What is human capital?

Human capital is a broad concept that includes not only education and training but also many other aspects of human development such as a population’s health, talents, work habits and attitudes.

The initial development of the concept of human capital is attributed to 18th century Scottish economist Adam Smith, who wrote that, “the acquisition of talents during education, study or apprenticeship, costs a real expense, which is capital in a person.Those talents are part of his fortune and likewise that of society.

The term was later popularized by Gary Becker, Nobel Laureate in economics from the University of Chicago, and Jacob Mincer, professor of economics and social relations at Columbia University. The terms human capital and human resources are often used interchangeably as they have a similar meaning. Human capital can be understood as an individual asset or, when measured in the aggregate, as a national endowment.

On the individual level, human capital refers to a person’s acquisition and deployment of skills, talent, knowledge, abilities, experiences, intelligence, training, judgment and wisdom. On the collective level, human capital is the aggregate capacity of a population to provide a form of wealth that can be directed to accomplish the goals of an organization, society, economy, nation or state. It is a view of the individual human being acting within an economy, and an attempt to capture social, biological, cultural and psychological complexities as they interact in explicit economic transactions.

Human capital is one of the five core capitals described in the DFID Sustainable Livelihoods Framework:

1) Human capital (the amount and quality of knowledge and labor available in a household);
2) Natural capital (the quality and quantity of natural resources, ranging from fisheries to air quality);
3) Financial capital (savings and regular inflows of money);
4) Physical capital (the infrastructure, tools and equipment used for increasing productivity); and
5) Social capital (social resources, including networks for cooperation, mutual trust and support).

Improving human capital is the key to achieving greater levels of social and human development in Somalia, but it is not the only consideration. Somalia’s Ninth National Development Plan (NDP-9) sets out strategies to reduce poverty and increase resilience at the individual and household level through improved essential services, with a cross-cutting governance focus on: improved health including clean water, improved education, improved social protection including urban planning, social benefits and food security, and strengthened governance including disaster risk management, local governance and decentralized service delivery.

Successful developing states have combined a human capability approach and development with modern reconstructions of traditional economic models of growth. Promoting well-being involves increasing contentment for individuals, socio-economic development, social protection and growth as well as building the capacity of human beings to achieve their self-determined goals.

Without a determined and focused action plan, current and future generations of Somali children, youth and adults risk being condemned to worsening poverty, unemployment, socio-economic marginalization and despair. A human capital development strategy is critical for the future of all Somalis. NDP-9 sets human capital development as a key national priority to support Somalia’s economic and political recovery. It is also crucial to building democratic institutions that enhance the Somali people’s quality of life.