In New Wealth of Nations, Surjit Bhalla offers compelling support for education as the foundation of individual, national and global advance. But is this the only way to reduce inequality?
My father and his four brothers were born into a wealthy landowning family in rural Gujarat and all five could have lived comfortably on this inheritance. Yet, my granduncle, who managed the family’s assets, decided to send all five to Mumbai for higher studies and to secure professional competence in law, medicine or accountancy. Intrigued by this, I once asked an older relative why he had chosen to do this. The answer was truly enlightening.
My father and his brothers were born rather late in the life of my granduncle and he was afraid that he would not be around to settle them in the management of the properties. He consulted a local Parsi friend who advised: “Convert your fungible wealth into education; your children can waste money but they cannot waste an education”.
Surjit S. Bhalla’s The New Wealth of Nations provides powerful support for this piece of advice and argues that education and skill acquisition have been the foundation of individual, national and global advance.
Bhalla’s book presents its thesis in an absorbing mix of what the blurb describes as “…a series of arguments, anecdotes, studies, calculations, tables and charts.” Bhalla is a data warrior whose primary weapons are facts and figures and this book is no exception. The particular intellectual territory that he is trying to conquer is the explanation for the evolution of global income growth and its geographical and interpersonal distribution.
Bhalla’s central thesis is that differences in educational attainment can explain the divergence in the growth experience of the West and the rest from the start of the industrial revolution in the 19th century to the last quarter of the 20th century. However, from an inflexion point around 1980 to now, there has been a great convergence as developed country populations have expanded their incomes at only 1.4% per capita per annum while the developing countries experienced income growth of 4.1% per capita per annum. This convergence is also attributable in large measure to a narrowing of differences in educational attainment and Bhalla mobilises a great deal of data to substantiate this.
But Bhalla’s book is not just a growth accounting exercise. He sees education and skill acquisition as something that impacts not just income but much more – women’s advancement, and, because of that, population stabilisation and that in turn helps to reduce the carbon footprint. A further impact is the structural decline of inflation because of a glut of skilled labour.
Bhalla then argues that the growing inequality in the distribution of wealth that is widely perceived to be a consequence of globalisation, would look very different if the human capital created by education is also counted. This educational wealth is more equally distributed geographically and between individuals than financial wealth. There are two further impacts of the spread of education that Bhalla deals with – the growth of a middle class and the shift of power from elites to this middle class.
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There are two sub-texts which run through this book. The first is the impact of globalisation on the processes of income convergence and middle-class growth and the role that the narrowing of educational differentials is playing in this. The other is the emergence of China and India and Bhalla devotes space to discussing their dominance in the pre-industrial world economy, the catastrophic drop in their share in the global economy right through to the last quarter of the 20th century and the spectacular recovery since then, attributable again to the narrowing of educational gaps. Both of these are linked to Bhalla’s perception of the world economy as one entity so that economic dynamics must be analysed as if the world is one country – an exciting thought but not very convincing for anyone who had to struggle to get a visa to deliver a service.
Bhalla mobilises data from many sources, the most important perhaps being the Barro-Lee dataset on education. One can quibble with some of the data flourishes, particularly on the valuation of education. But I for one will not dispute the central thesis that the democratisation of education is perhaps the most important change in the human condition and the underlying cause of certain other game changers like greater gender equality and the shift of power from elites to the middle class.
However, I am not sure that I share Bhalla’s optimism about the continuing impact of educational equalisation and its beneficial effect on future of the global order.
First, the convergence of military power is taking place much more slowly than economic power and that holds the threat of a breakdown in the order if those with military power are unwilling to accept the erosion of their economic standing in the world order. Trump may not be. There is little that the spread of education can do to counter this.
Second, the direction of technological development in areas like artificial intelligence, robotics and automation, 3D printing and similar technologies that replace skilled human labour may erode the equalising effects of education and skill acquisition. Yes, education will help to reduce the research and innovation gap. China is moving towards this; but can creativity flourish in a restrictive and conformist political and intellectual environment? Has anyone, in any country, leave alone China, been able to reproduce the extraordinary ecosystem for technological research, financing and entrepreneurship that is found in Silicon Valley, Route 128 near Boston or the Research Triangle in North Carolina? In the core areas of tomorrow’s technologies, not only is the US ahead of the rest, the others are falling behind not just because they do not have the technological base – often based on path-breaking defence research – but because they do not have enough high-risk-taking finance.
Third, Bhalla links China and India as a weighty counter to the West. Yet, the reality is that the gap between China and India has grown, though Bhalla expects it to narrow in time. But the gap in military and diplomatic power has widened. China no longer accepts the India-China hyphen. The only hyphen they recognise, if at all, is with the US.
India has fallen behind on education and research with respect to its own past and, now, with respect to China. On education the less said the better. The Annual State of Education Report prepared by Pratham makes for depressive reading. The gap between our universities and research output institutions was less at independence than now. Our higher education institutions are way behind, judging by international league tables. Our problem is not enrolment rates but the quality of the outcome and we need to shift our attention from quantity to quality. That will not happen without removing schools and universities from the clutches of education ministers and bureaucrats and letting teachers, students and parents run them.
On technology, we have some good performers like the Space Commission, the Atomic Energy Commission and ICAR. But where is the innovation in the corporate sector? Pharmaceuticals? Why do we import so many precursor chemicals for these from China? Renewable energy? Have we any research capability on solar panels, wind turbine design or battery storage? Mobile phones? Do we manufacture the components required for these? Telecommunications? Why do we have to rely largely on European companies for setting up and maintaining mobile networks?
Bhalla is right on the role and importance of education. But his optimism about the future is not convincing. If Bhalla’s optimism is to prove right, the people who run education and research in India have to shift their attention from rewriting history texts and promoting the idea that all worthwhile scientific ideas were already known in ancient India to education and research for the future that can compete with the best elsewhere. A backward-looking mindset intent on proving how great we were must give way to a greater openness to new ideas and possibilities and how great we can be in the future.
Nitin Desai, an economist, has held senior positions in the government of India and the United Nations.