What Is the Difference Between Physical and Human Capital?

The so-called physical capital refers to the long-standing forms of production materials, such as machinery, equipment, factory buildings, buildings, and transportation facilities. In the traditional industrial economy, material capital occupies a dominant position, but with the development of the economy and the advent of the knowledge economy, human capital has far exceeded material capital in terms of quantity and income, thus replacing economic development The dominance once held by material capital. Today, the organization of a company depends on the partnership between physical and human capital. With the continuous expansion of the market scale, the deepening of the degree of specialization and the improvement of the efficiency of the financial market, physical capital is more and more easily copied, and human capital and innovation are becoming more and more important.

Physical capital

Right!

The so-called physical capital refers to the long-standing forms of production materials, such as machinery, equipment, factory buildings, buildings, and transportation facilities. In traditional

In the eyes of economists, there are two types of capital: one is physical capital; the other is

Since the 1920s and 1930s, the national income of the United States and other developed countries has grown faster than

Judging from the economic growth of developing countries whose industrialization has not yet completed, the relative position of physical capital among the factors may not decline, at least as important as other forms of capital.

(1) Capital waste in developing countries is large, and the capital-income ratio is high

Although developing countries have accumulated a large amount of material capital, they have not been carefully used and serious waste has been caused. For example, the workers are not skilled and the operation tools are not elaborate; the overload of cars and the overloading of machines; the roads, buildings and other equipment are not carefully maintained, so the depreciation rate is high. In particular, the imperfect market mechanism, incomplete and unreal market information, lack of scientific decision-making and insufficient experience, etc., have led to a large number of bad investments. There is also waste for the same reason because capital tends to be constrained by convention, with the result that overinvestment in some industries and underinvestment in others. According to estimates by relevant experts, in the past two years, China's cement consumption accounted for half of the world's total consumption, and steel consumption accounted for 30% of the world's total consumption, but the total output accounted for only 4% of the world's total.

(2) Developing countries are underdeveloped in terms of production specialization and division of labor. Compared with developed countries, economies of the same size require a larger amount of material capital.

In a production unit that is only engaged in the production of a single product, only one set of production equipment and tools is needed; in a production unit that is engaged in the production of multiple products at the same time, and the correlation between the products is not very strong, although some power equipment can be shared, But there must be multiple sets of processing machinery and tools. From the perspective of the whole society, under the circumstance of specialization and underdeveloped labor, from a small production enterprise to a city and a region are all self-contained systems, forming a small but comprehensive, large and comprehensive production and management structure, then , The similarity or repetition rate of physical capital such as machinery and equipment will be very high. The result is the small scale and low efficiency of production. Under this production pattern, a certain amount of total social output requires the use and consumption of much more material capital than under the specialization of labor.

(3) Decentralized economic activities in developing countries. In physical capital. Inventory accounts for a large proportion, and economic activities in developing countries are scattered. In addition to transportation, communication, and compliance reasons, in order to avoid interruption of the reproduction process, a larger amount of inventory must be available. Kindelberger and Herrick pointed out: "India's family establishment industry is spread across thousands of locations and its inventory costs are high, which hinders its development." The situation of Chinese township and village enterprises is very similar to that of India.

(4) Large amount of investment required by the construction industry, public works and utilities in developing countries

Developing countries have a low level of development, and there are many blank spots and films in China. In addition, this type of investment and construction also has the characteristics of advancement, integrity, and durability. Once the economy takes off, it will require a long-term investment of huge capital. Another is that developing countries are in the process of urbanization. A large number of surplus agricultural labor forces and rural populations are flooding into cities and towns, which has brought a lot of housing demand and stimulated the expansion of the construction industry.

(5) High capital deepening returns in developing countries

The principle of factor productivity reveals: Assuming that other factors of production remain unchanged, with the continuous input of a certain factor of production, the change in its marginal productivity appears to increase, remain constant, and decrease in three stages. With other conditions unchanged, the scarcer a certain factor of production relative to other factors of production, the higher its marginal productivity. Developing countries have abundant labor, and the change in the marginal productivity of physical capital is still in the first of the three stages mentioned above. In developing countries, increase physical capital investment. Improving labor's physical capital equipment is still an important way to increase factor productivity and economic growth.

(6) In the economic growth of developing countries. The contribution rate of technical elements is low. Relatively high contribution rate of physical capital

In developing countries, technological progress is relatively slow, and its contribution to income growth is relatively low. Developing countries urgently need to address the employment of labor, poverty in national life, development of education, medical care, culture and other undertakings, and they must maintain high growth in national income. What is the way out? It mainly depends on accelerating the accumulation and formation of physical capital. While accelerating the accumulation of physical capital in developing countries, the issue of technological progress cannot be ignored, but developing countries need much more material capital to absorb new technologies. This is mainly due to the large waste and consumption of material capital in every link of new technology research, development, trial production and use.

To sum up, a country's large industrial system has a high degree of dependence on physical capital before its completion, and a low degree of dependence on physical capital after its completion. The relative decline of material capital in the process of economic growth is in terms of today's developed countries, which is not completely applicable to developing countries. China's large industrial system has not yet been built, and the accumulation of physical capital is still very important. At the same time, the accumulation of human capital, social capital and environmental capital must be accelerated. Accumulation (especially attracting foreign capital), while neglecting the growth of other intangible capital stocks, and underlining the lag of the accumulation of intangible capital stocks to discredit domestic savings and investment and the introduction of foreign capital, are both undesirable.