HUMAN

CAPITAL:

A CRITIQUE

Stephen Steinberg

The human capital approach increasingly has been absorbed within the folds of cultural determinism. The trend has been so pronounced that it prompted the organization of a session at the December 1984 American Economic Association meetings in Dallas, Texas, entitled "Human Capital and Culture: Analyses of Variations in Labor Market Performance." The papers from that session are available in the May 1985 issue of the American Economic Review. One of the discussants for the session was Stephen Steinberg, a sociologist at Queens College. Steinberg was invited to comment on the presented papers for two major reasons--first, he had written an outstanding study that debunked many of the conventional linkages made between culture and ethnic achievement, The Ethnic Myth, and second, as a sociologist, he was expected to provide a perspective on the subject quite different from the rest of the panelists, all of whom were economists. In the midst of the coven of economists, Steinberg appeared well armed. He arrived with his own paper, a paper that went far beyond commems on the presented papers. Unfortunately, the current rules governing the inclusion of papers in the AEA proceedings prohibit publication of the discussants' remarks. Fortunately, Steinberg graciously has consented to have the paper appear in the Review of Black

Political Economy. --William Darity, Jr., Session Chair, University of North Carolina at Chapel Hill and University of Tulsa

Though of fairly recent coinage, the term "human capital" has become s t a n d a r d in the e c o n o m i s t ' s l e x i c o n . To m y u n t u t o r e d ear, h o w e v e r , t h e w e d d i n g o f " h u m a n " a n d " c a p i t a l " is j a r r i n g a n d s u s p e c t . I a m rem i n d e d o f a s t o r y that w a s t o l d to m e b y a 9 0 - y e a r o o l d w o m a n , a r e s i d e n t o f N i c o d e m u s , K a n s a s , w h i c h is a h i s t o r i c a l l - b l a c k c o m m u n i t y f o u n d e d

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by ex-slaves in the 1870s. It seems that the local bank, which was located in the adjacent town of Hays, was planning a promotional campaign to commemorate its 80th anniversary. The bank sent a letter to all the local octogenarians asking for a photograph that would be used in its publicity. Mrs. Burney was indignant at the whole idea, and she sent a letter back to the president of the bank, pointedly telling him, "Your bank and my life is quite another thing." For the professional economist, undaunted by such sentiment, "hum a n " and "capital" become one. The result is an anthropomorphous creature that eats (we are told that it has a particular "taste" for education); it s m e l l s . . , profits; it has excellent vision that allows it to see far into the future, and to anticipate rewards that justify present deprivations; it is a superb sprinter that can elude whatever impediments (especially racist ones) stand in the way of success; and, most important of all, it has impeccable moral values, exemplifying all of the Calvinist injunctions concerning hard work, self-sacrifice, playing by the rules of the game, and perseverance in the face of adversity. To put it in the vernacular, "human capital" means having "the right stuff." Indeed, we have to ask whether, notwithstanding the scientific terminology and the flow charts and statistical tables, human capital theorists have not merely adopted that most conventional of ideas--that success comes to those who possess the appropriate set of personal and cultural virtues. To carry this logic a step further, it is curious that the only traits cited under the rubric of "human capital" are familiar middle-class virtues-the traits that receive ideological and social sanction in our society. For Marx, too, the confluence of " h u m a n " and "capital" meant quite another thing. The capitalist--the individual who personified the capitalist system, who was both product and producer of capital--exemplified not these middle-class virtues, but avarice, ruthlessness, materialism, and inhumanity. For Marx, all values were subordinated to a rapacious pursuit of private gain. How are we to explain the apparent blind spot that human capital theorists have to the dark side of the relationship between " h u m a n " and "capital"? Is it possible that "making it" depends on less exalted qualities than those cited in the Journal of Human Resources? What I am suggesting is that, on close examination, and despite all the trappings of scientific objectivity, "human capital" is a value-laden concept, one that treats the marketplace as though it were some kind of benevolent society, parceling out its rewards to the culturally deserving. In the hands of Thomas Sowell, "human capital" is little more than an obfuscation for writing a morality tale whereby groups--notably Jews and

