Welfare Economics

Steel versus Gold: Higher Education Mis-Match

“Everything has its limits – iron ore cannot be educated into gold” Mark Twain, 1835-1910

Even if you could educate iron ore into gold, it would not necessarily be a good idea to do it. Steel is incredibly versatile and useful and we need a lot of it, whereas gold is mainly a luxury item, which gets its value from scarcity and has little practical use, except for keeping track of who is married and who is not.

The higher education system in Bolivia seems to try to turn a lot of iron ore into gold: 90% of public spending on higher education goes into universities (supposedly producing “gold”), whereas 7% goes to the formation of teachers and only 3% goes to technological institutes (producing “steel”) (1).

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What do we really know about education quality in Bolivia

Since the main purpose of education is to raise the future income generating capacity of the students, it will take several decades before we can truly know how well our present education system is doing.

Past experience is of little help as both the education system and the structure of demand has changed tremendously over the last few decades.

A commonly used shortcut to evaluate current education quality is to use standardized academic aptitude tests. According to the last internationally comparable test that Bolivia participated in, public schools in Bolivia are in really bad shape (see Figure 1).

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Pro-poor Globalization

The potential benefits of a more integrated World are huge, but unevenly distributed.

Globalization requires adjustment, flexibility, mobility and change, but many people are ill-equipped to handle change and unable to turn change into new opportunities.

The ability to take advantage of change is highly correlated with education, which is why well-educated people and countries benefit much more from globalization than poor, un-educated people and countries. In a dynamic and rapidly changing world, the poor are often either left behind or may even suffer reductions in living standards as their skills and jobs get replaced by new technology.

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The First Principle of Development: It has to come from within

By: Lykke E. Andersen*

There are many ways for a country to develop, but there is no way to develop a country: Development has to come from within.

Just as you cannot help a child develop by doing his homework, giving him all the toys and candy he wants, and protecting him from all potential dangers, you cannot help a country to develop by giving it money, writing its poverty reduction strategies, or protecting it against basic market forces.

You don’t help a child develop by constantly telling him that he is stupid, ignorant, retarded and helpless, just as you don’t help a country by labeling it poor, underdeveloped, indigenous, and hopelessly indebted.

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Education Reform: Second opinion

Last week’s post on the Principles of Education Reform caused quite some discussion among the readers, and there is indeed much more to be said on this important topic.

Having benefited enormously from 20 years of excellent, free public education in Denmark, I wouldn’t dismiss the idea of public education as completely hopeless and in violation of basic economic principles.

Well, to be honest, Denmark is not benefiting much from the investment as I left the country right after finishing my education, and, again to be honest, my own kids are in one of the most expensive private schools in Bolivia (fortunately heavily subsidized by the French government).

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Envy, Black Magic, Growth and Inequality

“Plato told Aristotle that no one should have more than five times the wealth of the lowest-paid member of society.”

It has been reasonably well-established in the literature that not only absolute income levels matter for the level of happiness, but also relative income levels. You don’t like to see too much poverty around you (thus the case for altruism), but you don’t like to see rich, ostentatious people either (causing envy). This article is mostly about the latter.

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Cost-free Policies to Improve Public Health

It does not necessarily have to be expensive to improve the health of the population. It could be free – or even revenue generating!

 Here are two ideas:

         1)Slap a substantial tax on distinctly health-damaging products such as cigarettes:

According to the World Health Organization, tobacco use is the leading cause of preventable death in the world today. With almost 5 million tobacco-related deaths per year, no other consumer product is as dangerous, or kills as many people, as tobacco (1). In a poor country like Bolivia, a cigarette tax may actually work as a deterrent to smoking.

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Social mobility in Bolivia is finally improving!

There is arguably nothing worse for long run growth prospects in an economy than low social mobility. Without the possibility of advancing upwards in society, poor people have little incentive to work hard and invest in human and physical capital. Conversely, without investment and hard work, there is little chance of improving. Thus, the poverty trap.

Maybe the only thing worse than low social mobility, is low social mobility AND high inequality. This situation reflects a country with a large gap between the rich and the poor, and little chance of ever crossing that gap – a situation which by any standards must be considered unfair. Outcomes are mostly determined from birth, by factors entirely outside the control of each individual, whereas subsequent effort and investments make little difference.

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Urbanization is a blessing – why fight it?

“The bourgeoisie has subjected the country to the rule of the towns. It has created enormous cities, has greatly increased the urban population compared to the rural, and has thus rescued a considerable part of the population from the idiocy of rural life.” Karl Marx, The Communist Manifesto, 1848

All over the world, development and economic growth has gone hand in hand with increased urbanization. Not a single country in the world has managed to reach middle or high income levels without at least half of the population moving into cities, although quite a lot has managed to urbanize heavily without achieving economic growth – see Figure 1 below. It thus seems that urbanization is a necessary, but not sufficient, condition for development.

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Do Your Aid Projects Hurt the Poor?

There are many aid pessimists, like me, who would much rather be aid optimists. However, the empirical evidence on the effectiveness of foreign aid is depressing, especially in poor countries where aid constitutes a significant share of GDP, as in Bolivia and Nicaragua (1).

Any particular aid project is unlikely to actually hurt the poor – at worst it may be ineffective and a waste of time and money. However, a continuous series of thousands of aid projects have the capacity to change the behavior of both individuals and government, and often in unanticipated and undesirable ways.

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