Which Came First: the Economy or the Education?

Most of the people reading this blog, including its author, probably think education is pretty important in battling poverty. It’s the first thing many people list when talking about solutions to poverty. I recently had the chance to have lunch with Vandy grad Kofi Dadzi, who made some compelling arguments about education, big aid NGOs, and how you make a country grow.

Kofi is an incredibly sharp and fascinating guy. A computer science graduate and former Dell employee, he and a friend co-founded the Ghanaian tech company Rancard Solutions that links international media companies to telecom companies in Ghana. They create the platform that allows things like those annoying ESPN text message updates that my friend Justin gets every time Derek Jeter so much as yawns. It’s a pretty impressive company he’s built. Eventually we got talking about how to solve poverty. Education is like the flour in the cake, right? – it’s the main ingredient. The more educated a person is, the more empowered (us poverty people love that word) he or she is. However, Kofi echoed a view I’ve heard before when he said, “Education doesn’t matter unless you have the economy that can absorb the newly educated workforce.” What he’s basically saying is pretty important: if we’re talking about priorities, let’s forget about education and just get this economy humming.

Once there are jobs opportunities, people will demand education. In Zimbabwe right now, I wouldn’t say educating oneself is pointless, but when you don’t know what policies will be different each day when you get out of bed, how compelled will you be to invest in the future, to demand education? And even if you think someone would be motivated to get educated to leave the country for jobs, well, that furthers the point.

So how do you get a country to grow? Kofi thinks NGOs for the most part have been prohibiting Ghana from developing its own capacity. All of NGOs’ nice little “micro” ideas – a word donors round the world love to hear – just aren’t going to get a country’s economic engines going. He thinks bigger. What Ghana needs are big industries, or pro-business reform like the liberalization of Ghana’s banking sector that saw the number of banks increase from 7 to 143. The proliferation of banks and inflow of capital required banks to lend (at more competitive rates) to survive, in turn spurring business activity. In a relatively natural progression of growth, these domestic businesses grow, saturate the local market, and then look outside the country for more opportunities. This brings that outside money back home, like Kofi’s company is now trying to do in Nigeria. Helping companies enter foreign markets – like the Ghanaian government didn’t do for him in Nigeria – is another way to foster business growth. With all this business growth and new job opportunities, people want to get educated. And fostering business growth, I argued, is what some NGOs (like TechnoServe) are helping to do. NGOs aren’t pointless. I think it was a point taken.

Let’s go back to this assumption that growth comes before education. Is this really how it is? From 1960 to 1999, economist William Easterly notes in The Elusive Quest for Growth, there was an educational explosion from 1960 to 1990. Primary education reached 100% in half the world’s countries by 1990, compared to only 28% of the countries in 1960. Meanwhile, secondary education quadrupled from 13% to 45% over the same years. Studies conducted have found no association between education growth and economic growth per capita. The graph pictured bears this out pretty clearly. But there is a relationship between initial schooling and subsequent economic growth, perhaps because if you know growth is going to be robust in the future, the skilled wage will be growing faster, and so people have incentives to invest in education. Easterly notes, “The magnitude of the relationship between initial schooling and subsequent growth is more consistent with the story of growth causing schooling rather than schooling growth.” Plus, if a country is poor because of lack of skills, the few skilled workers should be earning a lot. But then why are all the educated Indians going to the US (this trend is not as solid as before)? Wages for the skilled are much higher in the US than India. It doesn’t pay to be a big fish in a little pond.

Education is good, but only under the right circumstances. There needs to be job opportunities. The way Kofi explains it, getting this going sounds more top-down. My Ghanaian colleague at TechnoServe agrees. But what about bottom-up/grassroots approaches? In the next post I’ll talk about an approach I think hits them both.