0.6 Investment in human capital: education and health  (Page 12/16)

Human capital formation – no panacea

Investment in Human Capital Formation is no panacea. It is one of the vital necessary conditions for economic growth and development. But it is not, by any means, a sufficient condition. There are many examples of nations who made large and continuing investments in Human Capital who have prospered mightily since 1950: South Korea, Malaysia, Ireland, Chile, etc.

But, there are nations who have stressed investment in primary and secondary education, and who have achieved high literacy rates etc., but have enjoyed very limited, or no economic growth over long periods. Examples from the past fifty years include North Korea, Russia, Bulgaria from 1950-1990, and China from 1950-1982. The latter were communist governments were rather successful in spreading education, especially primary and secondary. By 1990 just before the collapse of communism in Europe adult literacy rates in most communist states were nearly as high as Europe and the U.S.: This should have been a great platform upon which to build.

Consider literacy rates in 2009:
U.S. 99%, Italy 97%, Spain 96%, rest of Europe 99%
Hungary 99%, Czechoslovakia 99%, Poland 90%, China 68%

The economies of the communist Bloc nations, including China, grew slowly from 1950-1990. However after 1991 when markets were reintroduced, the formerly Eastern and Central European communist nations began to grow fairly rapidly, largely because the Human Capital base was already there, and it could now be used in combination with new types of investment in Physical Capital, new trade opportunities etc.

The Human Capital base by 2000 was wide and deep in Czechoslovakia, Hungary, and Poland. So much so that the author made special trips there to recruit scientists to come to Duke University.

Consider china

In China in 1985, literacy rates were 68%. By 2006, the male literacy rate in China was 96%, a 50% increase in only 20 years.

And Chinese economic growth? From 1990 through 2008, Chinese economic growth later averaged more than 10% per year. At growth rate of 10%, how long to double income? (Answer: about 71/2 years).

The Human Capital story is heartening, but there are some thorns among the roses.

One example. Although gross enrollment ratios for grades 1-5 in India reached 100% in India by 2008.

Jadgish Bhagwati&Arvind Panagariya, (2013), Why Growth Matters, Washington, DC: Council on Foreign Relations, p.190.