Coronavirus Exposes the Value of Human Capital

COVID-19’s multi-pronged attack

Not only is the coronavirus assaulting our bodies, killing thousands, which is bad enough. It is also attacking our social and economic structures.

Scientists have found that once it enters the body, COVID-19 is capable of attacking almost any organ, with devastating consequences.  It is doing something very similar to our economic systems.

Your money or your life

During the spring and summer of 2020, in the depths of the coronavirus crisis, human contact has become potentially life-threatening. Going to church, concerts, restaurants, ball games, just hanging out with friends…all the things that bring us together became potentially lethal, and were ordered to shut down. The slow pace of reopening and the hesitant return to normal life in many places highlights the ongoing fears people have of becoming infected.

The coronavirus has led to many needless deaths, in the sense that researchers have estimated locking down earlier could have saved tens of thousands of lives, notably in the US, UK, Brazil, Russia and other countries.  In many countries, either by going into lockdown too late, or opening up too early, the health of the economy seems to have been given precedence over the health of the population.

Is there an inherent de-prioritizing of human life in some societies? If we consider just the US, the answer would seem to be yes. Add up the opioid deaths (67,000 in 2018) fatal shootings (over 15,000 in 2018), civilians killed by police (about 1,000 per year) not to mention falling life expectancy (a phenomenon unique among developed countries), one cannot but wonder whey so little has been done to address these types of deaths.

The disregard toward human life was not new, but has come into sharp relief during the crisis, which has so far claimed over 115,00 American lives (out of at least 420,000 worldwide).

Calculating risks

Of course, it is true that a balance must be struck between staying safe and living life. To quote Jean-Paul Sartre “to know what life is worth you have to risk it once in a while.”

There is a risk calculus to everything we do. We’re always making trade-offs. Shut economies down too tightly and for too long and the side-effects can start turning lethal. Clearly, the health of the economy indirectly affects our personal health as well. People avoid going to the hospital, women in abusive relationships are further endangered, the poor run out of food.

However, in some countries, as the crisis dragged on it became clear that leaders, keeping an eye on the election cycle and the stock market, have been cavalier about the human costs. The default justifications for doing too little were either professed beliefs that COVID-19 is not that serious, perhaps even a hoax? Or that people’s freedom should not be curtailed.

What does the coronavirus threat mean for society? Specifically, what does it mean for the capitalist system, to which most of the world’s countries adhere to one degree or another? One could argue that, amid the economic havoc it has caused, and the many needless deaths, the virus also presents us with an opportunity. An opportunity to shift our focus away from materialism, consumerism, profits and share prices, and place greater value on human aspects.

I will argue that this would not be wide-eyed, new age attitude, but a smart investment in one of the under-appreciated pillars of capitalism – human capital. And it is precisely human capital that the coronavirus is attacking.

Capitalism’s foundations

According to economic theory, capitalism is based on three factors: capital, labor and land. The first two, capital and labor, have been severely damaged by coronavirus.

With labor, the impact is obvious. Millions have lost their jobs and a large share of those jobs will never come back. Many businesses have shut their doors forever, others are having to adjust to diminished sales as customer numbers fall. Still more are rebalancing how they combine labor and technology and accelerating the move to automation.

What about capital?  In economic terms capital is an asset, a good. Traditionally, capital is considered the physical and financial material necessary for producing goods and creating wealth.  Capital is the raw material to be transformed into things we use and things we consume. This process of capital extraction and transformation produces new value.

In simple terms, labor and technology are the skills, energy and tools used to create surplus value from that capital. We take a basically inert substance, matter, and process it into something useful and more valuable than before.

Mix in property rights and freedom of exchange, and in very broad terms you have the basic building blocks of a capitalist system.

Human capital

In the 1950s the concept of capital was expanded beyond the physical and financial to what was called human capital. This refers to the health, education, and social networks of a population. This capital is not visible, per se, but it is a very valuable asset. Simply put, being educated, healthy and connected with others helps all of us to live better lives.