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Asians--who have "the right stuff" overcome every impediment of race and class to reach the economic pinnacle. Other groups--especially blacks--suffer from historically conditioned cultural defects that condemn them to languish in the economic competition. Ethnic chauvinists and bigots have said as much all along, and it is difficult to see what Sowell has added to the discourse except a specious scientific veneer for moral platitudes and common stereotypes. This having been said, let me backtrack a bit and adopt a less polemical stance. I realize that Sowell does not speak for all human capital theorists, though I do think that he carries the premises of the human capital approach to their logical conclusion and does not waffle at making explicit what others leave implicit. Still, the concept of "human capital" does not necessarily lead to the extreme reductionism that is rife in Sowell's work. It goes without saying that individuals and groups differ in the extent to which they possess "economically productive human capabilities," to use the definition of " h u m a n c a p i t a l " found in the 1982 Encyclopedia of Economics. Certainly it is valid to explore the relationship between these human qualities and the production and accumulation of capital. To do so is to explore the interface between actor and structure, between factors endemic to individuals and groups, on the one hand, and external structures, on the other. However, when " h u m a n " and "capital" are compressed into a single term, the danger is that this legitimate study of the relationship between the two factors becomes obscured. Instead, the presence or absence of human capital is taken at face value, as though it is self-explaining, and then used to predict and explain various outcomes, principally differences in earnings and return on education. This line of inquiry, however, is flawed in several respects. In the first place, "human capital" is a nebulous concept that encompasses different elements that vary independently with each other. In Chiswick's study " T h e Earnings and Human Capital of American Jews," the operational definition of human capital is education. ~ In a recent article by James Smith, "Race and Human Capital," the conceptual focus is on skills. 2 In Sowell's work the emphasis is on culture. As Sowell writes in The Politics and Economics of Race: " H u m a n capital takes many forms, of which formal schooling is the most visible but not for that reason any more important than skills, discipline, organizational talents, foresight, frugality, or simply good health."3 Obviously, education, skills, and cultural traits are fundamentally different both in terms of their sources and their relationship to the labor market. Not only is it of doubtful validity to lump these disparate factors together under a single

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conceptual heading, but once this is done, crucial distinctions among the constituent factors become blurred. For example, in " T h e Earnings and Human Capital of American Jews," Chiswick assumes that the effects of education reflect the operation of "cultural characteristics," even though he has no measure of culture. In other studies, the failure of " h a r d " (i.e., noncultural) factors to explain income differences between groups totally--that is, the unexplained variance--is assumed to reflect the operation of cultural factors. Again, culture is inferred, not measured. Indeed, in the canon of studies by human capital theorists, I have yet to encounter one in which culture is actually measured.' The result is tautological reasoning. The claim is made, for example, that Jews "make it" more often than others because they have the " r i g h t " values. How do we know that they have these values? Because they "'make it" more often. Unless the cultural factors that putatively explain success are identified and measured, and their relation to success, independently of other factors, demonstrated, then the case for human capital theory is on very weak empirical ground. In lumping together disparate factors under the heading " h u m a n capital," economists have a tendency to confuse class and culture. That is to say, factors that have more to do with a person's material circumstances and social class are treated as though they are measures of cultural norms and values. This is true, for example, when education is treated as a cultural variable. The tacit assumption is that educational opportunity is more or less available to everyone but is pursued only by individuals who have a culturally derived "taste" for education. But acquiring education is not like eating blintzes, however much it appears to be a matter of ethnic preference. Any such assumption flies in the face of a large body of theory and research that has pointed out the material preconditions for educational attainment, for individuals and groups alike. And if the education of one generation is mainly an artifact or by-product of the social class of its parents, it is hardly surprising to discover that human capital of this kind is associated with higher earnings. It is rather like saying that capital begets capital. I hasten to add that there are, of course, cultural correlates to the relationship between social class and educational attainment. One would not expect the children of lower-class families to exhibit the same expectations and attitudes with respect to education as the children of middle- and upper-class families. But neither do they have the same educational resources or opportunities; and confronted with numerous and mutually reinforcing disincentives, they tailor their expectations to what they are

