Equality in the age of human capital

Three quarters of America’s wealth is invested in its people, writes Gary Becker (PDF 26KB). He argues that while physical capital is still matters, human capital now matters more. Where once a nation’s wealth lay in the fertility of its soil, today it lies in the knowledge, skills and health of its population. The increasing interest in human capital has had a profound impact on the politics of egalitarianism. How do you redistribute wealth if it isn’t something people have but is part of who they are?

How much are you worth?

In his Treatise on the Family, Becker writes about the “quality” of children. High quality children are able to benefit from future investments in education and, as adults, are likely to command a high price in the labour market. Low quality children are more likely to struggle at school and are likely to graduate to low-paid unskilled work (or dependence on welfare). Becker’s definition of quality is uncannily similar to Thomas Hobbes’ definition of worth:

The value or worth of a man is, as of all other things, his price; that is to say, so much as would be given for the use of his power, and therefore is not absolute, but a thing dependent on the need and judgment of another.

In the language of human capital, people are commodities. Each of us is an elaborately transformed good - the product of the raw material of our genes, our diet, our upbringing, and our education. Human capital isn’t something that we have, it’s who we are. It’s almost impossible to imagine ourselves without the human capital we’ve developed since we were born. To do that, is to imagine ourselves as different people.

The poor are different

Educational attainment is one of the clearest markers of human capital. Researchers sometimes use it as a proxy for socioeconomic status. In a recent post, Ezra Klein points to a new study showing that highly educated Americans are far less likely to die prematurely than poorly educated Americans. He slides effortlessly from this finding about low educational attainment into a discussion about poverty:

… the poor are not just different because they have less money, but because their lives are substantially worse, and worse in ways that better social policy could help alleviate.

Klein’s commenters were quick to speculate about how the poor might be different. Sancho pointed to a quote by one of the researchers: "The trend is best explained by tobacco, obesity and high blood pressure". Sancho’s conclusion was that poor people were making themselves unhealthy. Another commenter, MFA, suggested that poor people were incapable of making healthy choices:

The poor receive low-quality education. They grow up in environments that retard both physical and mental development. As a result they are less likely to properly assess the risks of the behavioral choices they make.

At The Fly Bottle, Will Wilkinson argued that lack of education and poor health had a single cause - time preference. Getting an education means sacrificing time and income in the short term in order to reap larger benefits in the long term. In the same way maintaining good health means sacrificing junk food and indulging in exercise now in order to reduce the risk of death and disease later.

In a review of the literature (PDF 252KB), economist James Heckman writes that, "Cognitive and noncognitive skills - self-regulation, motivation, time preference, far-sightedness, adventurousness and the like - affect the evolution of health capital through choices made by parents and children." He argues that many of these skills develop during early childhood and form the foundation for later learning. Children who miss out on these early opportunities for development are unlikely to benefit from the kinds of education and training that could give them access to high income jobs as adults.

Heckman’s solution is to create programs specifically targeted at children from disadvantaged backgrounds. In contrast to thinkers like Peter Saunders (CIS) who focus on intelligence, Heckman argues that: "Enriched early intervention programs targeted to disadvantaged children have had their biggest effect on noncognitive skills: motivation, self-control and time preference."

Saving Epponnee-Rae

These research findings on early childhood create a dilemma for egalitarians. On the one hand, the research suggests that publicly funded investments in early childhood could significantly improve the well being of children from disadvantaged families. But on the other hand, they seem to be stigmatising less educated adults - particularly those who are unable to work and depend on welfare benefits. The poor are portrayed as underdeveloped human beings - ignorant, lethargic and unable to control their impulses. Worse still, their parenting practices have been identified as an important cause of intergenerational disadvantage.

This has a familiar ring to it. In the early 19th century Alexis de Tocqueville warned (PDF 159KB) that England’s system of poor relief was cultivating a class of unproductive and disorderly citizens:

The number of illegitimate children and criminals grows rapidly and continuously, the indigent population is limitless, the spirit of foresight and of saving becomes more and more alien to the poor. While throughout the rest of the nation education spreads, morals improve, tastes become more refined, manners more polished - the indigent remains motionless, or rather he goes backwards. He could be described as reverting to barbarism. Amidst the marvels of civilisation, he seems to emulate savage man in his ideas and his inclinations.

