Wednesday, August 20, 2014

Education and Ideas of Economic Growth

It is commonplace to talk about education for economic growth, but our ideas about what leads to  economic growth somehow defines what kind of education we may want. 

As Joel Mokyr highlights in his eminently readable 'Lever of the Riches', there are four 'ways' to economic growth that the standard economic history brings forth. 

First, what he calls the 'Solovian Growth', after Robert Solow, the doyen of economic growth theorists, which hinges of capital formation. In this model, the entity, the country in the standard formulation, saves more than it produces, and build capital stock in terms of infrastructure, human capability and investible capital.

Second, what Professor Mokyr calls 'Smithian Growth', this alternative route to growth hinges on trade, either within the country, between the villages and cities, or between regions. The more trade there is, greater the rate of growth.

Third, there is a theory that population growth itself bring about economic growth, making infrastructural projects efficient. This is perhaps applicable for those societies with limited population, where it does not make sense to build a road because so few people will use it.

Fourth, and final, is the 'Schumpeterian Growth', where technological creativity creates new efficiencies and new ways of doing things, thus augmenting the existing capital stock but increasing the level of economic activity. Some economic historians, cited by Professor Mokyr, talk about technological creativity coming together with expansion of credit, a feature of developed economies, to create conditions for such growth, but as Professor Mokyr points out, expansion of credit isn't a necessary precondition for this kind of economic growth; technological creativity, though, is.

While we seem to unquestioningly accept that education facilitates economic growth, it is perhaps logical to think the kind of education we would need depends somewhat on our underlying theories of economic growth. For example, India, where the talk of economic growth is incessant, is somewhat after the Smithian paradigm, where the expansion of trade, facilitated by increased consumption, is supposed to bring about the economic growth. The education, therefore, is geared towards making Consumer-Citizens out of students, by teaching them industrialised lifestyle and making them financially literate (so that they can manage credit). It is a very different kind of education from the developed nations, where the predominant paradigm is Schumpeterian, and therefore, the kind of education that is expected and delivered, is focused on values that may lead to technological creativity.

The key question, of course, is if these categories are mutually exclusive, or even sequential. So, the people who may think that India's growth will come from opening up its inside market, without the Schumpeterian innovation engine powering such expansion, may not be right. Consumption-driven growth that India is in the pursuit of, and the pro-young rhetoric that it is accompanied with, somewhat obscures India's need for disciplined innovation, that may augment its rather limited capital stock. The approach of India's government which focuses on making more people join the modern consumption economy (to keep busy the sprouting shopping malls and occupy the new housing stock) as the only goal of the expansion of education system lacks such perspective. India, if it is develop, will have to build an education system which bring together Schumpeterian growth with Smithian growth (and indeed plug the holes to Solovian growth through better institutions and curbing corruption), and not build its formula for prosperity on the expansion of consumption alone.   



 

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