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1. BUSI 1602 ESSAY
Q3
The Human Capital Investmentin EmergingEconomiesis one of the most important tools for growth.
(1) Explainthe Chinese humancapital investmentplan and technological developmentandits
contributiontowards Chinese economicgrowth
(2) Will businessSustainabilityhinderorenhance technological developmentsinChine?Use a
case study of Chinese manufacturingbusinesstoSupport your argument.
INTRODUCTION:
The concept of human capital recognizesthatnotall laboris equal andthat the qualityof employees
can be improved by investing in them;the education,experience andabilitiesof employeeshave
economicvalue foremployersandforthe economyasa whole.Human capital is a measure of
the economicvalue of an employee's skill set. This measure builds on the basic production input of
labor measure where all labor is thought to be equal.
Economist Theodore Schultz invented the term "human capital" in the 1960s to reflect the value of
human capacities. He believedhuman capital was like any other type of capital; it could be invested
in through education, training and enhanced benefitsthat lead to an improvement in the quality
and level of production. An organization is often said to only be as good as its people.Directors,
employeesand leaders that make up an organization's human capital are critical to its success.
Human capital is typically managed by an organization's human capital management (HCM)
department, commonly referred to as the human resources department. A HCM department
oversees the organization's workforce acquisition, management and optimization. The HCM
department's other directives include workforce planning and strategy, recruitment, employee
training and development,and reporting and analytics.
Human capital connotes man in relationship to the world of work; that is work involving
production of goods and provision of services of all kinds in the political, social, cultural and
economic development of nations. In more specific sense human capital consists of inherited
and acquired abilities of labour with education being the primary source of acquiring these
abilities. Human capital investment includes investment by society in education, investment by
employment in training, and investment by individuals of time and money in their own
development. These investments have both qualitative and quantitative dimensions. That is to
say that investment in human capital includes not only expenditure for education and training
but also the development of the right attitude towards productive ability.
DEFINITION:
Human capital is the skill, talent, and productivity that employees bring to a company. Coined
by University of Chicago economist Theodore Schultz in 1964, the term refers
to capital produced by investing in knowledge.
EXPLANATION:

2. Better skills can increase an employee's value in the workplace, and an employer that obtains
highly skilled employees can therefore gain a significant competitive advantage via human
capital. Human capital is largely responsible for innovation, which can also be a tremendous
competitive advantage for companies.
Accordingly, companies are usually very interested in investing in and acquiring human capital.
They do this via recruiting new employees, training existing employees, and ensuring that the
relationships between employees and their managers are positive.
There are two kinds of human capital: specific and general. Specific human capital refers to
knowledge and skills that few find useful and are willing to pay for. For example, knowing how
to operate a proprietary machine that is owned and operated by Company XYZ might be a skill
that only Company XYZ is willing to pay for. General human capital refers to knowledge and
skills that many employers find useful, such as knowing accounting, knowing how to transplant
a heart, or knowing how to design a bridge.
CRITICAL ANALYSISOF THE HUMANCAPITAL INVESTMENT PLAN:
“I propose totreat educationasan investmentinmanandto treatits consequencesasa formof capital.
Since educationbecomesapartof the personreceivingit,Ishall refertoitas humancapital.”Thusdid
Theodore Schultzbeginhis 1960 Journal of Political Economyarticle on“Capital Formationby
Education”,one of the initial productsof aresearchprogramthat Schultzhad beenpursuing
energeticallysincethe mid-1950s.Inthe late 1950s and early1960s Schultzplayedacrucial role in
convertingthisideaof “humancapital”froma suggestive metaphortothe basisfor a wide-rangingand
fruitful researchprogramineconomics.1He didsonot onlythroughhisownwork,but alsothroughhis
effortstoguide,encourage,andfacilitate researchbyyoungeconomists,includingGaryBeckerand
Jacob Mincer,intoquestionsraisedbythe humancapital concept.2Economiststodaymayneed
remindingthatSchultz’shumancapital idearepresentedanovel wayof thinkingabouteducation –
aboutwhat itwas, whypeople mightwantit,andhow it affectedsociety –thatemphasizedcertain
