6. Human Resource Development – Business Environment

6

HUMAN RESOURCE DEVELOPMENT

After reading this chapter, you will be able to understand and appreciate the role of human resource development in the growth of business and economy and know the reasons why India occupies a low rank in the Human Development Index and how best we can improve its position.

Two thousand years ago, Plato said man is a social animal. During the same period, Aristotle averred that man is a political animal. At a later period, Machiavelli said “Man is an anti-social animal. Man is basically an animal and he needs socialization”. For this socialization and civilization, he needs education and training. There was a period when physical capital (also called conventional or non-human capital) was considered to be the only productive capital. However, now it is growingly felt that a dollar invested on education brings a greater increase in national income than a dollar invested on roads, dams, factories or any other tangible good. Alfred Marshall considered the investment in human beings as the most valuable of all capital.

EVOLUTION

The birth of the idea of human resource development (HRD) in the modern period can be traced to the late 50s of the last century, especially when Theodore Schultz, in his presidential address to the American Economic Association in December 1960, explained this concept and electrified public opinion. He explained that any expenditure on human beings was not a consumption item, but must be considered as an investment item. On human capital, Schultz had this to say: “Although it is obvious that people acquire useful skills and knowledge, it is not obvious that these skills and knowledge are a form of capital, that this capital is in substantial part a product of deliberate investment, that it has grown in Western societies at a much faster rate than conventional (non-human) capital, and that its growth may well be the most distinctive feature of the economic system.”1

Subsequently, economists and social scientists attempted to link human development and economic growth through a circular relationship between the two. Through the process of economic growth conditions conductive to the creation for better health and education are created, which in turn promote economic growth. When taken to its logical conclusion, the United Nations Development Programme (UNDP) has developed a composite index of human development, now popularly known as Human Development Index (HDI).

WHAT IS HUMAN RESOURCE DEVELOPMENT?

Human resource development is a complex process. Its components include health, education, youth welfare, social services, games and sports. According to Peter Drucker, “The human being as such is not a resource; it becomes a resource only if it is trained, developed and allocated to productive work”. Human capital refers to man's productive skills, talents and knowledge. Human capital formation “is a process of increasing the knowledge, skills and capacities of the people of a country”. Adam Smith in his concept of Fixed Capital included the “acquired and useful abilities”.

According to Amartya Sen, “The process of widening people's choices and the level of well-being they achieve is the core of the notion of human development. But regardless of the level of development, the three essential choices for people are to lead a long and healthy life, to acquire knowledge and to have access to the resources needed for a decent standard of living.”2 Human development does not end there; however, other choices highly valued by many people range from political economic and social freedoms to opportunities for being creative and productive and enjoying self respect and guaranteed human rights.“3 The development of human resources requires adequate provision of health services, water supply, education, housing, nutrition and family welfare facilities which are essential determinants of the quality of life. The provision of one without the other is bound to affect the life adversely; hence, the strategy is to take an integrated view of these factors.”4

According to Theodore Schultz, the following are the most important activities that improve human capacities5:

  1. Health facilities and services, broadly conceived to include all expenditures that affect the life expectancy, strength and stamina, and the vigour and vitality of people.
  2. On-the-job training including old-style apprenticeship organized by firms.
  3. Formally organized education at the elementary, secondary and higher levels.
  4. Study programmes for adults that are not organized by firms, including extension programmes notably in agriculture.
  5. Migration of individuals and families to adjust to changing job opportunities.?
HUMAN CAPITAL

Human capital is sometimes used as an alternative term for the factor of production, labour.6 Human capital refers to the skills, capacities, abilities possessed by an individual which permit him to earn income. We can thus regard income he derives from supplying personal services (as opposed to lending money, letting property) as the return on human capital he possesses. We can regard a period of formal or informal training and acquisition of these skills as a process of creating human capital, just as the construction of machinery, buildings, and the like creates physical capital.7

Autar S. Dhesi in his book, Human Capital Formation and its Utilization, says “knowledge is our most powerful engine of production”, and continues: “Creation, transmission and reception of knowledge—all these require well-developed human capacities”.

