EconLog pointed me to an extended interview with my old friend, William Lewis, the director emeritus of the McKinsey Global Institute. Bill is an extraordinarily thoughtful and insightful guy who, in addition to working for 20 years at McKinsey, spent time at the World Bank, the Department of Defense and the Department of Energy.
The interview prompted me to give a plug for Bill's book, The Power of Productivity: Wealth, Poverty, and the Threat to Global Stability. It is a very rich examination of differences in productivity around the world and, more importantly, the key drivers shaping differences in productivity. Drawing heavily on the in-depth research of the McKinsey Global Institute, Bill doesn't just offer provocative perspectives, he backs it up with a wealth of data.
He summarizes his basic approach early in the book:
Over the course of our research a single theme emerged: the importance of productivity . . . . Productivity, however, varies enormously around the world . . . Thus, most of our work sought to explain the reasons for the differences in productivity around the world. . . . Many people look for the causes of poor economic performance primarily in macroeconomics, but we found that must also look at the industry level for causal factors for economic performance.
Perhaps one of Bill's most provocative views is that education matters far less than many people would imagine:
Many people believe that the educational attainment of a nation's current labor force is responsible for the success or failure of its economy. The importance of the education of the workforce has been taken way too far. In other words, education is not the way out of the poverty trap. A high education level is no guarantee of high productivity. The truth of the matter is that regardless of institutional education level, workers around the world can be adequately trained on the job for high productivity.
In the context of a recent post I did on choice, Bill quotes some well-known economists in a section entitled "Elites Want to Control Others and Reward Themselves" (Bill pulls no punches):
Peter Bauer, no friend of elites, quotes Sir Arthur Lewis as saying that "the advantage of economic growth is not that wealth increases happiness, but that it increases the range of human choice." Through economic growth, ordinary people get to choose what they want. Bauer goes on to say, "It is well-to-do and established politicians, academics, media men, clerics, writers and artists who are apt to dismiss economic choice as unimportant."
If you want to understand why productivity varies so much around the world and have a stimulating read at the same time, pick up Bill's book - you will not be disappointed.
"To what extent is economic growth driven by the acquisition of 'human capital'? Many economists have pursued the answer over the past 20 years, but without great success. Despite building and rebuilding elaborate growth models, they have failed to prove that better education and training significantly raises a country's long-term growth. Recently, though, a Canadian team made a breakthrough. It found that, if you measure actual skills rather than educational qualifications, human capital becomes a strong predictor of economic growth.
For individuals, the rewards to education are clear: those with higher qualifications earn, on average, far more over a lifetime than the less qualified. But studies of whole economies over time have found only weak evidence that high or rising completion rates of secondary or university education are associated with stronger growth. The most marked effects, unsurprisingly, show up in comparing more and less developed countries; for countries at similar stages of development, there is no consistent evidence that education makes a difference to growth.
One possibility is simply that human-capital theories are flawed. If education acts as a signalling or sorting device, allocating better-qualified individuals to better jobs rather than improving the overall productive capacity of the population, then individual gains from education need not add up to collective gains. Yet micro-studies of skills and productivity have long shown that acquiring certain defined competencies not only confers advantages on individuals but also raises productivity.
Another explanation is that economists were measuring the wrong thing. Having a high-school diploma or university degree is a weak indicator of whether one has skills that increase productive capacity. Educational qualifications may be relatively easy to measure, but offer only a poor proxy for human capital. What one wants is a direct measure of economically relevant skills. The 1990s saw a step in this direction, with the development of a new form of testing that assesses the extent to which young people and adults in different countries acquired certain key competencies required for work and everyday life. These centre on measures of literacy, understood in the widest sense as the ability to use different kinds of written material to perform real-world tasks of varying complexity. This is the kind of general competency that the micro-studies find to be closely linked to productivity."
The Economist
August 28, 2004
Posted by: Frank Ruscica | June 19, 2005 at 09:56 AM