economic homework 3
Unit 5 - Human Capital: Education and Health in Economic Development
Human resources, or the skills, brainpower, and abilities of individuals, are likely a nation’s most important assets. Nearly all rich nations have well-developed and high quality systems of primary, secondary and tertiary education. Most of their citizens are literate and numerate, have high school diplomas and many also possess technical, managerial or professional skills. A high proportion have completed a university degree.
In poor nations on the other hand, many do not know how to read and write. There appear to be a large number of unemployed and many uneducated workers. Few citizens have technical, professional or managerial talents. Few have the benefit of a university education.
The key question concerns the direction of causality. Do societies that invest in education develop rapidly, or is it the other way around? As development takes place and incomes and government revenues rise, do citizens demand, and receive more educational opportunities? These are important questions. Governments everywhere must make difficult decisions about how much to spend on education. And education is almost always the largest element in the government’s budget.
Should governments first focus on universal primary education, or is it more important to develop those skills that are often in short supply on the marketplace and to leave universal primary education until later?
Economists begin by arguing that an investment in education can, in principle, be evaluated similarly to investments in physical capital. Any decision to undertake an educational program involves costs, including tuition and books, but also the cost of time away from the labour market and thus of earnings forgone as a result of staying in school. In this unit we will examine the evidence concerning the productivity of educational investments. When education is subsidized by the government, then the rate of return to the individual will differ from the social rate of return on that investment, but both must be considered.
Education is more than a productive investment however. It is usually the most important ladder of social mobility available to poorer citizens in any society. The ownership of physical wealth or land is often highly concentrated in a few hands. Universal access to education is important for society to be seen as fair by its members. Education is the vehicle by which the talented and hardworking may rise above the conditions of their birth.
It is important to consider access to education by gender, and not surprisingly, we again find that females typically have less access to all levels of education than males. It is important to know this; the World Bank and other donors now seldom approve an educational project without first ensuring that females as well as males will benefit.
We also must recognize that good health is not just something to value for its own sake, but that good health is an important part of productive labour. Good health is needed if labour productivity is to rise. A worker or student whose activities are frequently interrupted by periods of disease or illness, will not likely be able to secure a stable family income.
Health and education then, can be seen both as inputs to the development process and also as outputs. As development proceeds, and incomes rise, households will choose to purchase more and better educational and health services.
Trends in basic health statistics show remarkable progress over the past 50 years. Life expectancy in poorer regions has risen substantially, at least outside of Africa, and statistics, such as infant and child mortality, have improved dramatically in most regions as well.
Finally in this unit, we’ll examine the impact of the AIDS epidemic, especially in Africa and the devastating impact it’s had on affected populations, as well as on development prospects. AIDS shows no signs of slowing down in Africa. In many African countries over 20% of the adult population has contracted AIDS or HIV. The impact on these societies can be catastrophic. The disease attacks primarily adults of working age. For many families this means that primary earners cannot work. There are now many households that consist only of children—all the adults have died.
AIDS is now the leading cause of death amongst adult males in Africa. The authors of your textbook observe that the impact of the AIDS epidemic in Africa is rapidly approaching that of the great Bubonic Plague that eliminated a third of the European population in the 14th century.
Mankind never had the drugs to effectively control the Plague and millions died. There are drugs to control AIDS, and these cost only a few dollars to produce. However, the patents that protect the pharmaceutical firms that own these drugs ensure that prices are still far too high for poor households in Africa. We are in the midst of an urgent debate. Unless we find ways to bring prices down, these drugs will not be available for millions who will die needlessly. A solution must be found soon.
Human resources, it is often argued, constitute the most fundamental and most important resource a society possesses. For example, despite a small arable land base and few natural resources, Japan has one of the most productive, high–income economies in the world. This is largely due to an intensive development of Japan’s human resources. Through education and training, Japan has developed world–class manufacturing technologies that compete for export markets around the world.
As developing countries gradually secured their independence, the rapid expansion of formal and, to a lesser extent, informal educational and training systems came to be seen as a primary strategies to overcome underdevelopment and poverty. Education became a significant element in national budgets, and it expanded rapidly as government revenues increased. Ambitious targets were set with respect to literacy and the provision of primary, secondary, and tertiary education.
Within the community of development professionals, there was a consensus that allocating a large share of the available capital budget to education was appropriate. Production function studies indicated that only a small proportion of the increase in GDP could be accounted for by increases in factor supplies. Most of the increase was, in fact, due to improvements in productivity and technologies. These improvements depended to a great extent on improving the skills and education levels of workers.
It has been observed that wealthy societies have near–universal literacy and generally well–educated and well–trained populations. Conversely, poor societies have high levels of illiteracy and generally low levels of education. However, this situation begs the question of whether the process of development stimulates the process of education and training by creating demands for skilled and professional workers, or whether a supply push (that is, state efforts to expand their educational systems) alone can be an important, independent source of economic growth. Much of the early thinking was dominated by the supply first view. Todaro provides a valuable critique of this view and argues that the expansion of these education systems has been both wasteful and inappropriate.
It was thought that education would do more than provide specific skills that raise the productivity of workers. An educated population, it was believed, was necessary to break away from old ways of thinking that emphasized tradition and unchanging behaviour. Education expanded horizons and introduced new ways of thinking based on forward planning that could change the economic environment. The entire mind–set of the people must be altered, it was thought, in order to stimulate risk–taking and innovation, migration, and the search for economic opportunity.
Human capital is the term used to describe productive investments that are made in an individual. Investments in education and health can raise the productivity, and hence the income earning potential of an individual. These are described as investments in human capital.
Even given the assumption that it is a state’s responsibility to educate its citizens, there are a multitude of other considerations. How much education should be provided, and of what type? Who should receive it? These questions are not easy to answer, partly because today’s educational systems are producing graduates whose training will affect incomes 20 to 40 years into the future. Planners must project what the economy will look like in five, ten, and twenty years. From these projections, they must extrapolate the number of technicians, doctors, engineers, agronomists, and other specialists that will be required to meet the always optimistic forecasts for the future. In virtually all cases, such exercises have led planners to conclude that a vast and rapid expansion of public–sector education and training systems was needed.
This commitment to a rapid expansion of education and training struck a responsive chord in most developing countries, particularly among the middle and upper classes. These groups expected to be the main beneficiaries of a rapidly expanding educational system, and their expectations were often realized.
Other factors influenced decision making in favour of improving education
and training systems. For example, widespread illiteracy and low levels of education were frequently regarded as a sign of a country’s backwardness and ignorance when compared with the United States or Europe. As a result, overcoming illiteracy became a matter of national pride, as did ensuring that at least primary education was available to all its citizens.
