23 Things They Don't Tell You About Capitalism

Unless we deliberately restrict our choices by creating restrictive rules, thereby simplifying the environment that we have to deal with, our bounded rationality cannot cope with the complexity of the world. It is not because the government necessarily knows better that we need regulations. It is in the humble recognition of our limited mental capability that we do.

Thing 17 More education in itself is not going to make a country richer

What they tell you

A well-educated workforce is absolutely necessary for economic development. The best proof of this is the contrast between the economic successes of the East Asian countries, with their famously high educational achievements, and the economic stagnation of Sub-Saharan African countries, which have some of the lowest educational records in the world. Moreover, with the rise of the so-called ‘knowledge economy’, in which knowledge has become the main source of wealth, education, especially higher education, has become the absolute key to prosperity.

What they don’t tell you

There is remarkably little evidence showing that more education leads to greater national prosperity. Much of the knowledge gained in education is actually not relevant for productivity enhancement, even though it enables people to lead a more fulfilling and independent life. Also, the view that the rise of the knowledge economy has critically increased the importance of education is misleading. To begin with, the idea of the knowledge economy itself is problematic, as knowledge has always been the main source of wealth. Moreover, with increasing de-industrialization and mechanization, the knowledge requirements may even have fallen for most jobs in the rich countries. Even when it comes to higher education, which is supposed to matter more in the knowledge economy, there is no simple relationship between it and economic growth. What really matters in the determination of national prosperity is not the educational levels of individuals but the nation’s ability to organize individuals into enterprises with high productivity.

Education, education, education

‘Education, education, education’ – this is how the former British Prime Minister Tony Blair summed up his prospective government’s top three policy priorities during the 1997 election campaign, which brought his ‘New’ Labour party to power after nearly two decades in the wilderness.

The subsequent success or otherwise of New Labour’s education policy may be disputed, but what is indisputable is that the comment perfectly captured Mr Blair’s exceptional ability to say the right thing at the right time (that is, before he lost his head over Iraq). Many a politician before Mr Blair had talked about and pushed for better education, but he was speaking at a time when, having witnessed the rise of the knowledge economy since the 1980s, the whole world was becoming convinced that education was the key to economic prosperity. If education had been important for economic success in the days of smoke-stack industries, more and more people were becoming convinced, it would be the be-all and end-all in the information age, when brains, and not brawn, are the main source of wealth.

The argument seems straightforward. More educated people are more productive – as evidenced by the higher salaries they get. So it is a matter of mathematical logic that an economy with more educated people will be more productive. The fact that poorer countries have a lower stock of educated people – or ‘human capital’ in some economists’ jargon – also proves the point. The average duration of schooling is around nine years in OECD countries, while it is not even three in Sub-Saharan African countries. Also well known are the exceptionally high educational achievements of the ‘miracle’ economies in East Asia – such as Japan, South Korea, Taiwan, Hong Kong and Singapore. Their educational achievements are manifested not just in quantitative terms such as high literacy rates or enrolment rates at various levels of education. The quality of their education is very high as well. They rank right at the top of the league in internationally standardized tests such as the Trends in International Mathematics and Science Study (TIMSS) for fourth and eighth graders, and the Program for International Student Assessment (PISA), which measures fifteen-year-olds’ ability to apply maths knowledge to real-world problems. Need we say more?

We don’t need no education…

Self-evident though the importance of education in raising an economy’s productivity may seem, there is actually a lot of evidence that questions this piece of conventional wisdom.