INTRODUCTION:The paper seeks to engagewith the concept of human capital as presented by Becker (1994) byincorporating other forms of capital viz. social and cultural capital. In doingso, I believe that one can delve deeper into why some students perform betterthan others or why there is a difference in investment levels among differentindividuals which result in difference in the distribution of income. I shall focuson the second question by bringing in Becker’s theory of human capital,particularly the model where he relates earnings, investments and rates ofreturn.
The primary task of this paperis to situate the rational individual in the society. In other words, what Iintend to do is to understand how the investment levels that vary betweenindividuals might be the result of difference in social capital as well. Also,one might argue that the socially embedded individual who is accumulating humancapital is undergoing a transformation by way of interacting with others in theorganization (say schools or colleges). Thus in the process of accumulatinghuman capital, other forms of capital i.e.
social and cultural get formed. Thisgets transmitted over generations. There is also contribution of other forms ofcapital; say social capital in strengthening incentives in the accumulation ofhuman capital by virtue of trust and norms in institutions. (Gradstein & Justman, 2000; Dasgupta, 2002) arguehow public education helps in instilling civic virtues by increasing socialcohesion which helps in building human capital. Thus social capital which is afunctional entity as Coleman (1988) puts it helps an actor to gain access overcertain resources. This access over certain resources would mean that somewould be able to benefit more from investing in human capital. The focus of thepaper is primarily on Becker’s model which explains the difference indistribution of income as difference in the investment of human capital.
What I try to answer with the help of theorieson social and cultural capital is something related to Becker’s question(related to personal income distribution) as to why investment levels and rateof return vary among individuals. His approach was a neo classical one withdemand and supply interaction explaining differences in the investment levels.The differences in supply and demand conditions result in differences ininvestment levels as Becker points out. In the first section I discuss Becker’sModel in nutshell and in the next section I bring in social and culturalcapital to answer some of the questions on ability and family background raisedby Becker. The interplay of various elements- human capital, social capital andcultural capital determine decisions on educational investment. The return frominvestment which depends on IQ as developed in Becker’s model is a derivativeof family resources which the model misses out.
Becker’s Model Gary Becker is one of the economistswho developed an economic approach to human behavior. One of his models is oninvestment in human capital. Human capital is embodied in individuals in the formof knowledge and skills. Expenditure on education is thus an investment in humancapital since education increases the chance of future earnings, making life better.
In his model, Becker showed how the investment in human capital is linked withthe distribution of earnings. He defined human capital as “activities that influencefuture monetary and psychic income by increasing resources in people” (Becker1994, pp.11). The underlying assumptionis that of a rational individual who calculates the cost and benefit of hisinvestment decision in education.
His decision is spread over several timeperiods. Thus this ‘representative person’ calculates present discounted valueof his return and cost. Now the investment pattern is different for differentindividuals because of the difference in the rate of return obtainable. Therate of return is calculated by demand and supply interactions.
The same personis faced with supply and demand curves. The demand curve shows marginal benefit(MB) or rate of return obtained from investment in education. It is downwardsloping because unlike physical capital human capital is embodied in a person.
The diminishing return sets in as investment in human capital increases becauseof memory capacity, physical size and time. The supply curve shows the cost offinancing education. It is upward sloping because marginal cost (MC) rises toproduce an additional unit of returns as cost of financing increases. Atequilibrium marginal benefit equals marginal cost at which the presentdiscounted value of profit is maximized. What is interesting about the model isthat by employing demand supply framework, the model explains how conditions ofdemand and supply can actually have an impact on the amount of investment.
Hethen considers how the distribution of earnings and investments are determinedby the distribution of ability, tastes, subsidies, wealth and other variables. Thisexplains why there is variation in the amount of investment in differentindividuals. In this connection he presents two approaches to understanddifferences in the level of investment- the egalitarian approach and the elite approach.In the egalitarian approach, demand is same for everybody but supply conditionsdiffer. This implies that the demand curve remaining unaltered changes insupply curve would give us different levels of investment. In this caseopportunities that the individuals get differ resulting in differences in theamount invested by different individuals. Lower supply curve would mean cheapersources of funding.
Thus policymakers can bring about equality by making fundsavailable to the lower strata of population. In the elite approach, supplyconditions are identical (i.e. everyone has effectively more or less sameopportunities) and the demand conditions vary among individuals. The differencein demand conditions implies that the benefit obtained by individuals in theprocess of investing is different i.e. some individuals expect more to benefitfrom investing than others. This difference is attributable to factors like abilityto gain from investment which might be self-assessment of one’s own self, highIQ, physical size etc.
This ability to benefit from investment in human capitalresults in the formation of an elite group. Some of the interesting insightsthat came out explicitly from this model and discussed by Becker at length isrelevant to what we see in case of education. Supply conditions do not varyindependently of demand conditions.
For instance, the people who are abler arelikely to get public and private scholarships which means that the supply curveshifts downwards. Children from high income families probably on the averageare more intelligent and obtain more psychic benefits from human capital. Beckeralso talked about family backgrounds in explaining differences in earnings dueto difference in investment levels. The model brings to the fore somepertinent questions like difference in ability, family background etc. toexplain differences in investment patterns and earnings. But the model does notexplain as to why people have different abilities and why difference in familybackgrounds matter for education.
