Although early theories of growth in the 1950s saw it as a process of accumulation of physical, tangible capital, experience showed that much more was required for growth. The focus of theories shifted to the role of the world of work and not just the tangible number of workers, but their skills and competencies, what they could do and how good they were at it, of course in combination with physical capital and technology.
Since the 19th century, in many countries there has been a broad consensus on the fundamental role of education for prosperity and development, but the truth is that from the 1960s onwards some economists “rediscovered” the subject and incorporated it into theories and mathematical models of growth (Becker, Mankiew, Weil, Romer and others).
This is how the concept of “human capital” was developed, which considered education and training not only a cultural and humanistic experience, but an investment, and not only for each person to improve his or her human development, but for a society to improve its growth, productive development and per capita income level. This means that in modern knowledge societies, diminishing or even constant returns no longer dominate, but rather innovation and new ideas are capable of generating a world of increasing returns, that is, of increasing and cumulative growth in productivity. This is why in modern knowledge societies, and under the new technology-intensive productive paradigms, the role of education and vocational training is more important than ever. And it is under this line of thinking that societies have paid attention to the coverage and quality of education as part of their development and productive transformation strategies.
So, what do we know and what do we not know about when and how education drives or causes growth and when it does not? What kind of educational policies can help the great productive transformation? This was the topic that economist Lant Pritchett addressed during a keynote lecture given last March for the 75th Anniversary of ECLAC. The answers to the above questions, according to Pritchett, can be summarized in the following narrative.
The starting point is to recognize, as Pritchett said, that “the expansion of education coverage since the 1950s has been one of the most remarkable successes of humanity in the second half of the twentieth and first half of the nineteenth centuries.” However, there is a great mystery about the relationship between education and growth. Many countries have had massive expansions in their education systems and have not experienced high and sustained growth, suggesting that the expansion of education in terms of enrollment rates is not a sufficient condition for growth. Part of the solution to this mystery is that education does not generate growth unless it generates learning.
In Latin America and the Caribbean, between 1950 and 2015, the years of schooling of young people aged 25 to 34 rose from 3.0 to 10.2. Moreover, almost all countries in the region had more years of schooling in 2015 than in developed countries in 1950. The conclusion is that none of LAC’s failure to catch up in labour productivity with the leading countries can be attributed to a failure to expand educational enrolment as quickly as developed countries.
According to Pritchett, the reasons why higher education does not uniformly lead to higher growth fall into two categories: i) schooling is not producing the learning outcomes (skills, competencies, capabilities, characteristics) that lead to a more productive workforce; ii) the economy is not structured in such a way that, even though the expansion of education is producing a workforce with greater productive potential, this higher “human capital” is not being harnessed and employed in dynamic and highly productive sectors.
As for the first, the evidence is clear: countries’ economic growth is strongly associated with education when indicators of student learning outcomes are used. When an index of Learning Adjusted Years of Schooling is used, the correlations between education and growth and between education and per capita income levels are significant. In other words, Latin America’s growth deficit is largely due to its lag in learning outcomes. That is where the failure lies.
The second category of reasons why more schooling, even if it has better learning outcomes, does not in itself lead to greater growth is that it does not open up opportunities for productively employing this more skilled and potentially more productive workforce. Expanding these opportunities is precisely the objective of the productive development policies that we are advocating for at ECLAC.
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