In a previous article (Bouchard,1998), I questioned some of the seemingly natural assumptions that lie hidden behind the notion of ‘valuable’ knowledge. p. 1

In this chapter I would like to ask a few more questions, such as, What is the relationship between education, knowledge, and the economics of human capital? What is gained —and by whom—from the current discourse on the urgency to develop human capital? And, finally, how can these issues inform current educational policy? p. 1

From a theoretical perspective, human capital is situated at the frontier between economics and human learning. p. 1

Whereas a resource is something that one transforms, uses, or exploits in order to derive some benefit, capital is something that one owns, and as such it possesses intrinsic value for individuals and for society. Just like physical capital, knowledge capital can be acquired (through education) and preserved (through continuing education) and can yield dividends in the form of productivity and, arguably, the wealth of whoever owns it. But unlike other forms of capital, human capital cannot be separated from its holder, and its value is entirely dependent on that person’s capacity to apply his/her knowledge in an economicallyprofitable enterprise. p. 2

What is the cash “value” of human capital? Becker (1975) computed the relative earnings of persons with various educational backgrounds and came to the conclusion that “high school and college education . . . greatly raise a person’s income, even after netting out direct and indirect costs of schooling” (p. 132). Among the indirect costs of schooling, Becker calculated that the time spent on learning, rather than on being gainfully employed, carries an opportunity cost even greater than the actual costs of tuition. Regardless of this fact, education remained a viable investment in Becker’s calculation. p. 2

Another economic observation that tends to support the link between schooling and prosperity is the fact that when university tuition fees are raised, university enrolment does not diminish proportionately (Murphy & Welch, 1989). If education were a consumer object rather than an investment, variations in its price would be reflected in variations in its consumption, just as raising the price of apples reduces the demand for apples. On the other hand, the cost of a business investment is determined by the benefits that one anticipates from that investment rather than by its intrinsic value. This is why the cost of a downtown commercial building greatly exceeds the cost of the actual materials used to build it. It is interesting that studies have shown that as the cost of higher education rises, the income of educated professionals also rises. This greatly reinforces the perception that the cost of education is actually an “investment” very much comparable to other types of business investments, as Schultz (1963) observed. It does not elucidate, however, whether salaries go up with the cost of tuition or whether colleges and universities raise the costs of their programs to cash in on their rising job-market value. p. 2

Indeed, there can be any number of sociologically sound explanations for this apparent symmetry, the first of which could be that our education system is an instrument of social stratification rather than one of its “natural” causes. One good measure of this theory would be to see what happens when too many people gain access to higher education. Would the overall prosperity of the nation increase proportionately, or, on the contrary, would the value of education diminish with diminished scarcity? This is exactly what happened during the 1970s when the “return on investment” of education dropped sharply as more young people flocked to colleges and universities than ever before. This led Freeman (1976) to call attention to the phenomenon of, as he called it, “the Overeducated American” this is the title of a book , not a quote from it__), which would perhaps be more aptly labelled “too many educated Americans.” p. 2

Furthermore, if knowledge directly produced wealth, there would be no theoretical limit to the yields of human capital, as Schultz (1963) contended in p. 2

his early works. As the world becomes more and more knowledgeable, it should also become more and more prosperous, indefinitely. That assertion leaves considerable room for doubt, for obvious reasons. It also raises an allimportant question: Does education actually improve a person’s economic productivity, or does it just separate low earners from high earners by acting as a selection criterion? Becker (1975) himself admitted that education could simply provide signals (“credentials”) about talents and abilities rather than determine real economic potential. p. 3

Becker himself admitted that his measurements suffered one possible flaw: “Persons differing in education also differ in many characteristics that cause their income to differ systematically” (p. 79). p. 3

Although this may have direct consequences for the manager of a local business, it nevertheless amounts to a zero-sum game in which the same number of customers, receiving the same services, simply redistribute themselves according to some condition such as the perceived quality of customer support. In this case increasing competitive capacity, and not productivity, does nothing to further the goal of a stronger econom y for all. p. 3

Couldn't you say this about any improvement though - if Apple creates a better screen, you don't create more wealth, you just have more people buying Apple products and fewer buying Android? p. 3

It is a well-documented fact that in developing countries, any investment beyond basic education benefits the individuals who have gained higher knowledge, but does very little for the economic or social benefit of the nation. The reason is simply that higher education either serves directly the interest of the educated or is lost to the phenomenon known as brain drain. p. 3

The problem, however, is that knowledge-based wealth, because it replaces production-based earnings in the new knowledge economy, does not ‘trickle down’ as would be necessary for a complete economic cycle. p. 3

By using human knowledge (associated with ownership) rather than work (associated with production) as the new criterion for attributing value, we are in effect saying that the economy is legitimately owned by ‘those who know’ and that economic policy should therefore be guided to meet their ends. However, in simple quantitative terms, so-called ‘knowledge-based industries’ such as the high-tech production and communications sectors do not account for the activities, nor do they represent the interests of the majority of people in any nation in the world. They do, however, represent a force that pressures public policy to devalue entire sectors of the labour economy, thereby justifying social irresponsibility and the concentration of wealth among the few at the expense of the many. In other words, human capital and the knowledge economy, when used as ideological trappings for public policy, directly serve to further the neoliberal agenda. p. 3

One of the obvious problems of an uncontrolled economy, Smith said, would be the rise of monopolies that could neutralize the self-regulating forces of supply and demand. Therefore, various regulations are required in order to prevent the unhealthy concentration of market share in one or two companies in any given economic sector. These safeguards, although relatively simple to implement in traditional production economies, become almost impossible to apply in the ‘knowledge’ economy. Indeed, the nature of highly complex or technical knowledge usually requires an equally complex form of organization in order to flourish. This is the reason that knowledge industries often require not only the intricate infrastructure of a single corporation, but also the synergy afforded by what are known as clusters of knowledge-based organizations. Examples of clusters would be Silicon Valley and Wall Street. These clusters have become an essential feature of the knowledge economy and are usually dependent on government policy and handouts. However, because of the complex nature of their organization, knowledge industries cannot be duplicated indefinitely, and this tends to limit their numbers. For this reason, many knowledge industries have transformed into what economists have called natural monopolies. Traditionally, natural monopolies have been public services that would be too bulky or costly to reproduce (for example, public transport services or water distribution). Today, high-tech corporations function in much the same way as natural monopolies do, their sheer bulk guaranteeing low competition from others (unless we can be fooled into believing that two telephone distributors instead of one will ensure the fair exercise of market forces!). Here we see at work one important feature of “neoliberal” economics: Contrary to Adam Smith’s exhortations, the new agenda is not concerned with curbing the inherent defects of the market economy, which is essential to the pursuit of the common good, but rather with ensuring that those who benefit from the systemic deficiencies continue to do so freely. p. 4

Furthermore, work confers to its members the status of active participants in the affairs of society, and indeed the social fact of being employed is ingrained in the very identity of citizenship. This is why any policy that purports to have an effect on the quality or the composition of the workplace must pursue, above all else, the goal of social inclusion rather than that of a pecking order determined by knowledge. p. 5

If we look at recent OECD and Canadian policy statements on human capital, we find that they refer almost exclusively to the globalized, competitive, for-profit, commercial sectors of the economy and that they rarely mention other areas of occupation that Statistics Canada (2003) called the social economy , which includes not-for-profit organizations such as cooperatives, credit unions, volunteer organizations, the education sector, and health care. According to Statistics Canada, these together accounted for 20% of all productive work in Canada in 2004. p. 5