broad conceptual categories and general rules provide the mental shortcuts we need to handle a more complex environment”. (p. 13). Lindsey spends a chapter defending this special skill, and while it may not be my “be all and end all”, it’s hard to argue that abstraction (which includes literacy–but is much more) or the ability to think conceptually is not critical or even essential to compete in today’s economy and society. Lindsey does not argue that abstraction is the only skill that is essential,
Let me concede right now that not all human capital can be boiled down to fluency with abstraction …. physical or personality traits are all forms of human capital that can help to propel a person into the socioeconomic elite …. [but] fluency with abstraction is the generic form of human capital–the master strategy for coping with a complex social environment. (pp.26-27)
So, for Lindsey, the core solution to inequality at minimum requires ensuring that more human capital can think abstractly and conceptually. After all, “Managerial and professional occupations made up only about 10 percent of the workforce in 1900, whereas they make up some 35 percent today. In other words, the American economy’s ‘brain to body ratio’ has more than tripled–and the demand for highly skilled ‘knowledge workers’ has shot up accordingly”. (p. 29) To compete units of human capital need not just skills, but the essential skills (abstraction and conceptual thinking) to land the higher income jobs.
But, there is a significant barrier to everybody being able to acquire sufficient abstract-conceptual thinking skills–that barrier in our contemporary world boils down to the training and education sufficient to develop that skill is restricted principally to those lucky few who are born to the right parents. “… in contemporary American society, a person’s level of human capital is a major determinant of her socioeconomic status. It turns out, through, that causation runs in the other direction as well. That is to say, the socioeconomic status into which a person is born has huge impact on how much human capital he will ultimately amass”. (p. 30). Essentially, inability to amass the necessary skill of abstraction, is strongly tied to the social class in which one in born. Say it another way, the transfer of abstraction skill from one generation to another is strongly affected by the socioeconomic class in which one is born and raised.
So let’s stop a moment and access what Lindsey has said to this point. Whether or not “abstraction” is the master skill to socioeconomic mobility is an assertion, a reasonable assertion, but an assertion nevertheless. The reader may have in mind another master skill. Whatever the master skill(s) are the critical issue is whether that master skill can be “taught”. If the master skill(s) is a character trait, or DNA based, or a skill, I, the unit of human capital, just don’t value, then education is not likely to be successful in providing me that skill. Accordingly, the key is whether the ability to be “abstract” and think conceptually is an innate trait-talent or is a learned skill. Lindsey believes everyone can be “taught” how to be abstract and conceptual. The proof he offers is that literacy, the fundamental platform for conceptual thinking, can be taught–it is a skill–not an innate or character trait.
Perhaps? But to me there are degrees of conceptual thinking–some people can follow a deep philosophical discussion–others of us fall asleep. I for one have never stayed awake when string physics is discussed–although I possess a Ph.D and have demonstrated some capacity to abstraction. Anecdotally, I have met many fine individuals who are very literal, deductive; I am a “relational thinker”–I connect dots. Our abstraction skill is different. Some people don’t like to compete. Others do not want to assume unnecessary responsibility or manage people. The willingness to defer gratification, and to work obsessively also varies among units of human capital. There are a lot of factors which interweave with abstraction and conceptual thinking as a master skill (or any master skill proposed). Even if we assume a master skill can be taught to virtually everyone and nearly everyone is willing to be taught, master skills are not sufficient to get each unit of human capital to the desired job or “correct” path away from inequality. Whatever human capital is taught, the human takes that skill and decides where to go with it.
The idea that all of us can acquire/be taught abstraction or the master skills necessary to be competitive is an open issue to me. If some of us, inherently, can’t be taught sufficient amounts of the vital skill(s), then the implications for society (and for the individual) are quite serious. In the past, the economy generated jobs requiring different skills and skill levels–and that muted my concern. But if job diversity is disappearing, as it appears to be, then we all need to work in the “correct” jobs which generate appropriate levels of income. But “we all can’t be rocket scientists” and if we try to make everyone rocket scientists won’t we flood the occupation and drive down the wages?
