Paying for Results, Not Expenses

Vincent van Gogh: The Painter on His Way to Work // Public domain

When you ask a good economist to name the most precious capital, their answer will be human capital”. Large oil field, steel production capacity, or a number of tractors produced do not make the company rich. The company grows rich thanks to skilled people in the right place, their excellent skills and ability to adapt to change. As Julian Simon used to say, the ultimate source of wealth is man.

The million-dollar question is how to achieve this. In Slovakia, we are currently approaching this goal by formal education in schools, various retraining courses, and lifelong learning financed through EU funds and by activities of labor offices. All these have two things in common: the method of financing and the result.

All the listed activities are financed by public resources, which flow directly to the providers for their services. Funds flow to schools for the number of students enrolled, various courses are funded for the creation and implementation of programmes, and labor office staff for coming to work every day.

In other words, we send money to cover expenses and we rely on the idea that “it will come off somehow”. Well, but it doesn’t come off.

The second thing these human capital enhancement practices have in common is their results. These are weak and often zero. If someone criticizes the results of secondary schools and universities, it is nothing compared to the reality of lifelong learning or retraining courses.

These are often largely just theatrical performances, where some pretend to teach and educate while the others pretend to learn and advance. But at the end of the day, the system doesn’t care, because money is being absorbed, agencies and intermediaries are being paid, and ministries are meeting targets – the amount of money spent and educational man-hours delivered.

The solution? Stop financing expenses and operational costs. That is, stop relying on the inner commitment of the office workers, teachers and trainers. And start financing output and results. If the result is to be better human capital, then by definition it means a profitable opportunity. You increase someone’s skills, help him or her find a job or adapt to certain changes. And this increases his or her value in the labor market.

Therefore, if schools, various retraining courses or labor offices believe that they increase the human capital of their customers or help them to be better placed on the labor market, they should have no problem being rewarded according to these results.

This means that at least part of their income should be in the form of a share of the employee’s salary that passes through their hands. This is the philosophy of financing results, not expenses.

What will be the result? Service providers will have to have skin in the game. They will be existentially dependent on the fact that the hours spent in schools, at courses or at labor offices will lead to tangible results. There will be a connection between their customers’ destiny and their own.

From that moment, they will be motivated not only to fill in forms about the number of students enrolled, lessons taught or number of people taken care of at the labor office, but they will also be motivated to really provide the added value. Otherwise, they will not see their bills paid and soon they will not be able to continue with their activities.

But is such a change realistic? Does it work somewhere already? In the West, this is a new trend. There are universities and vocational education that are financed by a share of the future salaries of their graduates which is called an income share agreement. Many retraining courses or employment agencies use the same mechanism to help you adapt to new conditions, find a better job and even move for it.

The question is not whether such concept might work, but why it doesn’t work in Slovakia yet. The answer doesn’t have much to do with its functionality and feasibility, but rather with the point of whom the current system suits. And those are the people who get paid not for the result, but for the ability to generate expenses.

Translated by Ina Sečíková

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