Meltdown, bailouts, recession–the last six months have provided quite a crash course in economics for us.  There has been a lot of talk about Wall Street vs. Main Street, as if you could easily separate the two.  The truth is, you can’t.  What is needed right now is a serious capital reinvestment in the economy.  I’m not talking about infusions of cash and liquidity like the Federal Reserve has been attempting.  I’m talking about an investment in human talent. 

There are two types of capital:  finance and non-financial.  Why does this matter to those who care about talent?  Because the two are closely connected,  and there are many fallacies about both which pass as fact.

When companies get in trouble, capital spending usually stops.  Expense control and cost-cutting become a central concern.  One of the highest cost items on the balance sheet is employee costs which includes wages, benefits and liabilities.  

People are also the source of added value in business – their skills, insights, how they work together or collaborate to get the work done.   In normal times, capital (the financial kind) goes where companies can realize good returns either because labor is cheap (and taxes and regulations are usually lower) or where labor is highly productive (because of education, good health and good infrastructure).

As the recession winds down and business gears up, these economic fundamentals are going to once again come into play.  The quest for cheap labor is what causes businesses to relocate where they can get good returns.  Not all of this is going overseas.  Hyundai invested over $1 billion in a new plant in Montgomery, Alabama, that began production in 2005.  That’s a significant capital investment, and they sought less expensive labor away from traditional autoworker union strongholds where costs are much higher.  Hyundai is one of the automakers that is doing quite well even in this economic downturn, though you don’t hear much about it in the news.

Other companies have to make smart decisions about investing in their human capital and focus on worker productivity.  There are many ways to do this, and some approaches have a more immediate payoff than others.  Training, management development, and product or service innovation are just a few examples.  It is clear though that companies which simply hunker down or focus only on cutting costs through this recession will recover slower and will lose a lot of ground to those with more of an investment mentality.