Human Capital at the Firm Level

At the firm level, human capital may have a more robust influence on institutional performance. One place where this has been studied, in relation to the human capital spillover effects on the performance of foreign-owned firms, is in less-developed countries (LDCs). Generally speaking, case studies seem to indicate that multinational companies are likely to provide more education and training to personnel than are locally owned enterprises (Djankov and Hoekman 2000; Barry et al. 2004). This would appear to offer particular opportunities to enhance the human capital of employees in LDCs (International Labour Organization 1981; Lindsey 1986) although, working in Mexico, Dasgupta et al. (2000) found that foreign ownership per se made little difference to the performance of firms; where managers had obtained international experience within a firm, this was likely to increase dramatically levels of compliance with local environmental standards and regulations.

At first sight, this seems to be encouraging news for anyone interested in improving the stewardship of resources in LDCs. However, other research finds that asymmetries in human capital at the actual interface between personnel from highly developed countries (HDCs) and LDCs can be quite damaging to the intellectual capital of the latter as well as to their natural resources. For example, there has been some relevant research on information asymmetries between HDCs and LDCs. Looking at the practices of bio-prospecting and the acquisition of rare books and manuscripts from African collections by libraries in HDCs, Hongladorom (2007) notes the propensity for information to be extracted from the latter by the former with very little benefit to the originating populations. Where human capital asymmetries are already large, the intellectual capital of the multinational corporations or foreign enterprise is often extractive, drawing upon, but not replenishing or upgrading, the intellectual capital of the host communities. As another research team exploring the consequences of bio-prospecting discovered:

We know of no published, empirical evidence of the benefits of biochemical discoveries filtering down to the poorer segments of host communities. If that conjecture is true, then to a first-order approximation, the opportunity cost of habitat conversion does not change among the poor. Then the pressure to convert habitat remains among the poorer subpopulations in communities in or surrounding biodiverse areas. If the poor are among the principal agents (as well as victims) of tropical ecological degradation (Barrett 1996), bio-prospecting then fails to alter the incentives of those whose behaviors most need to be changed (Barrett and Lybert 2000:297).

In sum, the expectations arising from labor economics that higher levels of educational and intellectual attainment will translate into higher national welfare standards and superior management of natural resources is highly attractive and probably reasonably robust at a coarse-grained level of analysis. However, at the level of specific comparisons among countries of otherwise similar levels of economic and institutional development, it remains unproven. At the firm level, where asymmetries between foreign and host country personnel are not extreme, there seems to be potential to enhance environmental and resource management through enhancing the human capital of managers by providing them with international experience. (This may actually be a network effect of the sort considered to be indicative of social rather than human capital, as discussed below). Where human capital asymmetries are more extreme (e.g., in bio-prospecting) international contact may exacerbate extractive tendencies without returning value to the local population and prove to be detrimental to local environmental and resource management.

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