Human capital also increases productivity, it makes the labor input more efficient and effective. Without human capital, physical and financial capital are not very useful, although technology is able to substitute for human capital for certain tasks, as production processes become automated.

Another type of capital is social capital. This is formed out of the contacts which individuals have with others, their networks. These can also be extremely valuable. The Kyrgyz have a saying (which was used for the title of a World Bank study on the importance of social networks in that country): better a hundred friends than a hundred rubles. 

COVID’s attack on capital

It is precisely the three core elements of human capital — health, education, and social networks — which COVID-19 has so successfully attacked.

In terms of health, it has infected over 6 million people, and killed over 400,000 as of early June 2020. On the education front, the virus has hobbled our schools, weakened the ability of children and university students to learn. And when it comes to networks — the confinement, social isolation, and closure of restaurants, bars and churches has severely restricted our human contact. And for the roughly 50% of the global population that is without internet access or smartphones, it has degraded their social interactions. Not everyone spends their days in Zoom meetings or happy hours.

Of course, even before the crisis, it seems our society gave greater weight to financial capital than to the health or education of our population.  One could argue that police killings of unarmed African Americans, and the apparent disregard among police for human rights that have become apparent during the protests are yet another indicator that in America the interests of society take second place to other interests. (On could say that “black” human capital is valued less than “white” human capital.)

After the 2008 financial crisis, government bailed out the banks, not ordinary people. The numbers that we track are financial — the Dow Jones, GDP, interest rates.

Why don’t we take as much care of our human capital as we do of our financial capital? Somehow, we’ve let ourselves, as a society, become focused on efficiencies, cost savings, share prices and shareholder value. It has come to seem normal to many people.

Just referring to the US healthcare system and the health of the population as an example — are people truly free if they face the threat of catastrophic health bills should they become sick? Is it good for capitalism when labor is hobbled in this way?

Undervaluing human health and education

Human capital is intangible. Is it because economists have trouble measuring it, that we undervalue it? (For example, it is fairly easy to track years of schooling, it is more difficult to measure the quality of education, i.e. how much children are actually learning.) Is it because financial and business interests largely control our political processes? A combination of the above?

Why, for example, does health insurance have to be linked to be employment, as is the case in the US? Why do we in the US, have a system where millions still don’t have health insurance when all other rich countries do? A lot of people are afraid to leave their jobs because they depend on them for health insurance. That can hardly be called freedom of movement, an essential element of a free market system which the US prides itself on having. It is not optimal for the free market. Staying in a job you’d rather leave doesn’t stimulate risk-taking and innovation, two prized elements of the free market system.

It is not that we can’t afford it — the US spends more money on healthcare per capita than any country in the world. It just does not spend it very well. Life expectancy is lower than all other rich nations and, as noted above, has been falling for four years (it finally ticked up again in 2019).

Opposition to guaranteeing health cannot stem from some love for unfettered free markets, or an aversion to government support. Medicare is huge and popular! And we are happy to bail out financial institutions, businesses, car companies, when they were on the brink of collapse in 2009. We always seem happy to lavish support on the private sector in the form of tax cuts and tax breaks.

Now, it’s true that trillions of dollars in stimulus funding have been passed on to citizens. But this is a reaction to the crisis. Why should we not take better care of human capital during the good times as well?

An opportunity to change?

Let’s hope that the assault on human capital by COVID-19 will lead to a shift in values. A shift away from fixating on financial capital toward human capital.

What I would hope arises from this is a different way of thinking, a more human-centric attitude toward capitalism.

Under such a human-centric capital system, as much weight would be given to human capital as it is to physical and financial capital. This may seem an obvious choice to many liberals. However, the shift will only take place if the die-hard free market, pro-business factions come to recognize it as well: that human capital — a healthy, educated population — is valuable, should be cared for and protected. Just like a company’s bottom line. That would be a kind of victory, and a metric worth tracking.