aspectsof education,andabstractedawayfrom others.3Schultz’smetaphorof humancapital was
quicklyembracedbyeconomists,and those outside the professionalso perceiveditasnew wayof
thinkingabouteducationbeingadvocatedbyasocial science thathad previouslygivenlittle systematic
attentiontothe phenomenon.Itisnot the rapidacceptance of the humancapital ideabyeconomists
that concernsus inthispaper,however.Rather,oursubjectishow thisnew wayof thinking,andthe
formal theoretical frameworkthatdevelopedoutof it,rapidlybecame veryprominentindiscussionsof
federal educationpolicy,ultimatelyalteringthe nature of federal educationpolicyitself.We believethat
thisisan interestingstoryforat leasttworeasons.First,itstrikesusthatsuch an immediate policy
impactof a conceptual/theoretical innovationineconomicsisunusual.Itismore oftenthe case that
novel theoretical frameworksandassociatedpolicyagendaswhichcapture the imaginationof
economistsare ignoredbydecadesbeforebeingtakenupbythose whoactuallyhave the powerto
make policy,if theyare evertakenupat all.We argue below thatthe surprisinglyquickmigrationof the
humancapital ideafromthe technical literature of economicstothe publiccommentsof Presidentsand
theirtoppolicyadvisorswasfacilitatedbyaconvergence of political,economicandcultural trendsin
the post-wardecadesthatmade political actorsparticularlyreceptive toSchultz’smessage about
“humancapital”and its implicationsforunderstandingeconomicgrowth.Schultz’sversionof the human

3. capital ideacan inturn be seenas hisreactionto effortsbyeconomistsin the 1950s to identifythe
sourcesof economicgrowth,a reactionshapedbya setof researchstrategiesandinterestshe had
developedoverhiscareer.We alsodocumentthe keyrole inbringingthe humancapital ideainto
discussionsof educationpolicyplayedbythe charismaticandinfluential economistWalterHeller.For
Heller,Schultz’sredefinitionof educationasinvestmentinhumancapital,and hishypotheses aboutthe
relationshipbetweenhumancapital accumulationandaggregate economicgrowth,formedthe basisfor
argumentsthatfundingforeducationshouldbe increased,andthatthe federal governmentwas
responsible forprovidingthatincreasedfundingTheseargumentswereultimatelyacceptedbythe
presidentsunderwhomHellerservedaschairman of the Council of EconomicAdvisors.We believethat
a secondinterestingaspectof thisepisode isthatitmarksthe beginningof,andwasa contributing
factor to,a profoundtransformationof the publicdiscourse surroundingeducationpolicyinthe United
States.Three assumptionsthattodayplayanimportantrole ineducationpolicydiscussionsare thatthe
Federal Governmenthasanimportantrole to playinboth fundingandregulatingpubliceducation;that
the central purpose of educationistoincrease students’future economicproductivityandearnings
capacity,and that economistspossessexpertknowledge thatgivesthemimportantinsightsintothe
educational process.Theseassumptionswerenotwidelyacceptedineducationpolicycirclesinthe
1950s; that theyare so nowis partlydue to WalterHeller’ssuccessful promotionof Schultz’shuman
capital ideainthe early1960s.
CHINESE HUMANCAPITAL INVESTMENT PLAN:
 CHINESE HUMAN CAPITAL INVESTMENT PLAN:
In 1995, China,at all levelsof government, spentabout2.5% of itsGDP oninvestmentin
schooling.2atthe same time,roughly30% of itsGDP was devotedtophysical investment.Inthe
UnitedStates,those figureswere 5.4% and17%, respectively.InSouthKorea,they were 3.7%
and 30%. A comparison of Chinawithothercountriesinitsgovernmentalexpenditure of GDPon
education.Chinawasbelowaverage evenamongitspeersinitsexpenditure oninvestmentin
people.Recenttrendsingovernmental humancapital investmentare favorable,butthe
investmentproportionisstilllow byworldstandards,risingto3.3% in 2002. More than 45% of
GDP was investedinphysical capital in2002. Eventhe dramaticgrowthin private spendingon
educationinthe past10 years,while encouraging, isnotenoughtofullyredressthe imbalance.
China’sratioof annual investmentinphysical capital tohumancapital ismuchhigherthan that
inmost countries.Thisimbalance mightbe warrantedif the economicrate of returnto physical
capital were muchgreaterthan the economicrate of returnto human capital.Conventional
methodsforcomputingratesof returnto humancapital that are useful inlessregulatedlabor
markets,andare frequentlyappliedtothe studyof the Chinese labormarket,give amisleading
estimate of the true social rate of returnto humancapital.Othermethodsmustbe usedto
estimate the true social return.A basicresultof economicsisthatresourcesshouldflow totheir
mostproductive use.A policythatequalizesreturnsacrossall investmenttypesandacrossall
regionsincreaseseconomicgrowth.CurrentChinesepolicytendstoignore thisfundamental
rule notonlyby promotingphysical capital investmentoverhumancapital investment,butalso
by restrictingthe flowof resourcesacrossregions andinvestingineducationatdifferentratesin
differentregionsandbyinvestinginphysical capital inanimbalancedfashion.These policies
reduce the economicgrowthof Chinaand promote inequality,bothinthe shortrun andin the
longrun.

