Documenting human capital: The next wave of economic development

Documenting human capital: The next wave of economic development

Summary: In a podcast interview, Mitch Ratcliffe discusses the concept of documenting human capital and what it holds for individual workers with Princeton economist Robert Shiller.

TOPICS: Security

There's a podcast associated with this posting. You can download it here.

You, your children and your children's children are going to be information entrepreneurs. In everything you do. From work to play, at home and on the road, you throw off valuable information and ideas that will soon be recordable and a key component of making a living as well as improving economic efficiency and competitiveness. Human capital, all the intangibles people talk about today, will soon be measured. Life will include all sorts of new decisions.You won't want to share it all, you'll have the opportunity to profit in myriad ways. Life will include all sorts of new decisions.

For now, Google is the only company to have successfully begun to mine the vast reservoir of human capital that exists in people and their actions. Granted, Google's extracting only simple information, such as search queries and behavioral data. It has kept virtually all that value to itself—to the tune of billions of dollarrs a quarter—by convincing people their services are more valuable than our personal intelligence. Google has barely put a gouge in the earth of value that is human capital.

Human capital, all the intangibles people talk about today when they speak of relationship value, the worth of education, social capital, intellectual effort and so much more, will soon be measured. A hundred years ago, no one would have contemplated counting calories or measuring productivity. Brawn, not brains, was thought to be the main driver of economic value. Documented human capital, captured through a variety of systems, including wearable computers and attention monitoring, will transform society as completely as the industrial age, but we're not there yet.

Robert Shiller, an economics professor at Princeton University, provided a thought-provoking look at how economic models could be created on the foundation of better measurement in his book, The New Financial Order. He examines hedging societal risk, such as drastic changes in technology that displace workers, national inequality insurance and intergenerational social security built on the idea of global risk information databases. His ideas show where the path to documenting human capital might lead.

The IT era has only set the stage. I had my a-ha! moment about this after talking with Joseph Hentz, an entrepreneur who co-founded Volitional Partners and Openyear, a project to develop the first versions of documented human intellectual capital. We'd been talking for more than two years and at first I thought they were insightful but crazy.

Hentz said to me recently "Someday, you'll be able to ask questions based on the biofeedback, tone of voices and conversations, and quality of ideas produced, like 'How is the company feeling today?'"

Think about that. The company, whether it is under one roof or distributed across continents, will be as measurable as the human body is today. What did it do today? How is it feeling, and what does feeling best mean (perish the thought the company will run well only if we're all mindlessly happy)? We won't understand what all the measurements tell us, just like we don't fully understand the body—we may only have scratched the surface—nevertheless we will be able to create profoundly interesting financial instruments that hedge risk and profit from each breakthrough.

It is critical, however, that everyone begin to think about the possibilities and implementation, so that the economic opportunities created by measuring human capital are truly bottom-up. Why? Because this is information that comes from within us. We own it and must not begin to live in this new economic order in ignorance or we will be exploited as completely as the environment was by the industrial economy. Companies will participate and profit, but we have to know what we're getting ourselves into, conceiving new forms of contract to govern our interactions. Unlike getting a chip in our necks, this is an opportunity to begin to redefine economic relationships so that make prosperity available to every participant.

Companies hoping to participate in this evolved, human capital-based economies will have to listen to the market first and always. Equitable contracts for sharing ideas, for profit and not, must spring from the community that will live those contracts.

There has been a lot of dialogue about the pressing need for new financial models for funding new companies and research.

Listen to Robert Shiller talk about how a scientist could sell, say 30 percent of his future worth at graduation in exchange for 30 years worth of income to fund his life and research. The amazing thing about documented human capital is that it could provide the unanticipated economic value that can be used to break the logjam that prevents small companies and individuals from undertaking extremely risky potentially highly valuable work. It may not be a problem of connecting funders and startups, rather the barrier may be the lack of a concept of value that must be unleashed.

This human capital debate is deeply connected to the problem of starting new companies and opening the way for individuals to pursue their dreams.

So, I've agreed to conduct a series of interviews with people who have broken ground in human capital, beginning with Robert Shiller. You'll find the podcast of our discussion here.

After you listen, join the discussion in Talkback. This is a phenomenon that will transform life, so let's take charge by participating in a debate about the evolving technologies and economic models that will prevail when we're (not much) older and during our descendants lives.

[Full Disclosure: I have been an advisor to Volitional Partners for about a year and, in my role as the gatherer of stories that enable this discussion, I will benefit financially if the company raises funding and succeeds in launching a service.] 

Topic: Security

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  • Human & Financial Capital

    If we accept Peter Drucker's thesis that knowledge workers (people who think for a living) own the means of production through the collective
    expression of their human capital, what do financial capitalists or shareholders really own? Legally, of course, they own it all - the whole
    company. But, legally they can't own the people. They can really only own the physical, financial and intangible assets. As principals, they
    rely on their agents, an elite class of knowledge workers known as senior managers and board directors to attract and retain the right
    mixture of fluid human capital to create and steward intangible assets like brand and others.

    So, where is the ownership line between financial capitalists and human capitalists really drawn? Perhaps, a rough measure may be found in the Market-to-Book-value of a company. Book value
    (physical and financial assets) could be said to constitute the "opportunity platform" contribution made by the financial capitalists.

    The current Market capitalization minus Book value, could be said to be the "opportunity seized" or value-added by the human capitalists to
    date. It's interesting to note here that legally speaking the financial capitalist is presumed to have an ongoing interest and entitlement to
    the value-added by the human capitalist. Conversely, the human capitalist is often separated from the fruits of her potentially
    durable contributions at termination.

    A great deal has been made of how non-Book value is comprised of intangible assets. For example, Smith and Parr have calculated the
    following percentages of intangible assets for the following companies: Johnson & Johnson (87.9%); Proctor & Gamble (88.5%); Merck (93.5%);
    Microsoft (97.8%); and Yahoo! (98.9%). Though intangible, with the evolution of Documented Human Capital this value need not remain faceless. Like everything else it will yield to the long tail of
    personalization. As people place more of their human capital on-the-record, it will become increasingly possible to automatically associate it, and other metrics, with individuals, teams, and inter/intra company worker networks,

    Wealth creation is not a zero sum game. The key to a win-win for both financial capital and human capital investors are standard agreements that determine outcomes based on on-the-record evidence, as occurs in science, courts,
    professional sports and other domains today. Standardization will allow workers to offload their risk to the financial markets which are in a better position to bear it, relative to their companies. What will it mean when financial
    investors can invest directly in mobile talent as it moves from company to start-up to company? Stan Davis and Chris Meyer gave us a foresightful
    glimpse in their 2000 book "Future Wealth".
  • Documenting Human Capital

    I have been doing extensive research on human/intellectual capital for more than 25 years and published two books on the subject (please visit my website,, for more information). More than a year ago Joseph Hentz of Openyear contacted me about using my "triad" as the theoretical foundation for the development of an IT system for tracking human capital of knowledge workers. Since that time I've been collaborating with Joseph and made an investment in Openyear. I believe Openyear will provide unheard of benefites to knowledge workers in the near future.

    Essentially what I have done is to pinpoint and show the dynamic relationships of three primary factors that are the foundation of informal systems present in all social groups including businesses. These interdependent factors are comprised of self-organization, social capital, and tacit knowledge. Each of these factors has been separately written about previously, but no one has shown the synergistic power that can emanate from the interplay of the forces within this triad. I've developed models to do exactly that in my latest book,Hidden Assets: Harnessing the Power of Informal Networks (Springer, 2005).