Lindsey, however, is worried about a different concern. He senses that skill transference is class related and the lower class culture does not support skill acquisition. Skills can be taught at competitive levels to nearly all, but lower and working class cultures in today’s America today. So, for Lindsey, something has to be done to inject these skills and skill instruction into these cultures. This is a terribly politically incorrect thing to say. Daniel Patrick Moynihan got his head handed to him for it, as did Edward Banfield. Recently, Charles Murray in Coming Apart controversially detailed the woes of our contemporary working class. We do not lack for respectable critiques of the working class culture and its poor fit with our post-industrial society. Lindsey manages to work within politically correct parameters, and so he successfully raises the issue of culture and deals with it in his fashion. But, for me, culture does not stop with the alleged limitations of working class culture and master skill transference.
We can, and we must, enjoy equal political and civil rights. But to me, abstraction, like good looks and athletic ability, is not distributed evenly throughout any society–American or anyone else’s. We can teach overwhelming numbers of our society to read and write, but not to think in the future, delay gratification, be self-reliant, or think conceptually in professional disciplines. Not everyone can be a manager, an entrepreneur, or assume risk inherent in many highly paid occupations. If so innovation and knowledge-based policies and programs do little to help those unprepared for the opportunities created. Skill preparation for these opportunities by its nature is no easy or quick matter, and to the extent we unknowingly butt our heads against cultural tendencies that render skill upgrading an even more difficult task, we wind up doing little to relieve inequality and leave ourselves open to the charge, at least the perception, that we are fostering inequality and serving principally only the winners. That is the dilemma around which contemporary economic developers are unwittingly caught in the crosshairs.
Our present strategies only create “good” jobs–high paying jobs in growing professions and occupations. We encourage nearly all to be entrepreneurs and we preach innovation and fund/finance productivity enhancements which destroy obsolete jobs. There are implications which follow from economic development strategies and that places us squarely in the cross-hairs of the inequality debate. For the moment at least, the debate’s ground zero are teachers, curriculum, and financial commitment to education–because after all skills can be taught, but they are currently not being learned. But woe be to us if someone moves the debate to the types of jobs being created–and the types of jobs being destroyed–and asks who is responsible!
This straw-man commentary at least serves to point out how far we need to go within the “profession” of economic development. I notice that virtually everyone who uses that term never defines it, and I also notice that those who use that term have NEVER worked in the CED field, and take lots of liberty acting as if they know what they are talking about.
The premise here is centered around the question of “inequality” & whether an economic developer should be concerned about it. First off, “economic development” is a public term; those in the field work for the public. They do not work for the private sector, consequently, we need to see public sector outcomes, in socioeconomic terms, NOT for the purpose of establishing “equality”, but to maximize & optimize public goods in the form of human gains, i.e. income, jobs, homeownership, investments, etc., any measure agreed to by stakeholders which improves standards-of-living & quality-of-life outcomes. Is this objective worthy of your mockery?
Those who avoid dealing with ideas & strategies to improve the human condition & who do not understand that they inherit a legitimate public purpose – even Adam Smith believed that business served a public purpose – then they either need to be educated or they’ll need to work in the private sector. Working in the CED field isn’t like wkg with the Chamber of Commerce.
I would add that “redistribution from the wealthy” to denote a “progressive solution” is totally off base. Where does this simple notion come from?
When you brag about “creating high-paying jobs in fast-growing innovative clusters”, and “promoting entrepreneurship”, you’re doing so with public funds. How difficult is it to spend enormous amounts of public funds so that you can take credit for “stimulating growth”?
In this role, you are artificially “creating” jobs & picking winners & losers; what does this say about the condition of our marketplace economy? About one-fourth of our GDP stems from public sector dollars.
Our profession — including those in publishing — has a LONG way to go to understand what its proper mission & purpose is in its role in the public sector. In this regard, we simply have poor professional leadership, vision, and understanding in planning terminology, concepts, practice, methodology, evaluation, and metrics.
Comment by Fernando Centeno, CED on June 1, 2015 at 6:18 pm
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