The human capital transition and the role of policy

Produced as part of the Enabling rapid transitions in mitigation and adaptation CCCEP research programme theme

A potentially important source of green growth in the future is the expansion of the weightless or dematerialised knowledge economy. Along with information and communication technology (ICT) and infrastructure, and the innovation system, human capital is a key pillar of this knowledge economy with its scope for increasing returns. With this in mind, the purpose of this paper is to investigate how industrialised economies managed to achieve the transition from low to high levels of human capital, and to identify lessons for green growth.

The first phase of the human capital transition was the result of the interaction of supply and demand, triggered by technological change and boosted by the demands for (immaterial) services. The second phase of the human capital transition (i.e. mass education) resulted from enforced legislation and major public investment. The state’s aim to influence children’s beliefs appears to have been a key driver in public investment. Nevertheless, the roles governments played differed according to the developmental status and inherent socioeconomic and political characteristics of their countries. These features of the human capital transition are directly relevant to future transitions associated with green growth, and highlight the importance of understanding governments’ incentives and roles in transitions.