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Many of the terms used to describe the economy today no longer reflect reality. Everybody knows that the lights would go out, the airplanes would stop flying, and the banks and many of the factories would shut down if the computer software that runs their systems suddenly vanished. Yet these crucial 'intellectual' assets do not appear in any substantial way on the world's balance-sheets. Instead, they are full of 'tangible' assets - buildings and machinery, stocks and financial reserves.
But important structural changes are occurring in the nature of economic activity, in the role of human resources as agents for such change, and in the role of public policy in facilitating the transition. And with increasing 'knowledge-intensity', growth in employment must be sought through improved productivity in firms with a solid capacity to innovate and use technology effectively.(2) The initial qualifications of workers, and the incentives for investing in further acquisition of knowledge show every sign of assuming more importance as determinants of performance, not only of individuals in labour markets, but of enterprises and national economies.(3)
So how does a government measure capital formation, when much new capital is intellectual? How does it gauge the productivity of the knowledge of workers whose product cannot be counted? And how then can it track productivity growth? And if it cannot do any of these things with the relative precision of simpler times, what becomes of the long-hallowed mission of government: guiding national economies? But even if some of these problems of measurement are solved, the phenomena they assess will be far more difficult to control than in the industrial economies of old.
National accounts and economic analysis frequently treat labour as a more or less homogeneous input to economic activity. But the 'simplifying assumptions' about how 'human capital' is measured and evaluated -- the differentiated skills, knowledge and expertise of workers -- are less readily tenable than ever because of shifts in economic output in the OECD countries away from goods towards services and other knowledge- and information-intensive forms of output. Because of these shifts, and the more competitive climate in which economic activity takes place, the economic survival of enterprises, and the employability and earning power of individuals, depend more and more on learning as...