Thursday, September 8, 2016

China's insufficient investment in education, or more likely not


Tim Taylor - China's insufficient investment in education.

Someone at PIIE just wrote a paper that makes me think PIIE have no idea what they're doing. Here's Tim Taylor's summary:

Jacob Funk Kirkegaard suggests that one substantial hindrance may be China's education system is not keeping up. He lays out the case in "China’s Surprisingly Poor Educational Track Record," which appears as Chapter 3 in
China’s New Economic Frontier: Overcoming Obstacles to Continued Growthpublished by the Peterson Institute for International Economics (PIEE Briefing 16-5, September 2016, edited by Sean Miner).

As a starting point, compare countries by per capita GDP and what share of the adult population has at least an upper secondary education. As shown in the figure, the education level of China's adult population ranks well below other countries with a roughly similar level of per capita GDP.



China has made dramatic gains in its education level in the last few decades. One standard measure of gains over time is to compare the education level of a younger age group to an older age group, like the average education level of adults age 25-34 with adults age 55-64. The red bars--with China shown in yellow--shows how much the education level of the younger group exceeds that of the older age group. Clearly, China has made substantial gains. But just as clearly, the gains in China's education attainment are below those for France, Spain, Brazil, Korea, and others. Moreover, China was starting at a much lower level of educational attainment (the hollow box showing educational attainment for the 55-64 age group is lower for China than for the comparison countries shown here) and so middling gains for China in educational attainment aren't helping it to catch up.



Kirkegaard sums up the situation this way:
"In some ways, China may have been a victim of its own success. The pull effects of its sustained economic boom and rapidly rising wage levels appear to have led too many young people to leave education too early to acquire the skills needed to sustain them (and Chinese economic growth rates) throughout their lifetimes. As Chinese economic expansion shifts toward more skill-intensive growth, those without a secondary education will be less able to find jobs. ...  The Chinese government and society appear to have failed to keep enough of the country’s young people in school during the recent decades of economic growth. This is likely to have long-term scarring effects, as public underinvestment in human capital and individual acquisition of needed skills are difficult
to undo. People’s “lower than otherwise would have been the case” skill levels cannot easily be restructured. Skill shortages at the upper secondary level will make it harder for China to move into the production of higher value added goods and services, lead to increased income inequality and geographic wealth diversity, and complicate the transition to a widespread consumption-based economy."

I think the problem here is that JF Kirkegaard fails to note that educational attainment in China has been "lagging" GDP growth precisely because their GDP growth has been so fast for so long. That explains all the other countries you find below the curve in that first chart (except Saudi Arabia, which has other understandable reasons for low educational attainment): they've experienced a human generation of fast growth.

The countries above the curve have seen GDP deflation over the past generation.

And education is capital that takes a generation to produce.

So sure, China's spent a decade getting way ahead of themselves in transportation infrastructure and physical capital, which is wise because (a) they built it when construction costs were lower and (b) as long as you can pay the upkeep, you can let this capital sit there and do nothing til you've grown into it. But that capital is far faster to form.

And still China was mocked for the past decade for its excess physical capital.

How much more would China have been mocked if Xi Jinping hopped into a time machine and travelled back in time 30 years to convince Deng Xiaoping to spend a pile of money on increasing highschool completion rates?

Excess human capital left to sit idle does not provide a future benefit. In China's case, I'd think their politicians of a generation ago would have even thought idle human capital would produce social unrest.

And I eagerly await someone to tell me the names of those trade theorists 30 years ago who would have encouraged China to spend a fortune on education.

This paper (or, at least, Tim Taylor's condensation of it) makes no sense to me.


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