Investing in Human Capital

Dollars and Social Sense

Fifty years ago, most Americans did not have a chance of getting a higher education. In most countries at that time, only about 5% of students went to college, an institution largely reserved for an upper class elite. Today, the system is transformed. An increasing number of countries provide financing for higher education. Underwriting the increasing demand for education in the U.S. and worldwide will require greater participation from private markets.

Economist Milton Friedman made the initial suggestion: instead of using loans as the primary means of affording "consumption," use equity instead. Friedman sparked national debates in the U.S. and the U.K, most notably in the realm of education funding. The day may come, in fulfillment of his notion, when students will receive $100,000 each in the form of a "human capital contract" (HCC) to pay for college tuition and living expenses, in return for a promise to pay a flat percentage of their future income, say 10% for 20 years, if not for their entire working lives. That’s how expensive and crucial higher education has become.

Human capital contracts are based on the belief that a well...