{"id":1859,"date":"2006-11-14T12:25:04","date_gmt":"2006-11-14T08:25:04","guid":{"rendered":"http:\/\/geoeconomics.ge\/en\/?p=1859"},"modified":"2013-03-14T12:25:47","modified_gmt":"2013-03-14T08:25:47","slug":"human-capital-as-a-most-important-component-of-the-national-wealth-by-the-example-of-georgia","status":"publish","type":"post","link":"http:\/\/geoeconomics.ge\/en\/?p=1859","title":{"rendered":"Human capital as a most important component of the national wealth (by the example of Georgia)"},"content":{"rendered":"

Ioseb Archvadze <\/strong><\/p>\n

Market economy considerably broadens the framework of national wealth and imparts a new content to it. <\/p>\n

In accordance with the requirements of the national economic accounting system, along with elements and domestic property having \u201ctraditional\u201d material form, envisaged in it are such elements as information, the right to apply knowledge, experience, technologies, as well as the ability of human application of this wealth and information resources. Today it is not a secret any more that the national wealth of any country is considerably dependent on the human factor. Moreover, human capital itself becomes immanent, objective and, for many countries, main element of national health. The more developed the economy is, the larger is the share of human capital in the national wealth of the society. In other words, we can judge about the economic development level of the given society by the share of human capital in the national wealth.
\n In particular, how should we determine the human component, human capital of a country\u2019s national wealth?
\n In evaluation of human capital we should apply the same approach as in evaluation of other components of wealth \u2013 taking into account the expenses allocated on it and the market price for the given moment. At the same time, unlike the elements of wealth having material form, human capital is much more mobile and that is why, in our opinion, in comparative evaluation of the expenses allocated for its formation, preparation and training, the priority should be given to the market price. Human capital is, in fact, a capitalized labor force, the total amount of wealth (surplus value) produced during one cycle of reproduction of the later. This opinion is strengthened by the circumstance that its actual cost is conditioned by not only individual incomes of the population, but also by a large part of collective consumption (first of all, the expenses allocated for social-cultural arrangements). The more investments are made in a person\u2019s preparation, his training, professional formation the higher his productiveness is. Individual and collective(social) expenses incurred for reproduction of a person, labor force should be considered as the expenses allocated for reproduction of human capital.
\n In calculation of human capital, as it is the case with calculation of GDP, the so-called methods of \u201cproduction\u201d, \u201cexpenses\u201d and \u201cincomes\u201d can be applied. At the same time, in our opinion, the priority should be given to the first one.
\n The amount of human capital calculated by \u201cthe expenses method\u201d is determined by the unity of expenses of the society and households allocated for receiving of knowledge, education and qualification by the economically active population of the given generation. However, labor force, population is characterized by high mobility, because of which the aforementioned materialized expenses in the total labor force at a concrete moment, as a rule, do not coincide with the expenses of the corresponding country.
\n Calculation of human capital by \u201cthe incomes method\u201d is free from the aforementioned shortcomings, but it places the emphasis on individual incomes only and other factors having an effect on the growth of human capital are not seen in it, in particular \u2013 social expenses and the scale of collective consumption.
\n One should also take into account the circumstance that calculation of human capital by \u201cexpenses\u201d and \u201cincomes\u201d methods is associated with certain statistical difficulties: it is difficult to calculate the corresponding expenses and incomes statistically, inflation of incurred expenses and received incomes which took place in previous years becomes necessary. At the same time, the expenses allocated for formation of labor force are not always reflected in the incomes, since non-individual (social, international) expenses as well as self-training have a significant effect on them.
\n In our opinion, today, in conditions of the current accounting system, the most complete cost evaluation of human capital is possible by means of \u201cthe production method\u201d, when its amount is determined by the amount of labor force in the country, its productiveness and potential duration of the activity. In other words, human capital of any country is the bigger: the higher labor productivity is (1), the more numerous the labor force is (2) and the younger the population, including the economically active one, is (3).
\n The mentioned conclusion is based on the circumstance that for each concrete period human capital is formed by the number of employed people, their productivity and duration of activities of the economically active part of the mentioned generation, i.e. as human capital of each concrete year we should consider the product of this year\u2019s economically active employed population and labor productivity, the difference that is obtained between the population\u2019s mean age and the upper bound of the able-bodied age.
