THE OVER-EDUCATED, UNDER-UTILIZED PUBLIC MANAGER: WHY DOESN’T HUMAN CAPITAL DEVELOPMENT BRING DESIRED OUTCOMES?
Khalid O. Al-Yahya, Ph.D.
Arizona State University
Phoenix, AZ, U.S.A.
ABSTRACT. This comparative study of human capital development policy and organizational practices examines public administrators’ perceptions of organizational human capital utilization (and underutilization) and its causes in two Middle Eastern countries—Saudi Arabia and Oman (N=540). The study findings expose a significant, and largely ignored, problem in the development and management of public sector organizations: “human capital resource underutilization”, indicating that skills and abilities of public administrators, although relatively and increasingly abundant, are invariably underutilized. The results show that competence utilization is closely related to certain organizational practices, namely power-influence sharing in decision making, area of expertise-job content matching, qualification-job requirements matching, and the use of work-teams. To date little research has successfully addressed these theoretical arguments especially in public sector organizations. The study has profound implications for organizational development and administrative reform. An effective approach is needed to tap into organization’s human capital through more participatory and flexible structures and work redesign. Without such mechanisms, additional skill development might prove ineffective and largely irrelevant to performance improvements and overall effectiveness of governance system.
1. INTRODUCTION
Building and strengthening human capital through education and training programs has been a major goal of public sector development. These policies are consistent with public sector development and economic modernization models that emphasize the role of the competency of public servants and capable bureaucracies as the prime mover of development (Esman, 1991; Schaffer, 1973; Hood and Lodge, 2004; Becker, 1975; Kuruvilla, 1996; Honadle and Van Sant, 1986; Brinkerhoff, 1990; Uphoff, 1986; Riggs, 1963; Kiggundu, 1989). The underlying assumption of this approach is that “once capabilities are in place, the various entities in the public sector will be endowed with the ability to undertake the developmental tasks that government requires, to use resources efficiently, to solve fresh problems as they arise, and to sustain increasingly complex and sophisticated activities over time” (Esman, 1991: 19).
While organization-wide adoption of various skill-knowledge building schemes is quite widespread in both public and private sectors, research on the centrality of human capital resources utilization and its correlates has been relatively scant within the public management and development administration literature. There is an abundance of research on almost all work attributes and control institutions but little that is relevant to the assessment of competence activation and utilization and their effect on work-related outcomes. For example, skill level and type or the number of skills required for a job is often included in defined job attributes, but this is not the same as skill-utilization and the opportunity to use these skills in employees’ work roles (O’Brien, 1980). There is a general tendency among economists and management development specialists to “naively” assume that all good things go together; that improvements in performance will automatically ensue as investment in human capital resources and adoption of technical innovations increase.
In spite of this inadequate attention given to the complexity of underutilization and organizational practices and structures necessary to deal with it, we argue here that if human capital resources are not activated and used or not used properly, the desired effects of their accumulation are “lost.” In cases of underutilization, organizations experience considerable losses due to reductions in effectiveness, productivity, satisfaction, and worker alienation (Kornhauser, 1965; O’Brien, 1980; Humphreys and O’Brien, 1986; Al-Yahya, 2004; Karasek & Theorell, 1990). The greater the level of underutilization, the lower the return from investment in human capital and the lower the benefits accruing to the organization’s stakeholders, including the public, which ultimately pays for such investments and benefits immensely from the nurturing of a knowledgeable and engaged workforce. Furthermore, motivational energy is likely transformed into adverse reaction—stress, passivity, frustration, and ultimately higher rate of turnover, to say nothing of the cost associated with training replacement workers (Hart and Moutos, 1995; Al-Yahya, 2004). Although we can not fully understand the multi-dimensional nature of underutilization without examining its manifestations at different levels and contexts, this article focuses on the development and utilization of human capital in public sector organizations. It attempts to make indirect references to potential similar patterns of underutilization in the broader economic and social context. The article provides some critique of the inadequate treatment of the subject by mainstream economists and international public management researchers.
