The Nature of Human Capital
Human capital may seem to be a dehumanizing term. This is because the word capital is usually associated with money and economic values, not with people or humanistic values. Then why use the term, human capital? This seems particularly inappropriate if we are going to take an appreciative approach in addressing the challenges of contemporary organizations. People are not just numbers on a balance sheet. We can’t place a price on the head of any employee.
There are several reasons for embracing the concept of human capital. First, we can return to older meanings of the word capital. During Medieval times, the word capital referred not to money but rather to livestock. The primary medieval concern about capital centered on animal husbandry. Having acquired the land, how does one create an environment, in this case, a pasture, that is conducive to health, growth and vitality? Capital in medieval times was dependent on how much land one owned. It further depended on what the landowner did with his land and with those populating this land, whether they were cattle or people. Much like the engineer facing the lake, the medieval landowner had to release the potential of his land through the raising of cattle. Otherwise the land was worthless.
The land may be beautiful to view, or it might even be a site of historical importance. But it is of no practical value to the landowner. Pastures are living systems and contemporary organizations are living systems. We propose that capital in an E² organization is primarily concerned with people and humanistic values, rather than with money or economic values. The potential of the contemporary enterprise is still only realized when a nurturing environment is created where human beings can thrive and find sustenance—much like the cattle of medieval pastures. Thus, we use the term human capital in this book to remind us of the living nature of most forms of capital extant for the past five to six hundred years.
We use the term human capital for yet another reason. Modern accounting principles identify human resources as either a financial expense or a financial liability. While land, buildings and machines are assigned a financial value and categorized as organizational assets, the salaries being paid employees are categorized as expenses. Long-term employment contracts may even be categorized as liabilities. Consequently, a financially savvy manager will recommend that machines replace employees, so that the organization’s expenses can be reduced and its assets can be increased. We must counter this shortsighted assignment of employees to the deficit side of the financial ledger by repeatedly noting that the knowledge, skills and aptitudes of employees are viable and tangible assets.
