Human capital? I don't think so

The phrase of the moment at the Asia HRD Convention is 'human capital'. 'Human Resource Development' obviously hasn't succeeded in providing the learning and development department with the gravitas it so obviously craves, so it's time for another try. I must admit to more than a little cynicism. As someone who, in his early career, must own up to a spell in management accounting, I do know what capital is, and it isn't people. Capital is, in business terms, an economic asset also known as money, which is made available to organisations from shareholders, from banks in the form of loans, and through the retention of past profits. Capital is used to purchase other assets (tangible or otherwise) and to support cash flow by covering expenses in the absence of revenue (a.k.a. working capital).

People are not capital because they cannot be employed in place of money to purchase assets or to cover expenses; nor - unless you are talking slaves or the contracts of professional soccer players - can capital be used to buy people.

The idea that learning and development interventions are an investment has long been argued and this does have some credence; after all, you pays your money and (all being well) you gets your payback over a number of years - just like investing in plant, buildings, stock, vehicles, other businesses, and so on. But unlike these, however much you invest in your employees, they never become your asset. Strictly speaking, people can never truly be regarded as assets of any type (let alone capital), because you can't own them.

Now in aggregate, as an entire workforce, the skills, experience and reputation of employees, may well drive up the intangible asset value of a business, contributing to a higher stock price and market value; but individually they're not assets at all, because unless you tie them up in all sorts of elaborate contracts (and often not even then) you can't stop them walking away any time they want.

HR professionals may not like to admit it, but people are actually expenses. You rent their knowledge, skills and energies, just like you rent buildings or license software, by the hour, day, month or year (generally depending on how important they are to you). In return for their services, you provide them with pay and benefits. And in the hope that your employees will be sticking around for a while, you might make investments in their learning and development, to improve the output you achieve for the amount you pay. But when you do this, there is absolutely no guarantee of a payback, because they may at any point just say 'thank you and goodbye'. In fact learning and development may be a unique example of businesses investing in something they don't own.

If anything, the concept of human beings as assets is even less credible than it used to be, because, with increased mobility of labour and severe skills shortages, you're much less likely than you once were to be able to count on loyalty for life, perhaps even for a few years. The real issue in 2007 is 'human retention' not 'human capital' - finding ways of getting people to stay around long enough to deliver that return on your learning and development, and to add some credibility to the intangible asset value of the organisation.

Even at national level, it is hard to see the concept of human capital working. Countries don't really 'own' people any more than organisations do, particularly these days with a freer flow of labour across borders. Many countries will testify that the investments they make in education and vocational training are wasted as their citizens get up and go to find the best price they can obtain for their sevices.

If there is a use for the concept of human capital it is a personal one. An individual's knowledge, skills, experience, reputation, personality, physical strength, even their appearance, are valuable assets to the person themself. Individuals can invest in increasing their own human capital safe in the knowledge that they can call upon this whenever they like. Their employers or their national governments are not so lucky. They have to be nice to you and offer you all sorts of incentives to persuade you to use your human capital for their benefit.