Theorists of human capital have emphasized on the importance of this issue as the main basis of social and economic development and consider educational investment as bedrock for the production of human capital. According to their studies, there is some correlation between average educational background of adults, cost of education as part of gross domestic product, literacy rates as well as enrolment rates, on the one side, and economic development, on the other side. By comparing the output of human capital with other forms of capital, they measure role of education in economic growth and conclude that a large part of production growth rate in the United States has resulted from investment in education. The economic growth rate in some countries including East Asian nations is explained according to speed and rate of investment in education.

During recent years, special emphasis has been put on "investment in human resources" and many developmental economists have attributed rapid growth of capital to concentration of human capital and enhancement of technical skills. Human capital is a combination of cultural capital (science, knowledge, skill and specialty) and physical capital (health status of people as a result of education and health care) and is saved in human resources including scientists, engineers, specialists and skilled manpower. Modern economists have taken their attention from material investment (in labor, land and capital) to non-material investment and maintain that efficiency of material investment is related to capacity of non-material resources as well as investment in production of human capital. Lack of balance between accumulation of material capital and expansion of human abilities is a factor that reduces capacity, effectiveness and productivity of capital and makes development a difficult process.

The issue of knowledge-based development which has been introduced over the past few years and expansion of knowledge-related activities as a main source for production of added value, has turned scientists into the main driving force behind generation of wealth and economic dynamism. Therefore, educational investment aimed at promoting learning processes is, once more, a focus of attention for policymakers. Iranian authors have also emphasized on the importance of manpower and make development of the country conditional on development of human resources. When talking about human capital, higher education is considered an investment, whose added value will be reflected in the whole economic system by training educated people in the medium and short term. The higher people’s education is, their income will also be higher and this will improve economic situation of the country. Also, higher education in a society will mean more technological innovation and higher productivity.

According to theory of human capital, education and technical skill will pave the way for earning more money. Therefore, the cost of education or learning a skill constitutes a form of investment. In this theory, the model of demand for higher education is more affected by economic output than anything else. This shows the importance and effect of labor market conditions on decision-making and close relationship between the educated labor market and demand for higher education. From a strategic viewpoint, this has frequently encouraged more investment in education and in some cases; has led to criticism of higher education performance of the society or education of unskilled people along with recommendations for promoting quality of higher education.

In Iran, educational investments have overshadowed social, cultural and political behaviors and attitudes and have also had economic consequences.

Though this paper accepts the necessity of increasing educational investment and boosting higher education’s quality, but it does not consider lack of emphasis on production of human capital as the main problem facing higher education system in Iran. Under present conditions, brain drain does not allow for accumulation of human capital because "the end product of educational investment flees to foreign economies and the higher education system has become a base for providing specialized manpower to advanced countries." Recruitment of the Iranian graduates in foreign economies shows that the higher education system of Iran, despite all problems, is capable of producing exportable human capital. Iran has turned into the world’s "biggest brain exporter" at a time that due to low quality of domestic products, its rating with regard to other exports is quite low. Iran’s rating in terms of brain export shows that, at least, part of the Iranian graduates enjoy high quality and our higher education system, despite weaknesses, is capable of producing human capital.

Therefore, the main problem facing the country’s development is not shortage of educational investments or low quality of education at higher educational centers. The index of human capital, as a major indicator of development, fares good and the main reason for underdevelopment of the country is the gap between that indicator and other indicators of development. For example, in a recent work, reference has been made to differences between human development and material development indicators: Iran ranks 97^th among 174 countries according to human development indicator and is a medium ranking country in this regard. However, its ranking in terms of gross domestic product, as an indicator of material development, is 77. The difference between the two indicators (-20) means that Iran fares better in terms of material development than human development. Therefore, the difference between two forms of development reflects the fact that in our country most resources have been spent on developing hardware and less attention has been paid to software. However, improvement in gross domestic product, as an indicator of material development does not reflect attention to hardware, but results from export of raw material including oil and gas. Therefore, we cannot conclude that more attention is paid to hardware technologies and now it is turn to pay more attention to software technologies including investment in education and improvement of manpower. The main issue is that human development has come to harm due to the absence of good relationship to economic capital.

In Iran, educational investments have overshadowed social, cultural and political behaviors and attitudes and have also had economic consequences. However, on the whole, the consumer aspect of those investments has been more pronounced than their productive aspect. By differentiating between economic and social outputs or market development and social development discourse, one can claim that social output of higher education in Iran has been much more than its economic output. Instead of emphasizing on the improvement of human capital indicator in the first stage to achieve economic development, this paper will stress on the link between educational processes and industrial and technological production processes. We believe that the main lack of harmony is not between material and human development, but in the lag between technological indicators as compared to human development indexes. In this way, under current conditions, the basic strategy for development is not to increase investment in production of human capital but in increasing links between educational and research processes, on the one hand, and economic processes, on the other hand. Without making an effort to establish that relationship, the results and output of educational investments will not benefit Iran, but will do so with respect to other countries. Dissociation between investment and benefits of investment is facilitated, to some extent, by fugitive specialists, and to some extent, by new communication technologies and tools. However, the root cause is internal dissociation between educational and business environments.

