The following material has been drawn, with permission, from DFID’s Sustainable Livelihoods Guidance Sheets.  For an introduction to the asset pentagon, change in asset status, and relationships within the framework (click here) 

What is Human Capital?

Human capital represents the skills, knowledge, ability to labour and good health that together enable people to pursue different livelihood strategies and achieve their livelihood objectives. At a household level human capital is a factor of the amount and quality of labour available; this varies according to household size, skill levels, leadership potential, health status, etc.

Human capital appears in the generic framework as a livelihood asset, that is, as a building block or means of achieving livelihood outcomes. Its accumulation can also be an end in itself. Many people regard ill-health or lack of education as core dimensions of poverty and thus overcoming these conditions may be one of their primary livelihood objectives.

Why is it important?

As well as being of intrinsic value, human capital (knowledge and labour or the ability to command labour) is required in order to make use of any of the four other types of assets. It is therefore necessary, though not on its own sufficient, for the achievement of positive livelihood outcomes.

What can be done to build human capital for the poor

Support to the accumulation of human capital can be both direct and indirect. In either case it will only achieve its aims if people themselves are willing and able to invest in their own human capital by attending training sessions or schools, accessing preventative medical services, etc. If they are prevented from doing so by adverse structures and processes (e.g. formal policies or social norms that prevent girls from attending school) then indirect support to human capital development will be particularly important.

In many cases it will be necessary to combine both types of support. The most appropriate mechanism for such combined support may well be a sector programme. Sector programmes can adopt an integrated approach to human capital development, drawing on information gathered through livelihoods analysis to ensure that effort is focused where it is most needed (for example, on disadvantaged groups).

Sustainable livelihoods objective: improved access to high-quality education, information, technologies and training and better nutrition and health... achieved through, for example:

Direct support to asset accumulation

Indirect support (through Policy, Institutions & Processes)

Feedback from achievement of livelihood outcomes

To health / education /  training infrastructure

To health / education / training personnel

To the development of relevant knowledge and skills (these should be developed with and made readily available to the poor)

Reform of health / education / training  policies

Reform of health / education / training organisations

Changes in local institutions, culture, norms  that limit access to health / education / training (e.g. for women)

Health status is directly related to income / food security (with relevant knowledge)

Higher income is often reinvested in education

Reduced vulnerability can reduce the birth rate (with knock-on effects on nutrition and labour)

Another indirect way of promoting education is to increase its value, by helping to open up opportunities for those who have invested in education.  This can be done through providing direct support in other areas, for example through extending access to financial capital thereby enabling people to put their knowledge to productive use.  Helping to reduce the drudgery of day-to-day activities can also help free people up so that they have the time for education and can then make better use of that education.

The issue of institutional sustainability is of particular importance in the area of micro-finance. Unless people believe that financial service organisations will persist over time, and will continue to charge reasonable rates of interest, they will not entrust their savings to them, or be reliable in making their loan repayments.

Knowledge generated must be relevant to existing or potential future livelihood strategies.  One way to ensure this is to adopt participatory processes of knowledge generation that build upon and complement existing local knowledge.

Provision must be made for extending access to the knowledge generated.  Just as school buildings do nothing for human capital if they are not brought to life with learning, so new technologies and ideas are redundant if they do not reach people. Sharing knowledge with the poor has proved to be a particular problem in the past, hence the need to consider new options for supporting information networks using new types of communication channels, etc.

What type of information is required to analyse human capital

There are many quite well-developed indicators of human health, though some such as life expectancy may be difficult to assess at local level.  Rather than focusing on exact measures, it may be more appropriate to investigate variations.  Do different social groups have obviously lower or higher life expectancy? Are the children of indigenous groups, for example, more poorly nourished than other children? Does the quality of health care available to different groups differ markedly?

Education indicators may be easier to assess. It is relatively simple to determine the average number of years a child spends in school, or the percentage of girls who are enrolled in school. What is far more difficult is understanding the quality, impact and value to livelihoods of these years in school, the correlation if there is one between years in school and knowledge, and the relationship between either of these and leadership potential.

Formal education is certainly not the only source of knowledge-based human capital. It is equally important to understand existing local knowledge, how this is shared, added to and what purpose it serves. For example, some knowledge can be highly useful for production think of knowledge about modern, intensive farming techniques but be neutral or negative in terms of its effect upon the environment and environmental sustainability.  Or some knowledge again, think of knowledge for production, either agricultural or industrial may be effectively useless unless it is coupled with other types of knowledge (knowledge about how to market goods, about appropriate quality standards, etc.).

The following types of questions are likely to be important when thinking about human capital:

INSIGHT

Knowledge generation should be based upon a broad understanding of the current livelihood strategies of the poor and the internal and external factors that may cause these to change.  Clearly there is a close relationship between the way that knowledge is generated and transmitted and social capital.  High levels of social capital can therefore substantially add to human capital.  Minimum levels of other types of capital plus broadly conducive transforming structures and processes may be necessary to give people the incentive to invest in their own human capital.