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likely to achieve. If they remain uneducated and poor, this is not a selffulfilling prophecy; on the contrary, their cultural attitudes are a reaction to external adversities as they are experienced over many years and in different institutional areas. None of this is to deny that there are genuine cultural differences among individuals and groups, or that cultural values may have economic consequences in terms of future earnings and the like. Let me concede that people differ in human capital. Problems arise, however, when these differences are taken at face value, as though they speak for themselves and exist outside any historical or social context. The point is that we cannot talk about human capital without also asking where it comes from. How is it acquired? What prevents everyone from getting it, since it is by definition in his or her interest to do so? To avoid this key question concerning the sources of human capital, and to explore only its consequences, is to foster the illusion that human capital is a matter of endowment--an innate quality of individuals and groups rooted in personality or culture. More than other human capital theorists, Thomas Sowell attempts to account historically for the values that he sees as explaining the success or failure of ethnic groups. But he does so through a rendering of ethnic history that is riddled with fallacies. For example, he writes of blacks: With many generations of discouragement of initiative and with little incentive to work any more than necessary to escape punishment, slaves developed foot-dragging, work-evading patterns that were to remain as a cultural legacy long after slavery itself disappeared. Duplicity and theft were also pervasive patterns among antebellum slaves, and these too remained long after slavery ended. 5 What evidence does Sowell have that foot dragging became part of a cultural legacy? If we grant that there was incentive for foot dragging under slavery, how does Sowell account for the maintenance of this cultural pattern over generations? To presume that a pattern of foot dragging developed under slavery, persisted as a matter of cultural momentum despite powerful disincentives, and helps to explain the current deprivation of much of the black population is to engage in an extreme historical reductionism that is preposterous. What Sowell offers us is an updated version of the Social Darwinist view that poverty is the result of some individual or collective defect; the only difference is that he has substituted culture for genes. And like the earlier practitioners of scientific

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racism, Sowell argues that action on the part of the state to eliminate poverty is not merely useless, but counterproductive, since it encourages idleness, immorality, and dependency. Thanks to Sowell, the implicit political bias that undergirds the whole concept of human capital is laid bare, in all its reactionary splendor. Let me illustrate the foregoing analysis of the relation between human capital, class, and culture with a historical example. Here I draw upon my own research, which is spelled out in greater detail in my book The Ethnic Myth. 6

Human capital theorists in their various guises have argued that Jews started life in America as impoverished as other immigrants but possessed certain "cultural characteristics" that explain their more rapid economic ascent. Chiswick hints at them, but Sowell is characteristically explicit: Even those born into the wretched poverty of the nineteenth century Jewish immigrant neighborhoods on the lower east side of New York were born into a set of centuries-old traditions, abilities, values, and habits that were tailormade for success in American society. 7 These abstractions serve only to obscure the specific factor that explains Jewish success, though it is suggested by Sowell's unwitting pun, "tailormade." The legendary Jewish tailor, of which there were many, represented only one of a score of skilled occupations in which Jews were concentrated long before their arrival in America. East European Jews were on the forefront of the industrial revolution, which was gaining momentum in the western provinces of Russia where Jews were required to live. Large numbers were factory workers, especially in the nascent clothing industry. Others possessed skills in a wide variety of traditional as well as industrial crafts. Jews also dominated commerce in the Pale, and Jewish traders and merchants usually filled the interstitial positions between the rural and urban economies. Thus, the occupational background of Jewish immigrants was altogether different from that of other immigrants, most of whom were peasants and had no previous industrial experience whatsoever. The unique occupational background of Jewish immigrants is also demonstrated by data collected by the 1910 Immigration Commission. Jews ranked first in 26 of the 47 trades tabulated by the commission: They constituted 80 percent of the hat and cap makers, 75 percent of the furriers, 68 percent of the tailors and bookbinders, 60 percent of

