Raymond Klassen – Ideals and Identities

I read a report on new jobs and unemployment in Alberta. Both, ironically, are increasing. Of course in the last year, Alberta has taken in more newcomers than produced new jobs. It seems as if there are ways human capital could be better-maximized. There are unemployed people and unfilled jobs. From one perspective, a deficit in human capital, understood as wasted productive potential, would be an obvious conclusion. 

No better term names the relationship between individuals and the advanced industrial environments that these people exist in than “human capital”. But the concept is fraught with baggage. When I say human capital is deficient, I do not refer to wasted productive potential; instead, I refer to a distorted understanding of the relationship between individuals and their advanced industrial environments. 

From an industrially informed and technocratically rational perspective, the OECD defines human capital as “the stock of knowledge, skills, and other personal characteristics embodied in people that help them to be productive.” (emphasis added) Examples of investing in human capital include pursuing formal education (early childhood, formal school system, adult training programs) and informal and on-the-job learning and work experience. As such, unemployment is a clear waste. Human capital is a primarily quantitative concept, not a qualitative one. Thus we focus on quantitative considerations that are inevitably embedded with industrial and technocratic concerns. In other words, by conceiving human potential as human capital, we think of the relationship between individuals and their advanced industrial environments by the logic of those environments. And so we try to measure it….

Why is human capital measured?

It would be foolish to measure human capital to convince individuals that their education is primarily judged by their productivity for particular societies. However, as a society-wide measure, a technocratic consideration of maximizing the potential of its working-aged population seems to make sense. It helps us to direct our investments toward more efficient outcomes better. But these “efficient outcomes” ought to be specified from the start – shouldn’t they? 

In this sense, my son’s (a Bachelor of Management enrollee, who had previously considered liberal arts) recounting his initial day orientation at his new university has a common-sense truth to it. When the orientation was divided into two groups, ‘Arts’ and ‘all other’ program students, the populations of the two groups were more or less equal. 

He declared, “By the looks of the Arts students, I enrolled in the right program.” 

“Why is that?” I asked.

“Because even if I don’t know what the result of my choice will be, I will be able to do something immediately productive, when I finish my program. The Arts students might be exactly where they are now when they finish.”

I replied, informed by my Arts-educated thought of my son’s maturation process, “Where you are now isn’t so bad.”   

“Dad, I live in the basement.”

I wondered if my son’s concept of immediate return was too narrow – especially because I know he has philosophical gifts that might be under-maximized in a Bachelor of Management. But it sure made sense if the logic of institutional budgeting is the primary logic of capital investment. Why is human capital measured? For national and international understanding of what contributes to economic well-being for large populations.

How is human capital measured?

No universally and internationally comparable and consistent measure reflects all the possible inputs into the development of human capital. Viewed only quantitatively, economists thus rely on admittedly inferior substitutes, such as years spent in the schooling system and rates of enrollment in education and literacy.  There needs to be some qualitative measurement as well.

With this realization, there is a new measure of human capital built using PISA and PIAAC surveys, and mean years of schooling. The new measure is a cohort-weighted average of past PISA scores (representing the quality of education) of the working-age population and the corresponding mean years of schooling (representing the quantity of education). In contrast to the existing literature, the relative weights of each component are not imposed or calibrated but are directly estimated. The study finds that the elasticity of the stock of human capital concerning the quality of education is three to four times larger than for the quantity of education. Here “elasticity of stock” refers to something like “resilience” – a qualitative consideration.

But such is the logic of “rates of return.” On this criterion, there would be some key takeaways for policy initiatives.

Policy implications

As the new human capital measure is built on years of schooling and rates of return to education, policies influencing education matter. The empirical analysis shows that the following educational policies tend to boost human capital at the country level (Égert, Botev, and Turner, 2019):

• First, more children attending pre-primary education improves human capital, especially in countries with above-average share of disadvantaged children. This result based on macroeconomic data is in line with the microeconomic literature.
• Another finding is that teaching resources matter. Fewer students per teacher boosts human capital, which can be thought of as a crude measure of teaching quality. There is also some evidence showing that a higher share of qualified teachers is good for human capital.
• Third, streaming children at a later age into different education tracks such as vocational and grammar schools based on their ability or achievement has a positive impact.
• Schools having more autonomy and leeway on how to manage their resources is good for human capital. This positive effect is greater in countries with external central exams that capture external accountability imposed on schools.
• Finally, countries in which universities have more autonomy in how they can allocate their resources, have higher human capital and the ease of access to individual financing of university education helps to raise a country’s human capital. It should be noted, however, that these results are less robust.

Furthermore, the analysis shows that certain educational policies are ‘good value for money’ because they have a double dividend of boosting human capital as well as reducing spending pressures. These are increasing attendance in pre-primary education, greater university autonomy, and lower barriers to funding for students in tertiary education. Increasing school autonomy at primary and secondary levels enhances educational outcomes but does not reduce spending pressures. And, higher student-to-teacher ratio, higher age of first tracking, and a reduction in the extent of tracking also boost human capital, but at a higher cost.