Human capital formation plays an important role in economic development. The effective use of physical capital itself is dependent upon human capital. Technical, professional and administrative people require physical capital to make effective use of raw-material resources. Many economists have pointed out that the Third World countries have remained underdeveloped for want of adequate amount and appropriate quality of human capital. For instance, the general masses in these countries are either illiterate or their level of education is very low; most of them are unskilled and untrained and their general health is very poor. Therefore, large-scale investment in human capital is needed if physical capital available to these countries is to be exploited in a more efficient way. Development and human resources proceed together and reinforce each other.

HUMAN RESOURCE DEVELOPMENT IN INDIA

The Constitution of India in its various Articles gives a prominent place to the development of the human factor. The Preamble of the Constitution itself is a recognition of this fact. The Articles of the Constitution relating to “Fundamental Rights” and “Directive Principles of the State Policy” inter alia lay down that the State shall make an effective provision for the development of human resource.

The Constitution lays down that the State shall within the limits of its economic capacity and development make an effective provision for securing all children the right to education. It also makes a provision for free and compulsory education for children until they complete the age of 14 years. Since 1951, all out efforts have been made by the Indian government to achieve the Constitutional directive, though with less than satisfactory results. The Planning Commission in its report on the First Five Year Plan indicated the following lines of direction8:

  1. Reorientation of educational system and integration of its different stages and branches
  2. Expansion in various fields especially in the basic and social education, remodelling vocational education
  3. Consolidation of the existing secondary and university education and devising a system of higher education suited to the needs of rural areas
  4. Expansion of facilities of women's education especially in rural areas, training of teachers—especially women teachers and teachers of basic schools—and improvement in the pay scales and conditions of service
  5. Helping backward States by giving a preferential treatment to them in the matter of grants
FUNCTIONS

According to United Nations' Development Programme (UNDP), “Economic growth contributes most to poverty reduction when it expands the employment, productivity and wages of poor people and when public resources are channelled to promoting human development. A virtuous cycle of economic growth and human development arises when growth is labour using and employment generating and when human skills and health improve rapidly”9. HRD is expected to perform the following functions in developing countries such as India.

  1. Help to discard outdated technology and adopt the latest technology in every sphere of human endeavour over a period of time.
  2. There is now a paradigm technology shift to knowledge-based segments in industries. This shift is very much discernable, especially in the Information Technology (IT) and IT-enabled services (ITeS), pharma and such sunrise industries. These industries which originally were located in crowded cities are getting gradually dispersed to second-tier and third-tier cities and towns too, thereby spreading knowledge, education, employment and several other external economies throughout the country.
  3. In the knowledge economy, people are getting to know, and more importantly realizing increasingly, the significance of learning soft skills and other skill sets. This promotes the growth of intangible assets, appropriate organizational culture and core competencies for people to measure up to the needs of a growing knowledge economy.
  4. Modern physical technology that is becoming increasingly complex with the passage of time is to be buttressed by advances in social technology, i.e., skills being acquired by individuals and groups. Unless social technology matches physical technology and soft skills, there will not be cohesive and inclusive growth in society.
  5. All innovations in physical technology were always preceded by advances made in social technology, especially in terms of higher education in sciences, social and fundamental sciences. But for the investment and growth of these basic sciences of all kinds, innovation in physical technology would not have been possible.
  6. Higher education has brought about in the educated persons independence and initiative, a rational and questioning attitude, an inquisitive mind, all of which are highly regarded intellectual resources for creating and disseminating knowledge. All these are the basic requisites in a knowledge society.
  7. There is positive empirical evidence amongst people of developing countries to suggest that education helps in the eradication of poverty, that high literacy amongst the girl children considerably reduces birth rate and that longer are the years of schooling the greater is the farm production.
  8. There is a close inter-relationship between growth in human development and success at poverty eradication. Poverty is both a cause and a consequence of deficiencies in human development. When governments spend much to enhance aspects of human development, there is every likelihood that it will have greater impact on poverty alleviation, which will in turn improve human development.

