Monday, September 6, 2021

The Tragedy of Human Capital Theory in Higher Education (Glen McGhee*)

Have you ever wondered why US student loan debt has soared past all other debt but mortgages, to more than $1.7 trillion?  Did you know $500 billion of that outstanding student loan debt will never be paid back to the US Treasury and that this huge black-hole is sucking the life from Millennials in debt peonage?  

And did you know all of this mess can be attributed directly to a set of misguided economic nostrums that go by the name of "Human Capital Theory"?

This is the tragedy of deeply flawed Human Capital Theory.  Having hijacked notable successes with professionalization (remember: not everyone can be a "professional"), human capital theorists in the early 1960s worked to spread and legitimize the idea that "learning means earning."

The sinister-side is that for the lucky ones, the motto proved true.  But today's grievously high debt burdens and the growing number of precarious jobs for those not so lucky contradicts the idea that "learning means earning."  

The seeds of Human Capital Theory have been growing for more than century, first through Madison Avenue marketing and then University of Chicago myth making. 

Here's an ad from September 1920 issue of Popular Science Monthly that makes the point: the possession of knowledge means higher wages. In this case, the 1920's proprietary “correspondence” schools and colleges relied heavily on this basic message to sell themselves -- what was later to become the central tenet of Human Capital Theory.

The naivete of these one-hundred year old advertisements is obvious now. We know better; whether it's through our own bitter experience, or the experience of those around us -- life is not so simple. Such simplicity has been debunked, and the idea itself that knowledge always translates into higher earnings has lost its appeal.

But at the time, these advertisements picked up on the massive surge in economic changes -- the new jobs, new occupations, new companies -- sweeping the county. Commerce and business life expanded and was transformed in numerous ways. Using 1880-1930 census data, Cristina Groeger shows how upper-class elites benefited far more than, say, those suffering from racial discrimination that barred them completely from higher-wage employment.

Sadly, Human Capital Theory does not take any of this into account. Racial and gender-based discrimination through our social institutions is, unfortunately, completely missing from Human Capital Theory. Learning does not equal earning when you lack access to job opportunities due to discrimination, or when you were born to a certain set of parents at a certain place, at a particular point in time.

For those lucky enough to ride the wave of growing prosperity, the slogan was true. And that's what has been driving support for Human Capital Theory -- it's just a glimpse in a 100 year old rear-view mirror. Public policy at the federal level, state level -- and even local support of education -- has been premised on the myth that financial support of education "equals earnings" -- for everyone. This is, of course, not true for those faced with wage stagnation, high unemployment and under-employment, automation, out-sourcing of good jobs, and skill erosion -- all these factors come into play and complicate the picture.

Worse yet is the global reach of these misguided directives to developing nations to spend freely on education.

In 1960, Theodore Schultz highlighted the importance of human capital for economic development among poor nations in his presidential address to the American Economic Association. “Human capital investing” soon became a priority among economic development specialists and policy makers through the World Bank and the efforts of the Chicago School. "Learning means earning" became World Bank gospel, linking GDP and economic growth with a nation's investment in higher education. The Chicago School apparently falsified the direction of causality between higher education and economic growth, resulting in additional tragical consequences on a global scale.

Not all economists, however, are so deeply committed to Human Capital Theory.

In fact, the number of dissenters is on the rise, and include Phillip Brown, Hugh Lauder and Sin Yi Cheung, the authors of The Death of Human Capital?

University of Oxford economist Kate Raworth has developed "doughnut economics" as an alternative approach, even going so far as to encourage "guerrilla economics" and declaring "it's time to vandalize the economic textbooks"!

David Blanchflower, former Bank of England governor and Dartmouth economics professor, is another highly vocal critic of human capital theory. Cristina Groeger's History of Education in Boston 1880-1930: The Education Trap is another critique that runs the length of an entire book.

Gradually, the human capital theorists that were so popular in the 1960s and 1970s are being replaced by a new cohort that isn't interested in supporting outdated dogma.

But tragically, the damage has been done, and economists need to be held accountable. They can start by joining those that are denouncing Human Capital Theory.

*Glen McGhee is the Director of the Florida Higher Education Accountability Project (FHEAP)


  1. Here's a good example of Human Capital Theory twisting in the wind -- strangulated by its own pretensions.

  2. Glen,

    Yet Human Capital Theory and College Mania! persist...

  3. For decades, Human Capital Theory (HCT) has been the theoretical framework used to justify the widespread of expansion of higher education and increased investment in education by students and their families, and state and federal government. The basic premise of HCT is that education is the key investment in individual human beings that yields benefits to economies and individual earnings (i.e., ROI).
    As part of the HCT approach, ROI pushes for the optimization of education decisions, i.e., choice of major, choice of college to enroll in, but is unable to demonstrate the actual role of *individual* choice in the larger context; in fact, ROI ignores job placement and hiring discrimination, economic conditions, skill mismatches, etc., which arguably play a larger role in determining student outcomes.

    Despite its widespread success and global application, HCT's focus on individual investment is completely blind to the roles played by the business cycle, institutional factors such as structural racism and discrimination, and HCT has been angrily critiqued for its inability to deconstruct larger systems that perpetuate inequitable outcomes. (See "The Death of Human Capital?" by Brown, Lauder, and Cheung (2020); and Enrique Aleman, Jr., "Critical Race Theory and Human Capital Theory: Framing the Discourse on the Nexus between Social Justice and Education Finance" 2007/2013. )

    I am amazed -- but not surprised -- by apparent CRT reluctance to engage with the problem of higher education student costs generally, and student loan debt in particular. As Gary Roth points out, the problem of student loan debt has created a new "overeducated underclass" -- an appropriate but completely neglected focus for CRT scholars and practitioners.

    There is, however, one noteworthy exception that needs to be more widely publicized: Alexandra Robie, "Debt Sentence: A Critical Race Theory Analysis of Student Loan Default" (Dissertation, May 2021). "The results of this study shed light on the systemic racism in the financial aid system and call for its liberatory transformation. Indeed, the student debt crisis in an economic and racial justice issue that requires our urgent attention."

    Hopefully, it is only a matter of time before CRT scholar reflexivity forces it to decenter student costs in higher education. Once this point is reached, however, critical theory praxis will require sustainable alternatives for transitioning youth to adult roles.
    But isn't this just another way of saying, What Comes Next?