ZEW President Wolfgang Franz on the Term “Human Capital”

This article appeared in the March 2005 edition of the ZEWnews.

Ignorance

My respect for linguists has been somewhat compromised in recent weeks, and this is not just because a small group of these self-appointed language experts recently crowned “human capital” (in German: “Humankapital”) 2004’s “non-word” of the year. Everyone makes mistakes, but far more disturbing was the applause the jury received for their decision from other linguists, including the presidents and directors or various national academies of language and literature. Either the deficits discussed in the PISA studies stretch far beyond the school room or the choice of this particular “non-word” is an expression of a conscious, ideologically motivated strategy to take economics and its supposed “reign of terror” down a peg or two.

Just as even intelligent people, on the centenary of Einstein’s “Miracle Year” no less, boast about and are praised for understanding nothing about mathematics, in many circles today it is fashionable to decry what they see as the imperialism of economics. Such people find competition completely acceptable, just as long as it does not affect them. They are happy to haggle the salesman at the car dealership down to his final offer and suffer palpitations when their bank imposes high interest rates at the mere whiff of risk. However, when these companies try to satisfy their customers’ wishes by cutting costs through lay-offs or moving jobs abroad, these moves are branded as antisocial or even unpatriotic. For such companies, it is thus often preferable to play the “good guy” and pretend as if the benefits they offer their customers simply grew on trees. After all, “fair trade” sounds a lot better than “international competition over locations”. The fact that recipients of long-term unemployment benefit are forced to disclose their assets and accept jobs with low qualifications requirements is often bemoaned as an assault on human dignity.  However, when you ask these outraged poverty officials to suggest how the generous social benefits they are calling for might be funded, they can’t come up with anything beyond a wealth tax before complaining about the exodus of capital from Germany to Luxembourg. Such critics prefer to dedicate themselves to the distribution of gross national product; however, the fact that this has to be generated in the first place, is ignored at all costs.

Declaring human capital 2004’s “non-word” of the year represents a blatant error of judgement, even if it was not the jury’s intention to deny the importance of knowledge and skill levels for the economic well-being of the country and the self-actualisation of the individual, because this is exactly the effect that their decision has achieved among the general public. The jury must have seen this coming, especially considering that they have placed human capital in the company of other “non-words” such as “Rentnerschwemme” (“glut of retirees”) and “sozialverträgliches Frühableben” (“socially responsible dying”). While the concept of human capital is inextricably linked with human beings, the idea that the analogy to investments in real capital and its depreciation reduces human beings to “mere numbers only of interest from an economic perspective” (as the jury claimed in its reasoning behind the decision) is absurd. Should “social capital”, a word we all like to use, now be classified as a non-word? On the contrary, both terms elevate the status of human beings.

That is, of course, not to say that economists are immune to mangling their words. Saying “Kapitalstock” (capital stock) in German may be acceptable, but the plural form “Kapitalstöcken” has to be my top “non-word” in economics. Another bugbear of mine is the term “natural unemployment” since there is nothing natural about underemployment. And while we’re on the subject, to my mind, “structural unemployment”, which doesn’t actually mean anything, should also be banished from the vocabulary of economists, but you knew that already.