4.  TECHNOLOGICAL DEVELOPMENT :
The newtechnologybeingbroughtintoChinabyitsinvestmentinphysical capital requiresmore
skilledworkerstooperate it.Unskilledworkersmigratingintoindustrialareasrequire skilled
workerstotrain and complementthem.Capital andskill are complementary.Soare unskilled
workersandskilledworkers.Eachfactor raisesthe productivityof the other.Aninvestment
strategythat emphasizesphysical capital overhumancapital failstocapture the benefitsthat
arise froma more balancedinvestmentstrategy.Ittakesskilledworkerstomake the most
efficientuse of moderntechnologies.
 ITS CONTRIBUTION TOWARDS CHINESE ECONOMIC GROWTH:
The accumulationof humancapital in Chinaas measuredbythe average yearsof schoolingin
populationage 15-64, was quite rapid,anditcontributessignificantlytogrowthandwelfare.
However,the rate of growthof humancapital declinedsignificantlyinthe reformperiodin
1978-99, and itscontributiontoGDP growthissmallercomparedtothe pre-reformperiod.
Afterincorporatinghumancapital,the growthof total factorproductivitystill playsapositive
and significantrole duringthe reformperiod1978-1999, incontrast to the negative productivity
growthduringthe pre-reformperiod1952-1977. In addition,thisresultisrobusttochangesin
laborsharesin GDP. Unlike bothsidesof the on-goingdebate,thispaperproposesamiddle-
road answerto the sourcesof growth,i.e.bothproductivitygrowthandfactoraccumulationare
verysignificantinaccountingforChina’sgrowthperformance duringthe reformperiod.
Because of the rapid expansionof capital base,the relativeimportance of factoraccumulation
may be declining(the lawof diminishingreturns),the relative contributionbyfactorinputs:by
all factor inputshave declinedinthe reformperiod.Andtotal factorproductivity(TFP) growth
becomesthe drivingforce forChina’sgrowthperformance inthe longrun.The potential to
furtherincrease factorinputsislimitedespeciallyconsideringthe rapidlyagingpopulation,a
declininglaborforce inthe future andthe constraintsinnatural resources.
YES, BUSINESSSUSTAINABILITY ENHANCETECHNOLOGICALDEVELOPMENTS IN CHINA:
 ANALYSISOF THE RELATIONSHIP BETWEEN BUSINESS SUSTAINABILITYAND TECHNOLOGICAL
DEVELOPMENT IN CHINA :
China'sissuesof sustainabilityare nothistoricallylinkedtoprivate consumptionastheyare inthe
UnitedStatesor Western Europe;theyare linkedtothe industrial processesthatare supportingChina's
economicdevelopmentmodel. Chinadoesnotsee emissionsasaproblemthatmustbe dealtwith
immediately.Withmillionsremaininginpoverty,economicgrowthisstill the priority.The largest
pressure Chinafacestosolve sustainabilityissuescomesfromwithin.Externalpressuresorconcerns
aboutthe planetasa whole are secondary.Simplyput,the issuesthatChinafacesare largelytiedto
economicdevelopment,the problemsthemselvesare growinginsize andfrequency,andChinawilldo
whatit takesto fix those problemsinawaythat considersthe needsof itspeople first.
As we have seeninrecentyears,China'sabilitytomanage stable growthandcreate a balance between
economy,environment,andsocietyhasprovenlimited;nearlyeverydaythere are reportsof another
problem.Thishasthe effectof creatinga widerpublicawareness.InChina,itismore personal,more
tangible.Environmental andsafetydisastersare occurringinindividuals'ownbackyards,andthisis
movingpeople todemandmore fromtheirleaders. Orsome,itisa strong central governmentthat
provideshope thatChinawill make changes.Yetattimesitisthe systemitself thathindersthe process

5. of identifyingandsolving problems.Take the high-speedtrainaccidentinJuly2011, where a strong
central governmentplantoimprove the efficiencyof itsrail networkultimatelycreatedaprocess
wherebyanumberof safetyprocedureswere overlookedtocompletethe projectquickly.
In addressingitssustainabilitychallenges,Chinawill employanumberof toolstohelpmake the
necessary adjustments.Itisa processthat hasalreadybegun,primarilyinareaswhere economic
developmentisthe mostadvanced,andhas involvedpolicies,technological solutions,and
awarenessandengagementcampaigns. Withthe dynamicsandcomplexityof the issuesthat
Chinafaces,the role of technology(orcleantech) will playtwoprominentroles.The Business
SustainabilityandChina’sTechnological Development iscloselyrelated.Itcanbe provedbythe
belowCase Study.
