Tuesday, May 18, 2010

Internships: Financing Human Capital?

My recent post on private/public education generated a fair amount of controversy (rightfully so, as my views definitely are not set on this issue). I'm currently reading Capitalism and Freedom - something light to kick off my summer - and enjoying Friedman's discussion of education. One complaint he levies is that investment in human capital is too low (as of 1962) relative to investment in physical capital. He cites the difficulty of securing a loan as one major reason. Suppose you make a loan to your neighbor for a tractor. If he quits paying, you can take the tractor. But if you make a loan for him to go to college and he quits paying, you cannot take him and enslave him. Nor can you even expect him to work for you, because he may simply not cooperate with whatever tasks you want done.

Friedman's solution, or one possible one, is investment by companies in their future employees. He suggests in a footnote that "training financed by XYZ insurance company could be made into an assurance of quality (like "Approved by Good Housekeeping")". Is the current system of internships a step in this direction? Most college students, at least around greater DC, are strongly advised to get as many internships as possible. I would believe that an internship with a powerful company, such as the Department of State, could function as a quality assurance for a person with an education but little/no work experience. Perhaps this also explains why so many internships are unpaid; the best internships provide non-monetary compensation by opening up future earnings possibilities.

Of course, I'm not convinced this is a good system. Many internships end up involving a lot of filing and fetching of coffee (I attest to this from personal experience). It's also becoming more common for interns to be hired to do work that would otherwise require paying an employee, and to me this is unfair to the intern. How can the internship system be revised to avoid some of these effects?

1 comment:

jroddy said...

I think we do have such a system, even if it is rather limited in its scope. In addition to the internship system (and a DoS internship isn't exactly a golden ticket, in my experience, even though it's rather competitive), but many companies offer fellowships for the most talented incoming employees. Take the federal government's Presidential Management Fellows program -- government helps with master's degree costs, the student gets work experience (and a job for a year or two afterward), and it looks great on your resume. Many private sector companies offer similar programs.

The big problem I see with these is their limited scope -- only the truly elite get them, while surely others would benefit from these internships and experience. I agree, too, that too many internships are only coffee-fetching (not the case at State), and doing real work in place of employees is vastly preferable to that.

Compared with the totality of knowledge which is continually utilized in the evolution of a dynamic civilization, the difference between the knowledge that the wisest and that which the most ignorant individual can deliberately employ is comparatively insignificant. ~Fredrich Hayek in The Constitution of Liberty