 Recently the World Bank funded a study entitled "Where is the Wealth of Nations?: Measuring Capital for the 21st Century." The study found that by simply adding up the current value of a country's natural resources and produced (or built) capital, in no way accounts for that country's level of income. The World Bank concluded that Human capital and the value of institutions (as measured by rule of law) constitute the largest share of wealth in virtually all countries.
The bottom line: "Rich countries are largely rich because of the skills of their populations and the quality of the institutions supporting economic activity." Overall, the average per capita wealth in the rich Organization for Economic Cooperation (OECD) countries is $440,000, consisting of $10,000 in natural capital, $76,000 in produced capital and a huge, $354,000 in intangible capital. (Switzerland has the highest per capital wealth at $648,000. The US is fourth at $513,000 of which $418,000 is intangible wealth.
By comparison the study finds that the total wealth for the low income countries averages $7,215 per person of which $3,991 is in intangible wealth.
The discrepancy between the intangible capital averages of high income and low income countries illustrates an important distinction. Clearly the continuing growth in per capital incomes of many countries during the nineteenth and twentieth centuries is largely due to the expansion of scientific and technical knowledge, raising the productivity of labor and other inputs in production. In turn the increasing reliance of industry on sophisticated knowledge greatly enhances the value of human capital.
Take a look at the outstanding economic records of Japan, Taiwan, and South Korea in recent decades for a dramatic illustration of the importance of human capital to growth. Lacking natural resources these Asian Tigers grew rapidly by relying on a well trained, educated, hardworking, and conscientious labor force that makes excellent use of modern technologies.
Without proper statistics, or analysis, many companies like to promote the idea that their employees (human capital) are their biggest source of competitive advantage. This is good talk but the reality is that most companies are as unprepared for the challenges of finding, motivating, and retaining capable workers as they were a decade ago.
In 1997 McKinsey conducted its "War for Talent" research and found an imminent shortage of qualified executives. Sure enough ten years later in 2006 McKinsey Quarterly conducted a global survey and found that respondents regarded finding talented people as likely to be the single most important managerial preoccupation for the rest of the decade. Again in November 2007, another survey revealed that nearly half of the respondents expected intensifying competition for talent – and the increasingly global nature of that competition – to have a major effect on their companies over the next five years. No other single global trend was considered as significant.
The critical question is: "What can my company do to take full advantage of the powerful potential of human capital?" The time to assess the intangible capital in your company is now. It is critical to develop a talent acquisition plan to fill your current and projected talent needs. CEOs, unit heads, and company managers need to work with HR professionals to improve their ability to translate business needs into talent strategies. A strong people culture is an essential part of a company's candidate value proposition and can make all the difference when searching for the next leaders of your company.
Contact the Zenzola Group today and allow us to help you build your intangible capital by finding the people you want and the talent you need.
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