\n Wp = Pa x Lp x (Am \u2013A0),
\n Where:
\n Wp \u2013 human capital;
\n Pa \u2013 economically active population;
\n Lp \u2013 productivity of labor;
\n Am \u2013 age limit of the economically active population (65);
\n A0 \u2013 mean age of the population.
\n The menyioned equation can be written in the following way:
\n Wp (human capital) = GDP (Gross Domestic Product) x A (potential duration of the activity of the economically active population).
\n Natuarally, GDP = Pa x Lp, and A = Am \u2013 A0.
\n Let\u2019s consider that by a concrete example.
\n In 2005 Georgia\u2019s GDP made up 11622 million GEL, the number of those employed in the national economy \u2013 1744.6 million people, productivity of labor per employed person \u2013 6662 GEL.
\n In 2005 the mean age of the Georgian population made up 37.6 years, i.e it had 27.4 years \u201cleft\u201d till the pension age. Correspondingly, in 2005 the cost of Georgia\u2019s human capital made up:
\n 6662 (GEL) x 1744.6 (thousand people) x 27.6 (years) = 320.782 (million GEL), i.e. about 180 billion USD.
\n In the recent years, in view of the unfavourable demographic situation, Georgia\u2019s popultion has been growing old by one year in every two years1. Correspondingly, other things being equal, ageng of the population by one year reduces the cost of Georgia\u2019s human capital by 14.0 billion GEL, i.e. 8 billion USD. In comparison with Georgia, the mean age of the population in Armenia is less by 3.5 years, in Azerbaijan \u2013 by 5.5 years. In other words, in case of the demographic structure similar to that of in Armenia, for the same number of population Georgia could have by 15% more human capital compared to the actual one, and in case of the demographic structure similar to that of in Azerbaijan \u2013 by 25% more.
\n Regardless of the method that is applied for determination of human capital, there is a regularity: the growth of human capital passes ahead of the growth of other elements of national wealth (natural wealth, accumulated property) (1), and the more developed the country is the larger is the share of human capital in it (2). For instance, in the beginning of the XXI century only 30% of Georgia\u2019s national wealth fell on the share of human capital, while in the US \u2013 77%, in Russia \u2013 50%, in OPEC countries \u2013 46…2
\n A comparatively small share of human capital in Georgia\u2019s national wealth can be explained not by the abundance of natural resources, but by the difficulties that have arisen in the country\u2019s economy in the recent years and the outflow of the most qualified labor force having the reproduction ability. In view of the well known events that took place in Georgia in the last decade of the XX century, the country\u2019s total national wealth decreased by 40.2%, its material part (national property) \u2013 by 41.7%, natural wealth \u2013by 4.0% only, while the national wealth \u2013 by 61.7%, i.e. \u2013 by 2.6 times. During this time the share of human capital in our country\u2019s national wealth dropped from 46% to 30%.4 In Georgia, like in most countries that gained independence, economic migration acquired a large-scale character from the beginning of 1990s. For instance, no less than 2\/3 of those people who left Georgia were labor migrants. Their general education level, labor skills and qualification was high. The number of people having higher education among them exceeded the share of those having the corresponding qualification in the whole of Georgia\u2019s population by 1.4 times, and among 20-50 years old migrants \u2013 by 2.1 times. At the same time, in the past years, in the wake of economic growth and stability, a positive trend can be observed: according to our appraisal, in 2006 as compared to 2000, Georgia\u2019s material wealth (national property) has increased by about 15%, while the human capital \u2013 at least by 25%.
\n The primary growth of human capital in comparison with other elements of national health, on its part, puts on the agenda the issue of switching to the new paradigm of determination of duration of the cycle of the national wealth\u2019s reproduction. After the term national wealth had been inculcated (the beginning of the XIX century), most scientists were guided by the opinion that the life cycle of national wealth should be close to the cycle of reproduction of the basic capital.
