Education won't necessarily help development

In the poor nations of the world it is common wisdom that increasing educational levels will help stimulate economic growth. But like much economic ‘common wisdom’ the facts don¹t necessarily support the platitude.

Since the demise of colonialism the percentage of African children obtaining higher levels of education has exploded. Yet the promised economic benefits have been few and far between. Studies of economic growth, in relation to increased levels of education, found no correlation at all. In many African countries the percentage of children in school has tripled since independence yet these same countries have shrinking economies.

Part of the reason for this is that poor countries tend to follow interventionism as their prime economic policy. Educated individuals can contribute a great deal to an economy provided that government policy provides them with incentives to do so. But in an interventionist economy each government regulation creates profit opportunities that the educated in particular seek out. They find that it is more profitable to use the regulations to redistribute wealth to themselves rather than to engage in producing goods and services. As new laws and regulations are passed, new profit opportunities are created and it is the educated that can take most advantage of them. Schemes to empower specific groups, usually justified because of poverty in that group, rarely ever actually benefit the poor members of the group. It is those members that are educated, and hence usually in better circumstances, that are most likely to benefit from such schemes.

In Malaysia, preferential policies benefited a tiny number of educated Malays only. As Malaysian Prime Minister Mahatir bin Mohamad admitted: ‘These few Malays, for they are still only very few, have waxed rich not because of themselves but because of the policy of a government supported by a huge majority of poor Malays. It would seem that the efforts of the poor Malays have gone to enrich a select few of their own people. The poor Malays themselves have not gained one iota.’

Western aid monies flow into poor countries, lead to the creation of vast bureaucratic structures, and enhance the power of the state to dole out benefits. These bureaucracies become sanctuaries for the educated elite. But once again their ‘work’ is non-productive. Worse yet, it acts as a leech sucking the lifeblood out of the economy.

The few productive sectors of the economy find themselves taxed and regulated to satisfy the rent-seeking activities of the educated elite. Wealth redistribution inhibits the producers since they are punished for producing. Simultaneously it attracts the ‘best minds’ in the country to rent seeking instead of productive pursuits.

Certainly, a number of those with an education do not try to pursue economically parasitical endeavours. But if they pursue productive work they become the targets of their educated brethren who find redistribution more lucrative. The result is that educated individuals who wish to pursue productive activities tend to leave for less hostile shores. Of course, their education makes it much easier for them to emigrate and increases the likelihood that they will do so.

It is widely recognised that a large percentage of the educated citizens of many poor interventionist economies leave their countries permanently. And those that don’t tend to drain the economy instead of contributing to it because of the profit opportunities created by government intervention. As the economic lifeblood is sucked out by rent-seekers, job opportunities are destroyed. But only a small number can benefit from redistributive policies. So as more and more people become educated they find themselves with educational certificates and degrees but no job opportunities. Countries that experience these trends end up with large numbers of educated unemployed. This does not mean that education is worthless. Economist William Easterly of the World Bank has noted that: ‘Schooling pays off only when government actions create incentives for growth rather than redistribution.’

Education can increase individual productivity and in a normal market economy education does increase the value of educated people to prospective employers. But in such market economies the higher value of being educated increases the likelihood that individuals will seek out educational offerings that enhance their productive capacity. Education by itself is not enough to stimulate growth. But economic growth does stimulate the demand for education.

Before poor nations spend vast amounts of resources creating educational bureaucracies they should first concentrate on getting their economic houses in order. Whether or not education leads to growth or to increased poverty depends largely on the incentives that educated citizens encounter after graduation. Getting the economy right is consequently extremely important. If graduates are faced with an economy in which productive effort is more profitable than rent-seeking, they will naturally concentrate on becoming highly productive. Economic policy therefore determines not only the incentives and disincentives that convert into overall wealth or poverty; it also determines whether education will increase the economically productive or destructive capabilities of the individual. Prosperous nations are not those with the highest education levels, they are those with the most productive citizens.

Author: Jim Peron is the executive director of the Institute for Liberal Studies (Auckland, New Zealand).This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.

FMF Feature Article / 29 December 2003