It’s a fear that’s never really gone away. Recently, The Age’s Russell Skelton spoke with a group of Indigenous elders in Walgett about the effect of the Australian government’s baby bonus:

"My daughter has four kids and she cannot read or write," says a member of the group, who feels powerless as a parent. It will become a terrible circle, predicts another: "Kids who cannot read or write have babies that won’t be able to read or write. But nobody can tell them that. They don’t want to listen."

Some egalitarians worry that embracing the rhetoric of human capital means joining with conservatives to slander to disadvantaged. Social welfare initiatives become less about social justice and more about social control. Instead of focusing on the obligations of the rich, the human capitalists increasingly focus on the behaviour of the poor.

There is also a tendency for policies directed towards the highly disadvantaged to bleed over into those directed towards all less educated people. For example, taxes on junk food are premised on the idea that consumers will make better food choices if policy makers use financial incentives to make up for inadequate levels self control. It’s no secret that these initiatives are often created with less educated consumers in mind.

Having a cabernet quaffing university graduate tell you that they’ve taxed your ready-to-drink bourbon and Coke for your own good can sound a little elitist. And who wants to have some over-educated do-gooder telling you that the country would be better off if your children grew up to be less like you and more like them? It’s no wonder conservatives have had so much success winning over voters from less educated households.

Looking backwards

Nineteenth century egalitarians like Edward Bellamy argued that the rich were parasites who fed off the labour of the poor. In his socialist utopia this unproductive leisure class was abolished and the means of production were put back into the hands of the workers. In old fashioned socialism, social justice was fundamentally about the redistribution of material wealth. But today, many highly educated egalitarians see unskilled labour as drain on productivity. They see wealth as a product of investments in education, creativity http://www.washingtonmonthly.com/features/2001/0205.florida.html and innovation rather than long hours, physical dexterity and effort.

Karl Marx must have had an inkling of how risky it was for socialists to think this way. In the Grundrisse he argued that technological progress was not so much the application of scientific knowledge and human creativity to production as the absorption of the workers’ activity in the machine:

Thus, the specific mode of working here appears directly as becoming transferred from the worker to capital in the form of the machine, and his own labour capacity devalued thereby. Hence the workers’ struggle against machinery. What was the living worker’s activity becomes the activity of the machine. Thus the appropriation of labour by capital confronts the worker in a coarsely sensuous form; capital absorbs labour into itself - “as though its body were by love possessed”.

This strange imagery of machinery possessing the bodies of workers seems like an elaborate way of avoiding a simple question - if technology is the product of the creativity or the few, then how can unskilled labour be the ultimate source of value? This is the kind of question that leads to Ayn Rand’s upside-down, inside-out Marxism. According to her theory, it is unskilled workers who are parasites and inventors and engineers who are the source of value. For Rand, minimum wages and welfare are nothing short theft.

Prices aren’t values

To come to terms with the new focus on human capital egalitarians need to reject the idea that a a person’s moral entitlements are somehow tied up with their productivity. Egalitarianism flows from the idea that all human beings are entitled to equal concern and respect. It has nothing to do with the meritocratic claim that a parasitic class of super-rich business executives and investors are feeding off the wealth created by ordinary working people. Egalitarian redistribution is not about giving people back what they’ve earned.

Egalitarianism also has nothing to do with the claim that all human beings are born with the same cognitive potential. A person’s life is not less worth living just because they have trouble learning calculus, interpreting legislation or writing essays on Heidegger. And, despite anything Thomas Hobbes might say, a person’s value as a human being has nothing to do with their ability to be economically productive. It certainly has nothing to do with the price of their labour.

So it seems to me that the reason it’s important to develop human capital is not because an educated person’s life is worth more than that of an uneducated person’s, but because greater productivity means greater opportunities for everyone.