Education most important determinant of economic wellbeing

The outspoken academic Jeffrey Sachs  – described by close friends as a gentle soul and kind person – has never been afraid to speak his mind and has never shied away from taking a contrarian view on global issues. 

For example, contrary to the prevailing view from the Western World, he puts the blame of the conflict in Ukraine on the US and what he terms NATO provocation. 

During WISE in Doha, he didn’t hold back from criticising the UN Security Council as well as previous US administrations for being complicit in the chaos unleashed in Syria and Libya, which, for Africa, has had massive ramifications in the Sahel region. He referred to US actions over the best part of the last fifty years as “great power mischief, irresponsibility and illegality”.

He refers to himself as “obstinate and difficult” but this is a price worth paying, he argues, if it leads to the right outcomes. 

His stance, when it comes to education, is that the world is falling short on many counts. Education, he says, is the single most important determinant of economic wellbeing. In simple terms, he argues, not enough resources are going to education. Rich countries, international development organisations and the multilateral development banks need to raise their game if they’re serious about reducing poverty globally – and averting future problems such as mass migration, in the best of cases, and conflicts and instability in the worst.

Sachs takes an economist’s approach to putting across his thesis. He illustrates the issue in numbers. The first problem with education, he says, is the pay-out cycle. You only start getting proper returns 40 years down the line, he says; however, he goes on to explain, the returns are excellent – 20% on a compound annual growth rate (CAGR). 

The second, is that education is expensive and it requires a huge effort to train teachers, build facilities and equip them, and that is why, for many centuries, it was the preserve of a very small elite. And this elite, he explains, understood that knowledge is power – personal, economic and social power. 

This is why, he argues, the imperial powers never wanted to educate local populations beyond enabling them to assist with administrative duties – otherwise they would have soon realised that their wealth was being plundered!

Flaws in the system

He demonstrates that once you break the numbers down, developing countries will need considerable budgetary assistance for education if the world is serious about ending poverty – which is ultimately at the root of many of today’s problems, be it migration, instability, conflicts.

He illustrates how the numbers and context require different thinking. The US, he says, with a GDP of $26trn, allocates 5% of its GDP towards education, or approximately $15,000 per student. In poor countries, a much larger percentage of government spending goes to education, but considerably less per student. This is the first flaw in the development model.

The second flaw is around teachers. In developed countries, the salary of a teacher is a little above average, which works given the higher educational levels needed to be able to teach. 

However, in developing countries a teacher will have an educational level way above average and as a result will be able to attract a much higher salary than the average. 

Therefore to hire a good teacher you need to pay a salary that is much above average, which in theory means to attract great teachers, you need to spend even more as a percentage than in developed nations.

And it doesn’t stop there. Low-income countries generally have a much larger young population, which means that the requirements for teachers are even greater. 

And these governments have a much lower tax intake. So if tax collection is 20% of GDP (in Africa it averages even less, with Nigeria’s tax collection around the 6% mark) and you should be spending 10% of GDP on education, than that means that, effectively, 50% of government revenues – what it raises and can spend – should be allocated to education! 

Sachs doesn’t pretend to have the solutions to this conundrum, but points out it has been done successfully elsewhere – namely in Asia. He advocates for the global financial system to take education more seriously – that is to provide grants or concessional finance, but at a reasonable price and the right tenor. You can’t be lending at unreasonable rates and expect a 5- or ten-year return. It’s not going to work and countries will end up in situations of debt distress.

He attributes the success of Asia not only to the strength of its education system but also the strong cultural demand in the household and an emphasis, at all levels of society, on performance.

Asked about technology, he agrees that it can play a positive role in increasing access, lowering the cost of education and freeing up time for more productive endeavours in the classroom.

Nonetheless, technology will undoubtedly continue to exacerbate the gap in income distribution and inequalities.  And this tech – or knowledge – economy will require skills, accelerating the need for a skilled workforce. The world is competing for capital and that capital will go where there are skilled workers. Making the need to have robust budgets for education in developing countries even more urgent.

This is why education, despite everything else the world is currently concerned with, needs to be front and centre of all development agendas. And right now, he feels, educationalists, ministers of education and leaders of developing countries are not being loud enough nor are they getting their voice heard.