July/August 2013

The Dynamics behind Human Capitalism

Over the past generation, the rise of inequality has become a hot-button issue. The growing divide between those enjoying economic prosperity and those struggling to make ends meet fosters debate among politicians, pundits, scholars, journalists, and economists alike. And yet, the means for narrowing that gap have proven elusive. In Human Capitalism (Princeton University Press, 2013) — published last fall as an ebook and just released in hardcover form — author Brink Lindsey, a senior fellow at the Cato Institute, explains the swelling class divide as primarily a function of our most important asset: the one we carry around in our heads.

In short, Lindsey argues that economic growth has left us with a highly complex world. We are constantly faced with intricate tasks at work, varied social circumstances, and numerous choices throughout the day. That complexity has in turn imposed heavier and heavier demands on our mental capabilities. As a result, some have responded by making greater investments in the valuable knowledge and skills — the human capital — needed to navigate this increasingly complicated environment. “We are rich today not simply because our superior technology and organization have made us more productive,” he writes. “Our minds have become more productive as well.”

The rise in complexity has therefore been “a mighty engine of human progress,” Lindsey writes, but the problem is that not everyone is thriving in this new economic landscape. Despite the unprecedented prosperity our system generates, millions remain trapped on the margins of society. “Complexity has opened a great divide between those who have mastered its requirements and those who haven’t,” he continues — and the main factor dividing the haves from the have-nots in today’s knowledge economy is the possession of human capital. The demand for these skills has continued to grow, in other words, but the supply has stalled. Ultimately, this increasingly lopsided state of affairs is unsustainable, Lindsey argues. How can the benefits of economic growth be spread beyond those who already enjoy its rewards?

The solution, he says, is to restore the connection between increasing complexity and rising human capital across the socioeconomic spectrum. Offering policy prescriptions that range from increased competition in education to reform of land-use regulation, Lindsey explains how exposure to, and participation in, the complex tasks of modern life can be broadened — and ultimately, how the vitality of human capitalism can be restored.