From this analysis, we can clearly surmise that human capital still reduces the measurement to quantitative terms, i.e., in terms of the cost-benefit analysis. But, perhaps the measurement is too narrow. Why is human capital measured? To maximize economic well-being. How is human capital measured? To show dividends in the boosting of human capital. In other words, qualitative measurement is still essentially ignored.

And here we get to the crux of the matter, and we can see that human capital is a deficient concept. Human capital is still essentially measured on an individual basis and then extrapolated in aggregate terms. More concretely, we understand human capital as the rate of contribution of the individual to the social order, and the results are achieved by aggregation. In other words, each contribution is added together to create a sum of the individual contributions. This is the cumulative understanding of human capital.

Social Trust and Human Fulfillment

In highly complex social systems, such as the family, a sports team, a large business, or a church community, fulfillment isn’t measured in the aggregate for this reason. We do not measure human fulfillment as having and contribution to greater output by the group. Instead, the initial measures of success – measured on very similar duration as OECD measurements of human capital – are more something like what we mean by social trust to be fully captured!

A simple example: In a game dominated by stars, football (soccer) had become really big business in the late 20th and early 21st centuries. Success, it was assumed, was reliant on big stars. Barcelona Football Club implemented a system of Tiki Taka that began in 2008 when coach Pep Guardiola took over as coach of Barcelona. Tiki Taka is a system of football that does not primarily rely on star players but instead relies on ball possession. Tiki Taka first worked well in Barcelona in La Liga (Spain), then later when it was taken to the Bundesliga (German), and then in the EPL (UK). It relies not so much on individual star talent that makes long individual runs with the ball, but rather a system in which capable footballers are placed in a system that creates scoring opportunities equitably – not by star demonstration, but by a system of social trust. Instead of the For a clear visual, check the following demonstration:

You can also see the same principle in American Basketball: 

One of the most defining characteristics of North American mainstream society is the presence of collective illusions. Simply put, collective illusions occur when individuals in a group conform to a belief they don’t actually agree with because they falsely think the majority does. It’s not a simple case of misreading a few people—it’s a widespread misperception where the majority believes the majority holds views that, in reality, most do not.

One of the most striking illusions we’ve uncovered through research centers around trust. Consistently, most Americans view themselves as trustworthy and value trustworthiness. Yet, paradoxically, they believe that nearly everyone else in society neither values nor practices it. This creates a powerful illusion: the illusion of distrust. And this illusion is corrosive—leading to a broader breakdown of trust, which is essential for a functioning and free society.

In the face of this perceived collapse of trust, many are quick to point fingers at one another. However, I believe the root cause lies elsewhere. Over a century ago, a man named Frederick Taylor, though not widely known today, fundamentally reshaped how we think about productivity and efficiency in society. In his book Scientific Management, Taylor argued that inefficiency was the greatest problem we faced. His solution was to remove trust from the equation entirely. Taylor advocated for a systems-first approach where managers—he even coined the term—became the ultimate decision-makers, reducing individuals to mere cogs in a machine. This shift in thinking infiltrated our institutions, and we began seeing ourselves and each other through a lens of distrust.

However, when you actually look at the data on trust and honesty, the results are quite revealing. A famous German study offers a compelling example. Researchers randomly called people and asked them to participate in a simple contest: flip a coin in private. If it landed on tails, they would win a gift certificate; if it landed on heads, they’d get nothing. Since only the person flipping the coin knew the result, it would’ve been easy for everyone to claim tails and take the prize. But that’s not what happened. The results showed almost an even split between heads and tails, with even a slight tilt in favor of heads, indicating most people were honest—even when no one was watching.

This study, and others like it, shows that most people are inherently trustworthy. We care deeply about being trustworthy and being perceived that way. Yet, our institutions persist in reminding us otherwise, treating us as though we are fundamentally untrustworthy.

In any society, we have two ways to engage with one another: we can trust people to make their own choices, or we can attempt to control and engineer those choices. A core principle of democracy is that institutions exist to serve the people. But ever since Taylor’s influence, this relationship has been inverted. In a free society, it’s unacceptable for public institutions to treat people with inherent distrust. While top-down control may provide short-term efficiency, the long-term damage to human dignity and social trust is far too high a price to pay.

If we now look at human productivity through the macroeconomic lens of human capital, we only get a very skewed and distorted vision of human fulfillment. Instead, what we need now is a restoration of trust—trust in communities, families, and group cohesion that will allow individuals to make their own decisions. If we want to rebuild a trusting society, we must challenge this top-down mindset in our institutions and demand that they treat us, the public, with the necessary trust that acts as an infrastructure towards human fulfillment.