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the watchmakers and milliners, and 55 percent of the cigarmakers and tinsmiths. They totaled 30 to 50 percent of the immigrants classified as tanners, turners, undergarment makers, jewelers, painters, glaziers, dressmakers, photographers, saddlemakers, locksmiths, butchers, and metal workers in other than iron and steel. They ranked first among immigrant printers, bakers, carpenters, cigar-packers, blacksmiths, and building trades w o r k m e n : No other group arrived with such an array of industrial skills. These skills, furthermore, were in demand in America's burgeoning economy, and therefore it is hardly surprising that immigrant Jews escaped poverty sooner than others. 9 What conclusions are to be drawn from this historical example regarding the concept of human capital? The main lesson is that we must avoid fuzzy abstractions that mystify more than they explain. If we are to talk of human capital, then we must be clear about precisely which aspect of human capital is significant in any particular instance, where it comes from, and how it interfaces with larger structural conditions to produce a given outcome. The pitfall of the human capital approach is not in exploring human factors that yield economic dividends, but in treating these factors in a vacuum, apart from the constellation of historical, political, social, and economic factors with which they are inextricably bound. Only if the human capital approach is couched within this larger framework will it be possible to analyze the role of culture and other " h u m a n " factors without lapsing into a theoretical reductionism that diverts attention away from structural forces and places cultural blame on the victim. NOTES This article was originally prepared as a discussant's comment at a session entitled "Human Capital: Analyses of Variations in Labor Market Performance," at the 1984 Meetings of the AmericanEconomicAssociation. I am gratefulto Joseph Bensmanfor his insightful comments. 1. Barry R. Chiswick, "The Earnings and Human Capital of AmericanJews," Journal of Human Resources, vol. 28, no. 3 (1983), pp. 313-36. 2. James Smith, "Race and HumanCapital," American Economic Review, vol. 74, no. 4 (September 1984), pp. 685-98. For a critical review of studies that invoke human capital theory to explain incomedifferencesbetween blacks and whites, see WilliamA. Darity, Jr., "The Human Capital Approach to Black-WhiteEarnings Inequality:Some Unsettled Questions," Journal of Human Resources, vol. 17, no. 1 (1982), pp. 72-93. Also see William A. Darity, Jr. and Rhonda M. Williams, "Peddlers Forever? Culture, Competition, and Discrimination," American Economic Review, vol. 75, no. 2 (May 1985), pp. 256-61.

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3. Thomas Sowell, The Economics and Politics of Race (New York: William Morrow & Co., 1983), p. 249. 4. This is not a simple oversight. Economists who have applied the human capital approach generally rely on U.S. Census data or other official surveys. In the tradition of Gary Becker's early studies, the main thrust of these studies is to explore differences in income and return to education. Whatever differences are found by race, religion, or ethnicity are then assumed to reflect cultural factors endemic to these groups. The problem, from a methodological standpoint, is that the data at hand do not allow this critical assumption to be put to an empirical test. 5. Thomas Sowell, Ethnic America (New York: Basic Books, 1981), p. 187, italics added. A few pages later, Sowell elaborates further: "Lack of initiative, evasion of work, half-done work, unpredictable absenteeism, and abuse of tools and equipment were pervasive under slavery, and these patterns did not suddenly disappear with emancipation" (p. 200). And in a concluding chapter: "Groups today plagued by absenteeism, tardiness, and a need for constant supervision at work or in school are typically descendents of people with the same habits a century or more ago" (p. 284). 6. Stephen Steinberg, The Ethnic Myth: Race, Ethnic#y, and Class in Ameria (Boston: Beacon Press, 1983), chap. 3. 7. Sowell, The Politics and Economics of Race, p. 255. 8. Moses Rischin, The Promised City: New York Jews, 1870-1914 (Cambridge, Mass. : Harvard University Press, 1962), p. 59. 9. It is true, of course, that later generations of Jews "invested" in education, which allowed them to reach higher rungs of the occupational ladder. However, as historian Selma Berrol concluded from her research on education and economic mobility in New York City between 1880 and 1920: "Most New York City Jews did not make the leap from poverty into the middle class by going to college. Rather, widespread utilization of secondary and higher education followed improvements in economic status and was as much a result as a cause of upward mobility" ("Education and Economic Mobility: The Jewish Experience in New York City: 1880-1920," American Jewish Historical Quarterly vol. 65, no. 3 [March 1976], pp. 257-71). For a general treatment of education and ethnic mobility, see The Ethnic Myth, chap. 5.