23 Things They Don't Tell You About Capitalism

Let’s first take the case of the East Asian miracle economies, in whose development education is supposed to have played a critical role. In 1960, Taiwan had a literacy rate of only 54 per cent, while the Philippines’ was 72 per cent. Despite its lower education level, Taiwan has since then notched up one of the best economic growth performances in human history, while the Philippines has done rather poorly. In 1960, the Philippines had almost double the per capita income of Taiwan ($200 vs. $122), but today Taiwan’s per capita income is around ten times that of the Philippines ($18,000 vs. $1,800). In the same year, Korea had a 71 per cent literacy rate – comparable to that of the Philippines but still well below Argentina’s 91 per cent. Despite the significantly lower literacy rate, Korea has since grown much faster than Argentina. Korea’s per capita income was just over one-fifth that of Argentina’s in 1960 ($82 vs. $378). Today it is three times higher (around $21,000 vs. around $7,000).

Obviously, there are many more things than education that determine a country’s economic growth performance. But these examples undermine the common myth that education was the key to the East Asian miracle. The East Asian economies did nothave unusually high educational achievement at the start of their economic miracles, while countries like the Philippines and Argentina did very poorly despite having significantly better-educated populations.

At the other end of the spectrum, the experience of Sub-Saharan Africa also shows that investing more in education is no guarantee of better economic performance. Between 1980 and 2004, literacy rates in Sub-Saharan African countries rose quite substantially from 40 per cent to 61 per cent.[1] Despite such rises, per capita income in the region actually fellby 0.3 per cent per year during this period. If education is so important for economic development, as most of us believe, something like this should not happen.

The apparent lack of positive effects of education on growth is not found only in the extreme cases that I have chosen – East Asia at one end and Sub-Saharan Africa at the other. It is a more general phenomenon. In a widely cited 2004 article, ‘Where has all the education gone?’, Lant Pritchett, a Harvard economist who worked at the World Bank for a long time, analysed the data from dozens of rich and developing countries during the 1960–87 period and conducted an extensive review of similar studies, in order to establish whether education positively influences growth.[2] His conclusion is that there is very little evidence to support the view that increased education leads to higher economic growth.

Don’t know much about history, don’t know much biology

Why is there so little evidence to support what seems to be such an obvious proposition that more education should make a country richer? It is because, to put it simply, education is not as important in raising the productivity of an economy as we believe.

To begin with, not all education is even meantto raise productivity. There are many subjects that have no impact, even indirectly, on most workers’ productivity – literature, history, philosophy and music, for example (see Thing 3). From a strictly economic point of view, teaching these subjects is a waste of time. We teach our children those subjects because we believe that they will eventually enrich their lives and also make them good citizens. Even though this justification for educational spending is increasingly under attack in an age in which everything is supposed to justify its existence in terms of its contribution to productivity growth, it remains a very important – in my view, the most important – reason to invest in education.

Moreover, even subjects like mathematics or sciences, which are supposed to be important for raising productivity, are not relevant for most workers – investment bankers do not need biology or fashion designers mathematics in order to be good at what they do. Even for those jobs for which these subjects are relevant, much of what you learn at school or even university is often not directly relevant for practical work. For example, the link between what a production line worker in a car factory learned in school physics and his productivity is rather tenuous. The importance of apprenticeship and on-the-job training in many professions testifies to the limited relevance of school education for worker productivity. So, even the supposedly productivity-oriented parts of education are not as relevant for raising productivity as we think.