To conclude, HRD is a necessary condition to improve productivity and to raise the quantum of production, which in turn accelerates economic growth. Once governments in poor countries invest heavily on various aspects of human development so as to improve their human capital, they can then use this cheap and skilled labour along with cheap and cost effective capital and technology of the West to produce goods that could be exported. Many of the South East economies of Asia and China have been doing this to their advantage for quite some time now.

HUMAN DEVELOPMENT INDEX

The concept of human capital and its development are being studied scientifically since the UNDP published the Human Development Report in 1997. The UNDP report defined the human development thus: “It is the process of widening people's choices and the level of well being they achieve are at the core of the notion of human development. Such theories are neither finite nor static. But regardless of the level of development, the three essential choices for people are to lead a long and healthy life, to acquire knowledge and to have access to the resources needed for a decent standard of living.”10 The report further speaks about other choices that many people highly value such as social, political and economic freedoms, opportunities made available to be creative and productive apart from being allowed to enjoy one's self-respect and human rights. The report further emphasized the fact that apart from income, which is definitely an important option for people, there are other equally important issues such as gender equality and poverty alleviation to deal with as part of the human development.

Human development index (HDI) measures the average achievement in three basic parameters of human development. These are:

  1. A long and healthy life as measured by life expectancy at birth;
  2. Acquisition of knowledge or educational qualification as measured by a combination of adult literacy (two-thirds weight) and enrolment ratios at primary, secondary and higher levels (one-third weight); and
  3. A decent living standard as measured by real GDP per capita, in terms of purchasing power parity in US dollars

For working out the HDI, an index for each of these basic parameters is calculated, by taking the maximum and minimum values for each parameter as shown in Table 6.1.

Performance in each parameter is expressed as a value between 0 and 1. The following formula is used to get the result

 

 

Table 6.2 gives the trends in the human development index for ten selected countries for the years 1970, 2002 and 2006. A close reading of the HDI values between 1970 and 2008 shows that all the ten countries have been making attempts in varying degrees to improve their human development indices.

In addition to the HDI, two other indices were developed by the UNDP under the expert guidance of the well known Pakistani economist, Mahbul-ul-Haq. These are the gender-related development index (GDI) and the human poverty index (HPI).

 

Table 6.1 Maximum and Minimum Values for Calculating HDI

Parameter Maximum value Minimum value
Life Expectancy at Birth
85
25
Adult Literacy Rate
100
0
Gross Enrolment Ratio
100
0
GDP per capita (PPP US$)
40,000
100

 

Table 6. 2 Human Development Index

 

Sources:

