Why HR is shifting to HD Part 1: A new awareness of human development

September 10, 2022

Not so long ago, when I suggested that companies should really commit to human development by using it to replace human resource, I would get that look. You know what I mean. The eyes go glassy, they glance at their watch and suddenly seem late for their next appointment.

It's only been five years but today I don't get that look. When I talk about human development, people are interested.

But they still ask: "So what's the difference with HR?"

It's not just about words

The short answer is that human development considers people as an end as well as a means to achieve the company's economic goals. Contrary to the human resource model of work, human development organisations have a dual purpose - profit, to be sure, but also people.

Human development professionals have a responsibility for all workers besides profit - to organise work as a development experience. For the companies, this means ensuring a human net positive result for the work experience. This purpose represents a more advanced model of work, going beyond "decent work" criteria of the International Labour Organisation to make work a vehicle for continuous human development. We believe that's the future of work.

Work in companies, in this view, is in a circular relationship between workers and the organisation.

Humans drive the sustainable development of the company, which in return invests in sustainable development of workers.

Why traditional HR is no longer viable

Companies are moving away from the traditional human resource or human capital model. A growing number of workers, especially millennials, are critical of the jobs offered by companies because they don't want to be treated as a resource or as capital.

The old model is rooted in an economic theory championed by American economist Milton Friedman that says a business should always endeavour to maximise its revenues in order to increase returns for the shareholders. In other words, as he wrote in a New York Times article, the only social responsibility of a business is to make profits.  

Traditional HR is based on that economic theory, sometimes called the shareholder capitalistic model. For example, in his 1996 best-selling management book, HR Champions, the University of Michigan guru Dave Ulrich summarised the purpose of HR on one page (page 18 of the book).

- The purpose of HR is the help companies win in the marketplace
- The HR function does not own compliance – managers do.
- HR professionals must translate their work into financial performance.
- HR professionals must create practices that make employees more competitive, not more comfortable.
- HR practices do not exist to make employees happy but to help them become committed.

While Human Development professionals may agree partially to the business side of these statements, they reject the idea that a company needn't be concerned with caring for people and their development.

For Ulrich, the HR function itself has no ethics beyond labour law, no higher purpose in dealing with people, and no goal to contribute to the human development of employees unless it increases profitability. Traditional HR is solely focused on how to "win in the marketplace."

How has this impacted the American workforce? The consequences are not positive.  

As the above chart shows, workers steadily increased productivity but their net income hardly changed, creating a disconnect in terms of merit and fairness. For low-wage workers, the share of income earned by the bottom 50 percent of earners has dropped significantly since 1990 while top executive salaries in the US have continued to rise sharply. Over this same period, the US decreased public investment in human development programmes on the job and funding for vocational schools and apprenticeships. As HR is traditionally defined, there is no mandate to improve human development and no voice to treat people as more than a resource.

The false logic of Human Capital

At the University of Chicago working with Milton Friedman, professor Gary Becker introduced the concept of human capital into economics. He applied Friedman's theories to labour policy and education showing that people seek to maximise their economic value. He won the Nobel Prize in Economics in 1992.

Becker's concept of human capital became applied not just to the value of work, but was extended to the value of workers - a fundamental logical error. People do not only seek to maximise their human capital: they also see freedom, respect of their rights, personal development, recognition for their contribution, belonging to a community and finding purpose and meaning in their work.

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In fact, the term "human capital" was used for slaves before the American Civil War, when African slaves actually had an economic price put on them as an asset and were bought and sold. In her influential book, Accounting for Slavery: Masters and Management, published by Harvard University Press in 2018, Caitlin Rosenthal writes:

Slaves were, quite literally, human capital, whose value could appreciate through maturation, reproduction, and health or depreciate due to illness, age, and disobedience. Slaveholders’ calculations show that they were keenly aware of the impact of human processes on profits and losses, and they attempted to manipulate enslaved lives to increase their earnings.