2. HUMAN CAPTAL DEVELOPMENT
Human capital refers to the aggregate skills, abilities and knowledge, and other competencies of an organization’s workforce (Plouhart, Weekley, and Bauchman, 2006; Becker, 1993; Flamholtz and Lacey, 1981). Thomas Davenport refined the definition by breaking it into elements: ability, behavior, and effort. According to him, “ability comprises “knowledge—command of a body of facts required to do a job, skill—facility with the means and methods of a accomplishing a particular task, and talent—inborn faculty for performing a specific task” (Davenport, 1999:19-20). In the management literature, the term “competence” or “competency” is often used instead of human capital which consists of “skilled, educated people” (Crawford, 1991:5). In this article, I use both terms “human capital resource” and “competence” interchangeably.
The predominant theoretical approaches to examining the importance of skills and abilities are human capital and labor economics in economics, occupational psychology, human resource development in management, and capacity development in development administration. Neoclassical development economists make the argument that human capital and technological advances are necessary prerequisites for the growth and prosperity of societies. Organizations and management researchers are also consistent in maintaining that organizational performance or productivity and efficiency is determined by the accumulation of skills and adoption of technological innovations (Kuruvilla, 1996; Dess and Shaw, 2001; Davenport, 1999; Karasek & Theorell, 1990; Aoki, 1984). In recent decades, investment in human capital development emerged as a major component of modern organizations’ “intended” and “deliberate” strategies, using Henry Mintzberg’s strategy typology (Mintzberg, 1994: 23-24). “Human capital” has become the top priority and slogan of many governments pursuing economic and institutional development around the world.
In recent decades, the preoccupation with accumulating human capital resources and technical capacity even led some researchers in the U.S. and a number of European nations to be concerned about the potential problem of “overqualification”, or “overeducation”; that is, when some workers acquire a qualification (skill and competence) then gain jobs that do not require that qualification for recruitment (Borghans and de Grip, 2000). The publication of Richard Freeman’s The Overeducated American (1976) and Lester Thurow’s Generating Inequality (1975) popularized the issue and drew the attention of economists and organization and management specialists to this phenomenon. Some researchers point out that although intermittent overeducation might not represent a major problem in the short run, its frequency and persistence can discourage individuals (especially students and low-skilled workers) from pursuing “additional schooling when faced with the prospect of overeducation and reduced earnings” (Rumberger, 2002: 1267). This also has unsettling implications for the longstanding assumption in neoclassical economic theory that posits that compensation schemes should be tied to the skills workers possess, not the jobs they hold. However, as pointed by Thurow (1975), compensation increasingly is tied to jobs, not workers; generating inequalities in compensation and access.
2.1 Human capital developlement in Arab countries
In the early days of administrative state building, there was a general consensus among leaders and policy planners in the Arab world and international agencies’ economic and management consultants regarding the importance of human capital resources in the development process. This was due to the shortage of a skilled domestic workforce “national skill deficit” which presented a major challenge to the modernizing Arab states and led to their dependence on foreign experts and labor. For example, foreign workers account for about 70 percent in Saudi Arabia and 80 percent in Oman of country total workforce (Looney, 2004; Al-Lamki, 2000).
Mohameed Magoub, the Prime Minister of Sudan, stated in 1968:
People often talk about the importance of capital goods for the take off stage in the process of development in underdeveloped countries. I think there is a more valuable element: “MAN”—the most precious capital. The task of creating a corps of managers and executives is a difficult one because the material used is a human being and not iron or stone (Quoted in Abualjadail 1990: 103).
Consequently and since the early 1970s, and with the increase in national wealth generated mostly from oil revenues, the gulf states including Oman and Saudi Arabia have invested generously in management development activities aimed at strengthening their administrative and organizational capabilities. This policy aims primarily at building a competent national workforce capable of planning and managing social and economic development programs. In the case of the oil-producing Gulf Cooperation Council (GCC) countries, providing sufficient financial resources to support knowledge-skill formation has never seemed a major problem. Governments incrementally allocate resources for education and technical and vocational training for public sector employees. For example, in the Saudi first development plan (1965-1970), allocations to human resources development stood at $ 2 billion). With the increase in oil revenues during the second plan (1970-1975), the investment allocations of human resources development went up seven fold to reach $14 billion, or 14.7 percent of total expenditures (Saudi Arabia Ministry of Planning, 2001).