\n During a long period of time it was entirely logical, since human capital was not taken into account in the national wealth\u2019s structure and, correspondingly, the largest part of wealth fell on the basic capital (the property having material form). It was substantiated in the socialist political economy that periodical economic crises (with the interval of 8-11 years) in the countries with market economy were related to the renovation of the basic capital and, correspondingly, of the national wealth. Afterwards, (from the 2nd half of the XX century) economic crises acquired an anisochronous character, their cycle and intensity diminished, periodicity \u2013 increased, in view of which the functional connection between the renovation of the basic capital\u2019s elements and the economic crisis slackened. The development of informational technologies at the end of the XX century, the Internet and globalization have increased the role of \u201cthe new economies\u201d and the labor force activating them in the reproduction of wealth and had a substantial effect on the reproduction cycle of the latter. The labor force undergoes a qualitative renovation during working activities of one generation, which has a direct effect on its cost and human capital as the integrated indicator of capitalization of the total labor force. As it can be seen from the chart given above, today in the world human capital makes up almost two thirds of the national wealth, and in Georgia its advance growth in comparison with other elements of the wealth\u2019s elements can be observed. That is why, as the basis for determination of the national wealth\u2019s reproduction cycle can be considered not the cycle of physical renovation of the wealth\u2019s material elements, but the life cycle of the most rapidly growing part of the wealth \u2013 human capital5, in fact the reproduction period of the generations of the population, the society6. Correspondingly, special attention of economists and statisticians should be drawn to such aspects as duration of economic activities of people\u2019s separate generation, the effect of \u201ctraditional\u201d and \u201cnew economies\u201d on the national wealth\u2019s formation, factor analysis of the growth of the basic elements of the latter, etc. This kind of studies cannot have only theoretical load \u2013 it will be possible to apply the obtained results in the economic, security and a number of other directions that are utterly important for the state.<\/p>\n","protected":false},"excerpt":{"rendered":"

Ioseb Archvadze Market economy considerably broadens the framework of national wealth and imparts a new content to it.<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[36],"tags":[],"yoast_head":"\nHuman capital as a most important component of the national wealth (by the example of Georgia) - Geoeconomics<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/geoeconomics.ge\/en\/?p=1859\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:title\" content=\"Human capital as a most important component of the national wealth (by the example of Georgia) - Geoeconomics\" \/>\n<meta name=\"twitter:description\" content=\"Ioseb Archvadze Market economy considerably broadens the framework of national wealth and imparts a new content to it.\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\">\n\t<meta name=\"twitter:data1\" content=\"7 minutes\">\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebSite\",\"@id\":\"https:\/\/geoeconomics.ge\/en\/#website\",\"url\":\"https:\/\/geoeconomics.ge\/en\/\",\"name\":\"Geoeconomics\",\"description\":\"\",\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":\"https:\/\/geoeconomics.ge\/en\/?s={search_term_string}\",\"query-input\":\"required name=search_term_string\"}],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\/\/geoeconomics.ge\/en\/?p=1859#webpage\",\"url\":\"https:\/\/geoeconomics.ge\/en\/?p=1859\",\"name\":\"Human capital as a most important component of the national wealth (by the example of Georgia) - Geoeconomics\",\"isPartOf\":{\"@id\":\"https:\/\/geoeconomics.ge\/en\/#website\"},\"datePublished\":\"2006-11-14T08:25:04+00:00\",\"dateModified\":\"2013-03-14T08:25:47+00:00\",\"author\":{\"@id\":\"https:\/\/geoeconomics.ge\/en\/#\/schema\/person\/c8498c0ae03a66c87b59761fbd19b04c\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/geoeconomics.ge\/en\/?p=1859\"]}]},{\"@type\":\"Person\",\"@id\":\"https:\/\/geoeconomics.ge\/en\/#\/schema\/person\/c8498c0ae03a66c87b59761fbd19b04c\",\"name\":\"Admin\",\"image\":{\"@type\":\"ImageObject\",\"@id\":\"https:\/\/geoeconomics.ge\/en\/#personlogo\",\"inLanguage\":\"en-US\",\"url\":\"http:\/\/2.gravatar.com\/avatar\/bf2d8703d729f003d8905b57fcab5078?s=96&d=mm&r=g\",\"caption\":\"Admin\"}}]}<\/script>\n<!-- \/ Yoast SEO plugin. -->","_links":{"self":[{"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=\/wp\/v2\/posts\/1859"}],"collection":[{"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1859"}],"version-history":[{"count":1,"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=\/wp\/v2\/posts\/1859\/revisions"}],"predecessor-version":[{"id":1860,"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=\/wp\/v2\/posts\/1859\/revisions\/1860"}],"wp:attachment":[{"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1859"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1859"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/geoeconomics.ge\/en\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1859"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}