0.6 Investment in human capital: education and health  (Page 8/16)

A similar phenomenon occurred in so-called “Lynx” nations that used to be under Soviet influence of control: Estonia, Latvia, Lithuania, Hungary, Romania and Bulgaria. All six are blessed with a well-educated populace. From 1995-2005 several of these grew at 10% year, until the great recession of 2008-2010.

The experience of the Republic of Ireland is also illustrative. In the early sixties, the Irish government began to expand significantly investment in primary and secondary education. Five decades ago, GDP per capita in Ireland was 40% that of the U.S.; but by 2006 Irish GDP per capita was nearly 80% that of the U.S.

The Economist, May 27, 2006.

Improvements in the quantity and quality of primary, secondary and university education set the stage for a flowering of economic growth after Ireland entered the European Union in the seventies. Simultaneously Ireland revamped its fiscal system, reducing high marginal tax rates to levels more conducive to collection of taxes.

However, from 2008-2013 Ireland fell into very hard times due to truly misguided financial policy. While the years 2000-2007 were economic boom years, from 2009-2013 Ireland experienced bust, not boom. Ireland ran afoul of bubble of its own making in 2008 (see Chapter __). By 2014, however, the Irish economy regained much of the previous lost ground. As the Irish case indicates, even really good policies on Human Capital investment do not insulate a country from the toxic effects of really bad financial policies, especially when a country cannot adjust its exchange rate, because it is a member of the Euro area.

It is helpful to understand that, with at least one exception, mass education is very recent phenomenon even in now developed nations. The exception: The Scottish Highlands. Because of the severity of weather and the poverty of the soils, education by necessity had to be a way of life for survival in the highlands. Consider the MacKinnon family motto for the past thousand years:

"Ye can be poor, ye can be oppressed.
But if ye educate the young, thy people can
ner’ be suppressed;
rather shall ye prevail."

This sentiment persisted for centuries and culminated in the School Act of 1696. This Act was far ahead of its time. It sought nothing less than to teach all Scots “how to read, to write and count.” Because of this, no people were better prepared for the Industrial Revolution (1820) than the Scots,

See Arthur Herman, (2001), How the Scots Invented the Modern World, New York, NY: Random House, Three Rivers Press, Chapter 12.

who prospered in Britain itself as well as in the far-flung British empires.

Even in the U.S., schooling was far less available 50 years ago. In the late forties, less than 75% of children in rural south went to high school. Common in grammar school classes were 15 year old farm boys just learning to read. Enrollment in K-12 grades is a much higher percentage in 2014, but the quality is suspect.

Several formerly poor nations have stressed education with excellent results. This is nowhere more apparent than in the East-Asia, Pacific Region. By 2003, 98% of primary school age children in this region were completing primary school. Virtually all the nations in the region are expected to boast 100% completion rates in 2015. It was no accident that this has been, by far, the region with the faster economic growth rates in the world, with average increases in real GDP of 7.8% from 1980 to 2007 (IBRD 2011).

World Bank (2011), World Development Report 2011, Washington, DC: World Bank.

East Asian nations have also had very sharp associated declines in rates of fertility and mortality. Moreover, income distribution in the region, as measured by the Gini index, tends strongly to be more equal than in the slower growing Latin American and African regions. In contrast to East Asia, primary school completion rates were but 59% for sub-Saharan Africa and 80% in South Asia, both regions where GDP growth rates were slower.