Monday, May 18, 2015

Education not the panacea for all economic problems

Whenever league tables are announced, cue the current OECD table, outrageous claims are made linking education to economic health and growth. Yet the evidence that education, in particular Higher Education, is the key driver of economic growth is dubious. The often unquestioned claim is that GDP and other measures of productivity and economic growth will rise with absolute certainty, if only we invested more in education. This view is extolled largely by educationalists, not economists.
Harvard’s Lant Prichart, formerly of the World Bank, did the data crunching and in a now famous article ‘Where has all the education gone?’ found little evidence between education and higher economic growth. Cambridge economist, Ha-Jon Chang refutes the idea that  ‘more education in itself is not going to make a country richer’ and there are plenty of counter examples.
So let’s look at the top eight performers in the latest OECD list; Singapore, Hong Kong, South Korea, Japan, Taiwan, Finland, Estonia, Switzerland – there’s some interesting evidence on these.
Taiwan (5) had an appalling literacy rate in 1960 at 54%, much lower than the Philippines at 72%. South Korea (3) had a literacy rate of 71%, much lower than many countries that failed to deliver economic growth, such as Argentina and most of the Eastern block. Education was not the primary driver behind the Asian economic miracle. It was much more complicated, based on entrepreneurship, the development of manufacturing processes, culturally compliant labour forces and Government policies supporting the development of small and large businesses. It is more likely that increased educational performance, which is far more recent than the economic miracles, are a product of growth, rather than the primary driver.
China is a fascinating example of a high growth economy, which can hardly claim to have been driven by education, as almost everything was closed down or destroyed in the cultural revolution and subsequent growth largely down to political reform, government planning and the encouragement of entrepreneurial activity.
The US is (28) but is the strongest economy in the world, fed by a thirst from entrepreneurialism and innovation. It always seems to pop up somewhere in the middle of these tables. But should they worry? I think not.
Another interesting case is Switzerland, in there at number 8.  It is a high performing economy, with major companies and good productivity, yet that grew at a time when Switzerland had one of the lowest Higher Education enrolment rates in the world. Until 1996 it had half the enrolment of the OECD average (16% to OECD average of 34%). It has risen since but is still way lower than many other European countries.
Let’s put aside the fact that Estonia (8) has just been identified as the worst performing economy in the Eurozone, in recession. Finland (7) is also going through a period of severe economic trouble, as its paper market collapsed (internet the cause) at the same time as it’s powerhouse company Nokia and the Russian economy, its largest trading partner, tanked.
Conversely, Greece has a huge rate of enrolment in Higher Education but is a bankrupt country where the banks and government coffers are all but empty and economic growth that most economists agree, will never be enough to pay the national debt. Italy, Portugal and Spain have similar issues. Youth and graduate unemployment have soared in line with increased enrolment in Higher Education.
Way down the bottom are Qatar and Saudi Arabia. These are strange beasts that buck the trend. The children of nationals in these countries receive a very expensive education yet problems remain with quality and motivation. In Qatar, a country I know well, the issue is not education but the malaise of excessive wealth that saps the aspiration of young people.
For nearly 25 years the literacy rate of Sub-Saharan African countries rose, in some cases spectacularly, yet income in the region fell by 0.3%. Some African countries, like Ethiopia, have been on a building spree, with universities sprouting like weeds. Yet this has led to economic strains, difficulties in maintaining quality of students and teachers, as well as a lack of clear evidence for increased prosperity. I’m in Addis Ababa next week arguing that what Africa needs, is not more Universities, but more vocational learning, embedded in the local economies.
Note that this is not an attack on education as a social good. Education is clearly not just about economic prosperity and many argue, rightly, that education has a much wider role than economic growth. What it looks at  is the claims that it also inexorably linked to economic growth.
Education wants its cake, wants to eat it and wants to claim that it made the cake as well. But there is a dangerous illusion here. I heard it described well by the President of Namibia in 2013, who called it the ‘spectre of hallucination’, the idea that more is always good and that more schooling, more participation in Higher Education, is always good. He thought this was as sure a sign as any that something has gone wrong. He’s right. This is the language of booms and bubbles. In some countries, the US and my own, the UK, the student debt problem may be approaching that of the housing bubble.
Pritchett L. (2001) Where has all the education gone?  The World Bank Economic Review, vol. 13 no. 3.

Ha-Jon Chang (2010) 23 Things they don’t tell you about capitalism. Penguin.

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