When it comes to managing people in today's organisations, the human capital approach is a measure only of economic value. So for human development initiatives, such as empowering women or promoting inclusive hiring, human capital logic attempts to demonstrate a return on investment, or at least show a correlation between the share price of the company and the human development practice.

But what if there is no correlation, as in the case of slavery at the time of the American Civil War? Shouldn't companies improve human development because it's the right thing to do? Shouldn't professionals responsible for people in their organisation develop them as a purpose? The proper logic for human development is not ROI -- it is ethics. In any case, correlation is not causality, so investing in human development should not be seen as action that should necessarily increase a company's share price.

When it comes to government and international institutions, you still see dehumanising titles such as Ministry of Manpower (Singapore), Ministry of Human Resources (Malaysia), Human Capital Index (International Monetary Fund). It is odd that these institutions measure only the economic value of people. Workers don't want their governments to treat them as a man-power or a resource or capital. Workers self-manage their careers beyond doing a job for money -- and they want a voice in how their work is managed.

At the ASEAN Human Development Organisation, professionals stated in surveys that ethics provides the essential foundation for their profession. Ethics, along with the capability of developing the organisation through people, and people through the organisation, is what makes a human development professional different from a human resource professional.

A new knowledge base for the profession championed by a global institution

Back in the 1990s, at the same time that American HR gurus were arguing that people are essentially a means to profit, the United Nations was defining a new foundation for world economics.

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Two Asians, Mahbub ul Haq from Pakistan (pictured right) and Amartya Sen from India (pictured left) led the movement. Haq believed that human development at the UN should be communicated through an economic index comparing how well countries were improving the health, education and prosperity of their citizens. Sen initially opposed Haq’s idea of a Human Development Index (HDI) for the United Nations, insisting that it would eclipse the broader concepts of development such as freedom. Haq argued that an index, however primitive, would shift the attention of policy-makers from economic to human goals and Sen eventually agreed.

What made Sen so important for the United Nations is that he was different from other economists due to his study of the philosophy of development. He asked what the goal of human development should be and eventually found his answer in Aristotle. The end result of individual development for Aristotle is generally translated as "thriving" or "flourishing" to indicate development of one's potential. For Aristotle, development requires freedom to make one’s own decisions and to choose an activity for its own sake.

Sen boldly combined Aristotle’s goal of self-development with development economics. The UN definition of human development includes three major principles provided by Amartya Sen:

1) Development is a ‘process of expanding the real freedoms that people enjoy’
2) The expansion of freedom is ‘the primary end and the principal means of development’
3) Human Development should also overcome the “unfreedoms” that leave people with little choice such as lack of human rights and inequality.

Sen’s qualitative definition was adopted by the International Labor Organisation’s to define its mission of ensuring “decent work” for everyone.

In addition to providing income, work can pave the way for broader social and economic advancement, strengthening individuals, their families and communities. Such progress, however, hinges on work that is decent. Decent work sums up the aspirations of people in their working lives.

After this fundamental reset of economic development, the United Nations more recently defined a set of sustainable development goals which covers a large part of its mission today. You can find human development imbedded in at least 10 of the 17 SDGs.

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How is this new paradigm of human development impacting companies today?

Shift in the purpose of business

The American Business Roundtable is known to be a rather conservative lobby based in Washington DC. It members are exclusively CEOs of big American companies.

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In 2019 the American Business Roundtable publicly rejected shareholder-only capitalism and advocated for a stakeholder model, publishing their declaration on the front page of the New York Times.

  • Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
  • Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world.
  • Supporting the communities in which we work. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
  • Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders

The shift is not without controversy in the United States. But high profile CEOs continue to promote the idea of business has a purpose other than profit. To take a recent example BlackRock CEO Larry Fink wrote this in his 2022 "Letter to CEOs".

Our conviction at BlackRock is that companies perform better when they are deliberate about their role in society and act in the interests of their employees, customers, communities, and their shareholders...These themes are now centre stage for CEOs, who must be thoughtful about how they use their voice and connect on social issues important to their employees.

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