  1. UNDP, Human Development Index, UNDP 2005.
  2. Tata Services Ltd, Statistical Outline of India, 2006-07 and 2007-08, Mumbai: Tata Services Ltd.
  3. UNDP, The 2008 HDI represents statistical values for the year 2006. Available online: Human Development Reports (HDR) — United Nations Development Programme (UNDP). http://hdr.undp.org/en/statistics/
  1. Gender-related Development Index (GDI): GDI measures the average achievement reflecting the inequalities between men and women, taking into account (a) life expectancy of women; (b) adult literacy and gross enrolment ratio of women; and (c) per capita income of women. However in the unlikely case of zero gender inequality, the value of HDI and GDI would be the same. But where there is a gender inequality, GDI value would be below HDI value. If there is greater difference between the two values, there is definitely a great gender inequality. From the data provided by the UNDP, it is seen that there is near gender equality in most developed countries such as Norway, United States, Canada, United Kingdom, Japan and the Russian Federation. Even among some low income countries such as Malaysia, Venezuela, the Philippines, Sri Lanka, China, Vietnam and Indonesia, there is considerable degree of gender equality, whereas countries like India, Egypt, Pakistan, Iran, Nigeria and Saudi Arabia exhibit considerable degree of gender inequality.
  2. Human Poverty Index (HPI): The Human Development Report of 1997 introduced the concept of HPI. HPI lists three parameters of human development—longevity, educational attainment and a reasonable living standard, all of which have already been covered in HDI. However, HPI lists certain deprivations relating to these three parameters. For instance, (a) the first deprivation suffered by some people explains their vulnerability to death at a relatively early age, say, at 40 years; (b) deprivation relating to education in HPI is measured by the percentage of illiterate adults; and (c) the deprivation relating to living standards in HPI is measured in terms of (i) poor health services, (ii) lack of access to safe drinking water, and (iii) the percentage of malnourished children under five years of age.
SUMMARY
  • The birth of the idea of HRD in the modern period can be traced to the late 50s when Theodore Schultz explained that any expenditure on human beings was not a consumption item, but an investment item. Subsequently, economists attempted to link up human development and economic growth.
  • Human Resource Development is a complex process. Its components include health, education, youth welfare, social services, games and sports.
  • Human capital refers to the skills, capacities, abilities possessed by an individual which permit him to earn income. Human capital formation plays an important role in economic development. The effective use of physical capital itself is dependent upon human capital. Technical, professional and administrative people require physical capital to make effective use of raw-material resources.
  • HRD is expected to perform the following functions in developing countries like India. They will have to adequately prepare themselves to adopt latest technology. There is now a paradigm shift to knowledge-based segments in industries. In the knowledge economy, people are getting to know, and more importantly realizing increasingly the significance of learning soft skills and other skill sets; modern physical technology that is becoming increasingly complex. Unless social technology matches physical technology and soft skills, there will not be cohesive and inclusive growth in society.
  • Higher education has brought about in the educated persons independence and initiative, a rational and questioning attitude, and an inquisitive mind. There is a positive empirical evidence to suggest that education helps in the eradication of poverty. There is a close inter-relationship between growth in human development and success at poverty eradication.
  • Human Development Index (HDI) measures the average achievement in three basic parameters of human development: a long and healthy life as measured by life expectancy at birth; acquisition of knowledge or educational qualification as measured by a combination of adult literacy and enrolment ratios at primary, secondary and higher levels; and a decent living standard as measured by real GDP per capita.
  • Gender-related Development Index (GDI) measures the average achievement reflecting the inequalities between men and women; human poverty index (HPI) measures longevity, education and standard of living.
KEY WORDS
education gender-related index human capital
human development index human development human poverty index
human resource innovations longevity
migration physical technology standard of living
technology shift    
DISCUSSION QUESTIONS
  1. Explain the concept of human resource development. What is its importance?
  2. What are the functions of human resource development?
  3. What is human resource index? Where does India stand in the index?
  4. Explain the concepts of HDI, GDI and HPI and their inter-relationships.
  5. Examine the need for human resource development to face the problems arising out of rapid population growth.
SUGGESTED READINGS

Datt, Ruddar. Human Development and Economic Development. New Delhi: Deep & Deep Publications Pvt Ltd, 2002.

Dreze, Jean and Amartya Sen. India: Economic Development and Social Opportunity, Delhi: Oxford University Press, 1995.

Haq, Mahbul-ul. Human Development in South Asia, New York: Oxford University Press, 1997.

Indian Economic Association. IEA Amrit Jubilee (81st) Conference Volume. Bangalore: IEA, 1998.

Planning Commission. National Human Development Report. Delhi: Planning Commission, 2002.

UNDP. Human Development Report. 1997, (2003, 2005).

UNFPA. India: Towards Population and Development Goals. Delhi: Oxford University Press, 1997.

Francisco H. G. Ferreira World Development Report. Washington: Equity and Development, 2006.