Human Capital and Human Development

The two terms human capital and human development sound alike, but they carry a clear difference in outlook.

Human capital views education and health mainly as a means to raise labour productivity. In this view, people are treated as a means to an end, and the end is greater output. Any spending on education or health would be judged unproductive if it did not increase the output of goods and services.

Human development rests on a different idea: that education and health are integral to human well-being in themselves. Only when people can read and write and can lead a long, healthy life are they able to make the other choices in life that they value. Here human beings are treated as ends in themselves, not just as instruments of production. Investment in education and health should raise human welfare even if it does not lead to higher labour productivity.

The practical consequence is important. From the human development standpoint, basic education and basic health matter in their own right, whatever their effect on productivity. Every individual has a right to basic education and basic health care, that is, a right to be literate and to lead a healthy life. This makes human development a broader idea than human capital: human capital asks whether education and health pay off in output, while human development treats them as entitlements essential to a decent life. …