The number of university students increased from 67,268 to 923,913 between the academic year 1969-1970 and the academic year 2003-2004, showing an increase of over 15 times. The number of doctorate students has also increased from 452 in the academic year 1979-1980 to 12,000 in the academic year 2001-2002, registering an increase of over 20 percent. Between 1985 and 1995, the ratio of students per 100,000 people has increased by more than 260 percent from 377 to 1,364. The increase is even higher than corresponding figures for Japan, the United States, France, England and even such developing countries as India, Indonesia, and Turkey. The growth in gross enrollment rate in higher education institutes of Iran (which increased from 4.1 percent to 14.8 percent in the same period) has been higher than the corresponding figures for the said countries. According to those indicators, despite low absolute value of production of human capital compared to some countries, the rate of production of that capital is relatively satisfactory.

During the past two decades, a large number of students have graduated and emergence of nongovernmental higher education centers (Islamic Azad University and nonprofit institutes) has further increased that figure. The main question is to what extent the high number of graduates is used in industrial production and technological development processes as the main fields of production? Share of graduate manpower (above associate degree) to total employed population of the country is very low. Out of 14,572,571 employed people in 1996, only 1,402,617 persons, that is, 9.6 percent, were university graduates. The figure amounted to 26.5 percent in public sector and 2.2 percent in the private sector. Out of 10 employed persons in the country, only one enjoys academic education and a large portion of graduates are engaged in administrative, educational and health professions and are rarely involved in production of science and technological development. In the private sector, which should be active in the field of industrial production, about two out of 100 persons enjoy academic education and less than 0.5 persons (0.43 percent) holds a postgraduate degree. Therefore, only part of the academic graduates is attracted to the private and public sectors because knowledge and specialty (except for such fields as education and public health) does not enjoy a special status in economic activities of the country. In other words, activities focused on production of information, knowledge and technology, are much lower compared to activities related to production of human capital.

In this paper, technology adoption indicators (TAI) are used for a more complex definition of the existing gap between educational and economic sectors (UNDP, 2001). Various indexes of this indicator cover situation of human skills (as an expression of human capital) as well as the situation of technological and industrial development. The main theory of this paper is based on the existence of gap between educational and economic sectors along with an assessment of differences related to Iran according to indicators of human capital and indicators of technology production.

Technology Adoption Indicators shows the status of various countries with regard to production and promotion of technology and indicates capacities of countries to take part in technological innovations. That indicator, measures inputs instead of potentials or achievements. The indicator does not reflect advancement of a country in technological development, but focuses on participation of a country as a whole, in producing and applying technology. For example, the United States has registered more inventions and Internet groups than Finland, but Finland ranks higher (1 against 2) in terms of ATI indicators because the country has been more successful with regard to promoting Internet and developing technological skills in the population. TAI focuses on four technological indicators which are more important for availing of "network era." They include:

1. Production of Technology: The capacity for innovation is the highest level of technological capacities. Global economy holds great rewards for leaders in technological innovation. All countries need a capacity for innovation and that capacity cannot be developed solely through consumption of technology without developing the ability to produce technology. Technology adoption indicators use two indexes to express the level of innovation in a society: 1) the number of registered inventions to express the current level of inventory activities, and 2) obtaining patents from abroad to express saving of successful innovations of the past which are still useful, and therefore, enjoy "market value."

2. Proliferation of recent innovations: All countries should adopt innovations in order to avail of opportunities that are provided in the age of networks. This is measured in terms of propagation of the Internet or the export of high- and medium-technology products (compared to total exports).

3. Proliferation of old innovations: Although sometimes a technological spurt may be possible, technological advancement is a cumulative phenomenon and proliferation of old innovations is needed to accept recent ones. Proliferation of old innovations is measured in terms of the number of conventional or mobile phone lines as well as power consumption because they need modern technologies.

4. Human skills: Human skills are indispensable component of technological dynamism. Creators and users of new technologies need skills. Modern technology needs adaptability and skill to overcome the constant current of new innovations. The fundaments of that ability include: basic education for development, cognitive skills, as well as scientific and mathematical skills. Two indicators are used to measure needed human skills and to create or attract new innovations: average years of schooling among population ageing above 15 as well as the ratio of gross enrolment rate of students in science, mathematics and engineering courses.