Investing in People

I am pleased to report that this week John Wiley released “The Economics of Human Systems Integration: Valuation of Investments in People’s Training and Education, Safety and Health, and Work Productivity.”  I edited this book with contributions from many economists, systems engineers, and behavioral and social scientists.  The overarching question that motivated this book was, “Can we attach economic value to investing in people?”

Given that the book was published, the obvious answer is, “Yes.”  However, there are many subtleties.  Most notably, the economic case for investment is most easily made when the organization making the investment is also the organization that receives the returns on the investment.  The case studies in this book illustrate this conclusion very clearly.  We know how to develop the economic models, collect the requisite data, and compute the value of these types of investments.

However, many important investment problems do not fit this template.  Education and healthcare are two significant examples.  The returns on these investments pay off many years after the investments, with returns that seldom directly accrue to the original investors – except, of course, for the educated person enjoying good health.  The investors – often, community, state, and federal governments – do not directly gain returns.  Further, the people making the original investment decisions are usually long gone when the returns emerge.

We used to think of these returns as “public goods.”  The idea is that we are all better off if everyone is educated and healthy.  Such people, it is argued, will be productive and creative, yielding contributions to society for everyone’s benefit..  In the small New England town where I grew up, it seems to me this argument was never questioned.  However, this argument is not as widely accepted as it used to be.

Contemporary thinking seems to be that education and healthcare represent costs that need to be contained or, better yet, reduced.  Monies spent are seen as the operating costs of government, not as investments.  Such expenditures are seen as analogous to paying utility bills rather than putting monies into the social equivalent of a 401(k).  In this way, education and healthcare are being treated as “private goods” – if you want it, you should pay for it.  It is just a consumable like entertainment or sports.

Unfortunately, this is not a useful philosophy upon which to build a healthy, educated, and productive population that is competitive in the global marketplace.  This is especially true when we compare our philosophy to that of other countries that are making these types of investments and still consider the returns to be public goods.  We need to pay attention to the possibilities that these countries entertain and pursue.

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