 Case Study :
BYD Limited,locatedin Xian,Shanghai andShenzhenwasfoundedin1995 for the productionof
rechargeable nickel-based(nickel-cadmium,NiCad) batteries.Withinonlysevenyears,BYDhas
become the worldlargestmanufacturer,producing65% of the nickel cadmiumbatteriesusedin
wirelessphones,toysandmobilephones.Inaddition,BYDhas CIAMWorkingPaper10 also
become numbertwofornickel metal hydridebatteriesandnumberthree forlithiumion
batteries.Thisoutstandingsuccessresultedfromastrategywitha strongfocus on internally
developedstrengthsexploitinglocal laborcostadvantages.
In 2003, BYD acquiredthe state ownedautocompanyShaanxi QinchuanAutoCompanyLimited,
followingthe company’sinitial publicofferingonthe HongKong StockExchange inJuly2002, to
geta license forcarproduction.The outspokenvisionof Mr.Wang is to become the biggest
automotive companyof Chinaby2015 as well asthe worldbiggestcar producerbythe year
2025. Several otherCIAMWorkingPaper11 modelsfollowed,all beingthe resultof animitation
strategy.Initially,the benchmarkedcars(mainlyToyota) are decomposed,scannedanddigitized
and copied,or– if theyare patented – modified(reverse engineering).Whereasbasicmodels
are deliveredbyToyota,several Mitsubishi enginesequipthe F3,whichresultsina modular
designstrategy,where maincomponentsof twodifferentcarmakersare combined.Similarto
the batteryproduction,BYD reliesonitsownproductionnetwork,exceptsome partslike tires
and glass.Productionlinesare developedinternally,whereasaclearfocusison exploiting
labourcost advantagesinChinawhereverpossible.About50% of all automotive-related
productionishandmade andthe managementisconstantlyaimingatincreasingthisportion.
The reliance oninternal knowledgedevelopmenthascreatedacomprehensive expertisebase
for the productionof cars and all components,andhasledto cost andqualityefficiency.Here,
BYD followsanentirelydifferentstrategycomparedtoToyota.SimilartoVolkswagenwithan
overproportional large self-ownedcomponentdivision,BYDevenboastsdeeperupstream
productionintegrationthanitsGermanrival.Learningprocessesare organizedininternal
businessunitsandinterdisciplinaryprojectteams.BYDitself developsitscompetitive advantage
on a low-costR&Dstrategy.Tenpercentof the 130,000 employeesare engineerswho
graduatedfromthe top Chinese universities.Basedonthisimitationstrategycombinedwitha
lowR&D cost strategy,the innovationcycle inthe car businessforBYDisthree years.The newly
developedferrous-basedbatteryhascost,capacityand safetyadvantagescomparedtothe
lithium-ionbattery.Althoughthe price more thandoublesthe basicgasoline model(60,000
Yuan or 8,800 US$ comparedto 149,800 Yuan or 21,700 US$), it isstill half the price of the
Toyota Prius(280,000 Yuan or 40,600 US$). In2010 itlaunchedthe E6, a CIAMWorkingPaper

6. 12 five-seatelectric-poweredpassengercar(7 – 9 hoursto fullycharge whenpluggedintoa
regularhome outlet).Since 2010,marketingof the updatedF3DM witha solarpanel charging
systemonthe roof wasstartedfor private customersatthe price of CNY 169,800 (US$ 24,800).
The solar panel cantransformthe solarpowerintoelectric power,whichcanbe storedintothe
Fe battery.Althoughthe amountof additional electricenergyislow,BYDdemonstratesan
ongoingdevelopmentof newenergyoptionsforautomobiles.A pure electricvehicle(e6),which
has beenpresentedtothe publicat the North AmericanInternational AutoShow inDetroit2010
- has beenannouncedforDecember2010. The minivanwill be drivenbyfourelectricmotorson
the wheels,whichcharge theirenergyfroma100% recycle batteryinthe underbody,the
capacityof the batterywill allow400 km withoutrecharge.ThisShowsTechnological
DevelopmentinChina.
CONCLUSION:
Thus,from the Above DiscussionitsQuite Clearthatthe HumanCapital investmentinemerging
economiesisone of the mostimportanttoolsforGrowth.
REFERENCES:
WorldWide Webpage
IntroductionAvailable:
http://www.investopedia.com/terms/h/humancapital.asp [1stDec,2016]
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http://www.investinganswers.com/financial-dictionary/businesses-corporations/human-capital-5992
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7. http://www.ciam.rwth-aachen.de/media/Doks/100501_CIAM_BYD.pdf [2nd Dec,2016]