Five capitals
It is popular nowadays to complicate the concept of capital by describing as capital things (like human capital) that are not capital. Forum for the Future has managed to obfuscate the issue to the extent of defining five different types of capital:
- Natural capital
- "any stock or flow of energy and material that produces goods and services" including resources, sinks and processes
- Human capital
- "people's health, knowledge, skills and motivation"
- Social capital
- "the institutions that help us maintain and develop human capital in partnership with others; e.g. families, communities, businesses, trade unions, schools, and voluntary organisations"
- Manufactured capital
- "material goods or fixed assets which contribute to the production process rather than being the output itself – e.g. tools, machines and buildings"
- Financial capital
- "has no real value itself but is representative of natural, human, social or manufactured capital; e.g. shares, bonds or banknotes"
Of these, only manufactured goods fall within a useful definition of capital, although financial capital would also be included if redefined as financial goods of real value available for use by the producer in support of his production, and natural capital can become real capital in certain circumstances.
These categorizations are not helpful and betray a poor understanding of the concept of capital.
Human capital
It is essential to the success of a business that it recruits the most suitable employees and provides the necessary training for them to do their jobs to the best of their abilities. But describing this as investment in human capital is misleading. The business never has property rights in the individual or their skills. Under modern employment legislation, employees are normally entitled to leave their employer at relatively short notice. The property rights in skills (if they exist at all) belong solely to the person who has or acquires the skills.
And even for that person, it is hard to put a monetary value on the skills for the purposes of economic calculation. In theory, one might compare the cost of the training with the difference in wages that the person could command before and after the training. People paying for their own training may make this comparison, consciously or unconsciously. But for the employer, the concept of human capital is simply an unnecessary, misleading and nonsensical complication. The employer need concern himself only with the suitability of his employees to do their jobs and the wages he must pay them. The cost of labour is a separate accounting item from the cost of capital.
The susceptibility of intellectuals to this delusion underlies their mystification at the failure of political attempts to exhort businesses (particularly SMEs) to risk much of their money on training that is easily portable to their competitors. Once one sees through the delusion, one can also see that the answer is for the beneficiary of the training (the trainee) to be liable for the cost of the training, and for the employer to be in the role of financier, not investor. The finance provided by the employer so that the trainee can increase his "human capital" can be recouped over time from his wage packet if he stays with the employer, or from his new employer if not.
Social and natural capital
Social capital is neither a direct input to the production process, nor capable of accurate and objective valuation, nor does the producer enjoy property rights in it. Natural capital may become real capital if it becomes an input to the production process, over which the producer has property rights. But it is neither rational nor useful to define as capital natural capital in the broad sense in which Forum for the Future mean it - practically the whole of our planet and environment.