One might wonder as to how high IQ is ameasure of ability as ability of an individual is an amalgamation of differentfactors resulting from differences in the social and cultural factors. Also,the question of why ‘children from high income families on the average are moreintelligent and obtain psychic benefits from human capital’ (Becker1994) remainsa question in the Becker model which needs to be answered. This can only beanswered by taking insights from other disciplines.
The difficult task is tofind a consensus between disciplines in understanding the individual as’atomistic’ ‘self-interest driven’ or as ‘actor as socialized and action asgoverned by social norms, rules, and obligations’ (Coleman, 1988). Coleman(1988) borrows the economic principle of ‘rational action’ for use in theanalysis of social system. He introduced the concept of social capital as a’resource for action’. By doing so he brings the social context in neoclassical paradigm. There are some points which are notdealt with in this paper but to my mind pertinent need to be made in thisconnection.
First, the very assumption of ‘rational’ agents in this model makesthe decisions regarding investment in education rather simple. There areinstances of ‘bounded rationality’ with respect to decision making in educationdue to informational constraint. Second is on the issue of consideringeducation as an investment. It gives an instrumental role to the purpose ofeducation. Education contributes to economic growth not only by building humancapital but by instilling common norms and regulations that increase socialcohesion (Gradstein and Justman, 2000). Thus the instrumentalist view of humancapital approach undermines the role of education as an end in itself and merelyconfines the purpose of education to productivity enhancement tool. It is byincorporating other forms of capital i.
e. social and capital one wouldunderstand what education would mean to different individuals and help usunderstand why some people are abler than others. The next section deals with social andcultural capital in detail and tries to answer the questions not answered byBecker in his model.Interaction of threeforms of capital: Social, Cultural and Human capitalSocial capital has been used as a toolto explain why some children are able to perform better than others or whythere is in general a tendency of children whose parents are well educated andhigh paid are able to get more years of schooling. Thus there is a possibleexplanation which is connected to family background of an individual (the pointraised by Becker but not answered).
The importance of social cohesion,networks, trust and norms are ignored in human capital approach. The concept ofsocial capital introduced individuals who are socially embedded intodisciplines such as Economics. Social capital is that analytical tool whichbrings other social sciences in the realm of economics. Coleman (1988) definessocial capital by its function which consists of some aspects of socialstructures and it facilitates certain kind of action of individuals within thestructure. It is a relational category i.e. social capital comes about throughchanges in the relation among persons that facilitate action. Social capital(at individual level) also refers to a system of interpersonal networks(Dasgupta, 2002).
So one can expect that the ‘elite group’ in which is ablerthan others in terms of investment in human capital is a result of greaterformation of social capital. This group might have an access to resources bothfinancial and symbolic which have made them separate from other groups. Thereinlies the significance of schooling as a process which not only increasesproductivity (skill development) as human capital theory suggests but alsoinstills a sense of ‘being’ in a group or in the formation of networks orsocial cohesion which helps in building human capital further. A simplehypothesis that follows from this discussion is that children who are embeddedin richer and more consistent school-related relationships will obtain moreschooling (Teachman et. al, 1997).
Social capital sets the context within whichhuman capital and other resources possessed by parents may impact the decisionmaking of an individual. Thus to answer the question as to why some groups areable to invest more in education than others (demand conditions) one can bringin the concept of social capital. Some studies have incorporated social capitalin economic models to understand school dropout, creation of human capital andeconomic growth (Teachman et.
al, 1997; Dinda, 2007). There is further scope ofresearch in this area by looking at how social capital formed by parents passon to the next generation and so on in the form of increased earnings or levelof investment. There is the other form of capital i.e. cultural capital whichtoo play a role in explaining the unequal scholastic achievement of childrenoriginating from the different social classes by relating academic success,i.e., the specific profits which children from the different classes and classfractions can obtain in the academic market, to the distribution of culturalcapital between the classes and class fractions (Bourdieu, 1986).
The attainment of this form of capital i.e.gaining certificates from taking a particular type of education might result inmore investment in human capital. Cultural capital can also explain the idea asto why abler people invest more in education. It is more symbolic in nature andis something embodied in mind. Thus one can expect to have differences ininvestment level arising out of differences in social and cultural capital.
Thispartly explains the difference in distribution of income generating out ofdifferences in demand conditions (i.e. abilities).ConclusionThe paper makes an attempt to explainvariation in the amount of investment in human capital by incorporating otherforms of capital –social and cultural capital. It thus so by consideringBecker’s model of personal income distribution where he talks about twoapproaches, namely, egalitarian approach and elite approach. Becker raises somequestions in the model like differences in abilities which result indifferences in investment.
The paper tries to answer this difference inabilities through the lens of social and cultural capital. While bringing theseconcepts in this structure I increasingly realized that education cannot belooked as a mere investment as Becker suggested. Because education for some isa way to gain social mobility and learning is a gain in itself. Also thepurpose of education is towards instilling civic virtues which will help in theproper functioning of the economy.
There is also a symbolic gain that isattached to it. Some groups would be demanding more education because thatwould give them a better sense of self-esteem. To quote Bourdieu (1986)’Becker was one of the first to takeexplicit account of the types of capital that are usually ignored, neverconsiders anything other than monetary costs and profits, forgetting the non-monetaryinvestments and the material and symbolic profits that education provides in adeferred, indirect way, such as the added value which the dispositions producedor reinforced by schooling’. (p. 26)It is thus by incorporating other formsof capital that we are able to understand the reality better.
There is a scopeof further research by incorporating these capitals, particularly socialcapital to find out how parents’ networking helps in investment in education ofchildren.