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

1. The Challenge of the Learning Deficit:Presentation to Copenhagen Consensus Expert Panel Lant Pritchett KSG and Center for Global Development May 28th, 2004

2. Outline of the presentation Basics of Cost-Benefit analysis of public sector actions: • Plausible positive theory of the counter-factual—and “nothing” is not plausible • Plausible positive theory of public sector intervention—and “perfect” is not plausible Five opportunities in context

3. Plausible counter-factual: Sectoral Engineers versus Economists

4. There are substantial (but not spectacular) private returns to education

5. 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.

6. The naively estimated relationship between growth of schooling capital and growth does not suggest “externalities”

7. 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 low—not “too high”—the growth residual without attributing anything to schooling is very near zero. • Nearly every country had enormously rapid expansion in schooling capital—and yet widely varying performance in growth.

8. Variation in growth of SK (lower case, red) is small (between 1 and 3 ppa) compared to variation in growth of output per worker

9. …which is not true of “physical capital” (actually, CUDIE)

10. The gap in attainment by wealth varies widely around the world

11. 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

12. “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.

13. 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.

14. NAP explains nothing, PIC everything: One

15. NAP explains nothing, PIC everything: Two

16. NAP explains nothing, PIC everything: Three

17. NAP explains nothing, PIC everything: Four

18. 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 children—when governments (and special interests) don’t want them to?

20. The five opportunities • Physical expansion • Raise quality • Raise incomes/demand • Reduce costs • “System reform”

22. Experience has led me to focus on improving mechanisms of accountability as the principal “opportunity” in most countries

23. 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.