The Challenge of the Learning Deficit: Presentation to Copenhagen Consensus Expert Panel

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The Challenge of the Learning DeficitPresentatio
n to Copenhagen Consensus Expert Panel

• Lant Pritchett
• KSG and Center for Global Development
• May 28th, 2004

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Outline of the presentation

• Basics of Cost-Benefit analysis of public sector
  actions
• Plausible positive theory of the
  counter-factualand nothing is not plausible
• Plausible positive theory of public sector
  interventionand perfect is not plausible
• Five opportunities in context

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Plausible counter-factual Sectoral Engineers
versus Economists
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There are substantial (but not spectacular)
private returns to education
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Is demand for education too low because of
externalites?

• Levels and differences of the Mincer returns
  completely irrelevant to public policy (directly
  and indirectly) unless they interact with market
  failures. (e.g. stocks versus bonds, large cap
  equity versus small cap equity)
• If there are positive external effects to
  schooling on output then the aggregate effect
  (macro) should exceed the sum of the
  micro-economic effects.

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The naively estimated relationship between growth
of schooling capital and growth does not suggest
externalities
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Two basic facts that make it hard to find output
externalities to schooling in poor countries

• The problem with most less developed countries is
  that economic growth has been too lownot too
  highthe growth residual without attributing
  anything to schooling is very near zero.
• Nearly every country had enormously rapid
  expansion in schooling capitaland yet widely
  varying performance in growth.

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Variation in growth of SK (lower case, red) is
small (between 1 and 3 ppa) compared to variation
in growth of output per worker
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which is not true of physical capital
(actually, CUDIE)
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The gap in attainment by wealth varies widely
around the world
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• It is not sufficient to contrast the imperfect
  adjustments of unfettered enterprise with the
  best adjustment economists in their studies can
  imagine. For we cannot expect that any State
  authority will attain, or will even
  wholeheartedly seek, that ideal. Such
  authorities are liable alike to ignorance, to
  sectional pressure, and to personal corruption by
  private interest.
• Pigou, 1920

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Normative as Positive Theory of Public Sector
Intervention

• Normative as positive (NAP)
• There are market failures/equity rationales for
  public sector intervention
• Nearly everywhere and always the government
  produces schooling.
• Therefore (as a positive, causal, explanation)
  the government produces schooling because of
  market failures.
• with mistakes
• Deviations from optimality of government action
  are technical mistakes based on inadequate
  information.

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Alternative positive theory of government
production of schooling Production for
ideological control (PIC)

• Skills learning and socialization are jointly
  produced.
• Skills learning is verifiable, socialization is
  not (and hence third party contracting) is
  impossible.
• Governments of all types (democratic,
  non-democratic) are concerned about socialization.

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NAP explains nothing, PIC everything One
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NAP explains nothing, PIC everything Two
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NAP explains nothing, PIC everything Three
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NAP explains nothing, PIC everything Four
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What is an opportunity in the context of a
behavioral model?

• Defining and assessing opportunities to address
  challenges requires a positive model of demand
  and supply
• Is this advice to governments? Why do we think
  there is a plausible positive model in which they
  are not already in fact optimizing?
• Is this advice to citizens of how to gain greater
  control over how their resources are used to
  educate their childrenwhen governments (and
  special interests) dont want them to?

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The five opportunities

• Physical expansion
• Raise quality
• Raise incomes/demand
• Reduce costs
• System reform

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Experience has led me to focus on improving
mechanisms of accountability as the principal
opportunity in most countries
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Impossible to estimate a single return or B/C
ratio of an intervention

• Heterogeneity in the returns, private and public.
• Heterogeneity in the degree of market failure
  or equity
• Heterogeneity in the location on the production
  function.
• Heterogeneity in the efficacy with which
  governments can act.