James J. Heckman

What is Heckman’s theory of Human Capital

There are certain key words Heckman frequently uses when discussing his work. Human capital is one of them, a term coined by Nobel Laureate Gary Becker. “One of the big developments that occurred in understanding human capital is its multidimensional nature,” Heckman explains. “It’s not just IQ, it’s not just how smart you are, but how perseverant and sociable you are, how much self-control you have.” Heckman, as head of the Center for the Economics of Human Development at Chicago University, has developed measurement schemes to better understand human potential, “in a much richer way than just looking at PISA scores.”

Human capital is a critical component for determining success in life. It involves skills that can be costly to acquire – a good education or job training, for example – but which pay off in the long run. “It’s really an investment decision,” Heckman explains, an investment that he thinks should start very early in one’s life.

How can we give kids a chance to flourish?

“Kids who are born in disadvantaged environments don’t have good opportunities,” Heckman argues. “Typically, you think of inheritance of capital, it’s not that. It’s more the inheritance of human capital, of culture and of values, that makes a big difference.” Heckman explains that for children to have a chance to flourish in life they need guidance. “Someone who allows them to wander around, who’s there to advise and to protect them in case they stumble,” he says. “That’s often missing.”

The damage done in early years, Heckman argues, cannot be undone later in life. That’s why it’s important to engage the parents. While you can’t tell them how to raise their children, you can make suggestions that enrich the possibilities, according to Heckman.

“The assumption is made that functioning families are there,” he says. “That’s why much of the public discussion is spending money on schools. But if parents aren’t there to help the kids, no matter how much we spend on schools, they’re not going to get much out of it.”

Can positive interventions in early childhood shape successful outcomes?

Heckman knows that it is a politically sensitive problem to address, but he believes that there are ways to tackle it positively, like advocating a new public discourse on skill formation. He has conducted extensive empirical research and has evidence of successful programs. “The central ingredient is stimulating interactions,” he explains.

Things that may sound simple like educating new parents about health, showing them how to read a bedtime story at night or encouraging them to scribble in a coloring book together are very important.

“If you distilled it down to the essence, it’s parenting,” he says. “If you can supply that, you can get a really good outcome for the child.”

It was by accident that Heckman became involved in early childhood development. “I was working on job training programs in the 1990s,” he says. “Those programs were so unsuccessful, I got very discouraged. It was then that I realized the early years were important.” He learned that intensive programs starting at a young age were very rewarding in the long term. They led to better performance in school, lower crime, higher earnings, better health.

How to stop the creation of a class system?

It is one of the clearest arguments during a panel discussions in Lindau. Money alone doesn’t work. Heckman gives the example of a single mother who has not yet finished school. If she receives a monthly check, she will depend on it for necessities, maybe all her life. But if the money is instead invested in high-quality childcare for low-income or single-parent families like herself, the mother truly benefits. “Now, she has the chance to finish school and get a job,” he argues. “She becomes an active part of society. At the same time, there are substantial benefits for the child.”

Heckman sees the creation of a “welfare clientele” as one of the biggest problems in Western societies today. “Just giving money to people creates a permanent class that’s separate from, and dependent on, the rest of society,” he says. “You need to integrate, include them, give them the dignity of work.” A transfer-based system alone becomes a multigenerational problem, explains the Nobel Laureate. Mobility out of a disadvantaged environment is severely limited. “The children are no better than their parents, 20 or 30 years later.”

Why is society becoming more unequal?

Current data suggests that Western societies are becoming more unequal in startling ways. Heckman describes the situation in the US, where many workers have lost their jobs and feel they are victims of changing economic conditions. He argues that these people no longer sense a connection with the highly educated part of the population, but that they have an entirely different structure of opportunities, and a clear line divides what seems like two different worlds. “The inequality is not only economic but also political and social,” he says. “People’s dignity is threatened, they’ve genuinely suffered a loss, and they have every reason to have fears.”

Although currently less educated, middle-aged workers are relatively low in productivity in new working environments, Heckman believes that there is a chance to integrate them. “We can subsidize their activity,” he explains. “We want to engage people, not put them off into ghettos. It’s either saying, ‘You’re a worthless steel worker, stay home, we’ll send you a check,’ or saying, ‘We can use your services.’” When faced with greater polarization in society, Heckman feels that engagement is a solution to regain a sense of a shared prosperity.

Are racial conflicts getting worse?

Early in his career, Heckman worked extensively on racial conflicts. “One of my earliest projects was to prove that Civil Rights Laws passed in the 1960s had a major effect in elevating the status of blacks,” he says. It was the beginning of a lifelong interest in African American culture. Heckman feels that the conflict is only getting worse. “Today, it’s not possible to have an honest, factual discussion about race.”

“The whole idea of an intellectual life is that you can share ideas, you want scholars of all stripes,” he says. “Some of the best work on African Americans could be done by a Chinese currently getting a PhD in Beijing. It’s a question of the quality of the argument, not the qualification of the person making the argument.” Nowadays, Heckman refrains from commenting on the situation too much, though he feels the measures that have been taken are not sufficient. “You want people to be able to go to the highest level,” he explains. “But I don’t know if actually assigning quotas and making explicit distinctions based on race or sex is productive in creating an enriched environment. It’s the difference between forcing a result and providing an opportunity.”

How many political decisions are based on scientific evidence?

“I really believe that we have the capacity to improve, but we’ll have to think a little more broadly than we have in the past,” he says. He is a little pessimistic about how much policy making is based on the evidence he and others deliver. “Maybe the value of scientific analysis is starting to become depreciated. It’s an ongoing enterprise, and I think that’s what science is about. I feel the responsibility of trying to do good work, work that’s not quick and dirty but that has some value.”