Defense Resource Management

Human capital is central to every industry and has a pervasive impact on every organization, affecting nearly every aspect of operations. While the formal study of human capital began in the mid-20th century, the concept of investing in people’s knowledge, skills, and abilities can be traced back to Adam Smith. Human capital is a factor of production, alongside physical and financial capital, labor, natural resources, and entrepreneurship. It refers to the human contribution to the creation of goods and services. Although closely related to labor and entrepreneurship, human capital is defined as the knowledge, skills, and abilities of individuals and groups. The theory of human capital marked a shift from viewing people as homogeneous labor to seeing them as a form of capital stock with associated costs and returns on investment.

Furthermore, human capital is increasingly recognized in some circles as an industry itself – not just as a cross-cutting contributor to industrial performance, traditionally defined – because it encompasses a vast ecosystem of institutions, markets (with supply and demand), and services dedicated to developing, managing, and deploying talent. Like traditional sectors, the human capital industry has inputs (education, training, and healthcare) and outputs (skilled, healthy, and productive labor). Its supply chain includes schools, universities, vocational institutes, healthcare providers, and workforce development agencies.

This report explores human capital through a national security lens – national security defined here in robust, comprehensive terms, rather than being narrowly equated with defense. Specifically, the treatment of human capital offered below cuts across three focus areas: the public sector, the private sector, and the national-international arena.

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