(Note: The following is an edited version of a piece that was originally published in the Summer 2005 issue of Impact, the newsletter of the Mackinac Center for Public Policy.)

"Human capital" is one reason state policy might be even more important to our lives than federal policy. Economist Gary Becker, a Nobel Memorial Prize winner, calls human capital the most important form of wealth in the United States, and the Milken Institute estimates its value at $900 trillion. A look at what comprises human capital suggests a fascinating question: Which policies have a greater impact on human capital — national, or state and local?

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No doubt this question will be the future Ph.D. dissertation or Nobel nomination of a Mackinac Center intern. But until then, let’s look at what we know.

According to Becker, human capital is comprised mainly of training, health and education. He sees employers as the source of most training, while government is more involved in health and education.

Workplace training, though relatively free of government interference, is probably affected more by state policies than federal. By this, I don’t mean state job-training programs; I’m talking about employment law, including at-will employment, training regulation, safety regulation and dozens of related elements.

Health care may be influenced more by federal policies than state. But state discretion on Medicaid spending is huge, and insurance — perhaps the biggest health care factor for most — is largely state-regulated. States also oversee doctors, and hospitals are constrained by certificates-of-need and myriad other state rules.

State spending on education dwarfs the $56 billion federal Department of Education budget. Education is one area where federalism — distinct spheres of state authority without federal interference — has been somewhat preserved. When it comes to influencing education policy, the action is at the state level.

If we don’t get education right, it might not matter what else we do. That alone justifies a big investment in reforming state policies.

Of course, good policy at the state level doesn’t protect only human capital. When the U.S. Supreme Court ruled this summer that government can transfer your home to another owner who promises to generate higher tax revenues, the battle to protect property rights instantly shifted to the 50 states — many of which, including Michigan, have stronger protections than the federal government now grants.

Human capital is difficult to measure. Nevertheless, it is immensely important, and it may well be affected more by state policy than by federal policy.


Joseph G. Lehman is executive vice president of the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.