This pattern continues through the Seventh Plan (2000-2004) with allocations standing at $ 74 billion, or 56.7 percent of the total expenditures. This is done through an extensive network of national educational and training institutions and international human resource development programs. For example, secondary school enrollments have jumped from 16,000 in 1970 to 534,000 students in 2000; and from 840 to 39,000 student trainees in technical and vocational colleges (with special commercial, industrial, computer science, and managerial programs) in the same period. In the same period, the number of higher education graduates also increased from 1909 to 40,000 per year (from local universities) and from 202 to more than 3,000 graduates (per year) from universities abroad mostly in the U.S. and Europe (SA Ministry of Planning, 2004; Alsahlawi and Gardener, 2004).
In recent years, concerns for growth in population (exceeding economic growth rates) and unemployment led GCC governments to pursue similar policies of nationalization of workforce, what is called “Saudization” in Saudi Arabia, “Omanization” in Oman, “Kuwaitization” in Kuwait, “Emiratization” in the UAE, and “Qatarization” in Qatar. These campaigns meant not only to ensure jobs for national citizens but also to reduce dependence on expatriates in search of self-reliance in human resources. In Oman, for example, the Omanization program has been in operation since the mid-1980s, working toward replacing expatriates with trained Omani personnel. The Ministry of Civil Service has stipulated a fixed Omanisation ratio in many sectors. By the end of 1999, the number of Omanis in government services exceeded the set target of 72%, and in most departments reached 86% of employees (Oman Ministry of Civil Service, 2006). Similarly, the guidelines of the Shura Council in Saudi Arabia dictate that by 2007, 70% of the workforce will have to be Saudi nationals (Looney, 2004).
In the area of special management and human resources development, the public sector in both countries has experienced considerable quantitative improvements in terms of additional qualifications and increase in skill accumulation, as a result of extensive management development programs. A major part of this movement entailed the translation of new administrative thinking and theories into Arabic and the adoption of American textbooks in all public administration and business schools across the country. This was accompanied by the introduction of intensive on-the-job management training programs for various echelons of public administrators. The stated goal of these training programs is supplying public administrators with the knowledge, skills, and positive attitudes necessary for improving administrative work procedures and adopting effective management and leadership styles in an attempt to facilitate administrative reform and improve the performance of public service organizations. In the period between 2000 and 2002, more than 27,000 public employees attended the in-service management programs at the Institute of Public Administration (IPA) in its regional branches in Saudi Arabia (IPA, 2003). Moreover, many public organizations arrange for their employees to go abroad for training and other skill-knowledge exchange activities with universities and governmental agencies in the U.S. and Europe.
2.2 Why doesn’t human capital development lead to expected outcomes? A puzzle! And A Utilization Appraoch
These policies and programs have fostered burgeoning professional middle classes and relatively high growth in per worker human capital (certainly not eliminating the shortage of highly skilled workforce completely in some specializations). However, research on development and growth rates in the region continues to report that this considerable expansion in human capital does not seem to have had effect on both economic output and organization-level performance (Ali-World Bank, 2002 Ali, 2002; Benhabib and Spiegel, 1994; Thomas et al, 2000; UNDP, 2002; Makdisi, 2000; Psacharopoulos, 1994; Alsahlawi and Gardener, 2004; Thomas et al, 2000; UNDP- Arab Human Development Report, 2002).
For example, Pritchette (1999) studied the growth of educational capital per worker and its association with the aggregate growth of output per worker in the Middle East from 1960 to1985. Pritchette’s research reported that in all of the results the estimated coefficients of human capital are almost zero (Pritchette, 1999). This indicates that in spite of the apparent surplus human capital in the region, the desired rate of return of human capital stock on performance is very minimal if not negative. Ali (2002) reviewed other studies that examined the relationship between the accumulation of human capital and the rate of growth in Arab countries during 1960-1998 and came to the same conclusion, noting the lack of association between the two (Ali, 2002). At the organizational level, a large number of studies have reported similar persistent patterns of unaffected performance and development in work organizations (Al-Abdullatif, 1995; Hakim, 1989; Al-Yahya, 2004; Al-Meth’heb, 1998; Alkahtani, 2000; Ali, 1996; Kassim, 1994; Abualjadail, 1990). This gap between the considerable expansion in the stock of human capital and performance outcomes emerged as a puzzle in the empirical literature.