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Cees Bruggemans: SA not getting investment returns for education money

By Cees Bruggemans*

Ricardo Hausemann had an interesting article in Business Day this week, illustrating that education isn’t everything when going by country’s growth performances.

That is fair enough. You can lead a horse to water but can you make it drink? And if leading many horses to water, will they all drink in the same manner, to the same extent? Or does personality come into it, the quality of the water, the water trough (or whatever)?

Years of schooling, depending on the quality offered, adds to the human capital stock. Together with physical capital it makes things possible.

As a first observation, we offer our school population many years of education. But what is the dropout rate? What are the passing grades? What is the quality of education imparted? What is the motivation of the pupil? His home environment, her social environment, their physical realities?

It determines our structural reality, and in our case (as no doubt in many others) things could be a whole lot better than they are. Put differently, we aren’t quite getting the investment returns for our education money. The nation could be a lot better endowed than it in fact is.

But what does this say about our long-term growth performance? Nothing to very little, as the Hausemann article hints. We need to look at other things to fully appreciate why we grow at the pace we do, and why we may be seriously underperforming.

As a first approximation, three dimensions come to mind immediately.

How well is the state organised to support economic activity in the economy? We are talking numbers and quality of civil servants and their attitude to work. The more, better qualified, higher motivated in achieving worthwhile objectives (as opposed to worthless ones), the more likely the public sector will be a force for growth rather than a force of obstruction to growth.

You need examples? Think carefully. You should be able to think of a few if a SA resident of many years standing.

Having a well-staffed, well-qualified, well-motivated public sector knowing what it is doing, and where it is going, what needs to be done and organised, with time and cost seen as of the essence, inspires confidence.

Confidence is an essential ingredient in private economic activity. To have confidence to risk life & limb, but also capital, reputation, career prospects, and family happiness and well- being in the effort to undertake things.

This is too often presumed, or simply not recognised as a critical ingredient. People don’t just for charity sake participate in economic activity. A payoff is wanted, as much expected by the employee offering her services, as the business owner weighing the likelihood of making money, indeed surviving.

The higher the confidence, the greater the increments of risk willingly undertaken. This may sound like another trite statement, but comparing notes as to what one environment may be willing to risk as compared to another could be instructive.

What percentage of the balance sheet are the owners (or managers) willing to risk in their expansion ideals?

Examining the Chinese record these past three decades will yield different results from any slow growing mature developed economy, or for that matter for many other Emerging Market economies. For it depends crucially on how things are organised, and therefore how much things can get done without coming unstuck.

It may sound self-evident but it apparently still needs to be explained, and that not often enough, that this is key.

Our Chinese friends idea of taking risk have been multiples of what we would expect to encounter in a slow moving country. And so the growth performance diverges, as more and bigger successful risk-taking invites bigger and faster bets.

Until country comparisons show up decisively what a slow coach milk train is compared to a bullet train.

One more dimension asks attention. One needs a functional system. This can be caught under “cooperation” but it needn’t be. It is just that the price system should work efficiently to clear markets. This says something about market power and the ability to thwart efficient outcomes.

Economic sectors are ideally not dominated by only a few players strong enough to reap undue rents, commercially or politically. If there are too few domestic players to make this possible, one wants to see evidence of more foreign competition.

What applies to the business side should apply to the labour market, too. A good supply of qualified potential labour, and unions that aim for constructive gains in terms of remuneration and job sustainability.

If these three elements are present, a high growth rate is feasible, giving revolutionary outcomes in its transformation potential when analyzing structures.

You don’t need to climb barricades to achieve revolutionary outcomes. High performance will transform your reality beyond expectation. Just travel around China and apply the mind.

Reference

Ricardo Hausmann “Writing’s on the board for back-to-school theory” Business Day 2 June 2015

*Cees Bruggemans, consultant economist at Bruggemans & Associates

* For more in-depth business news, visit biznews.com or simply sign up for the daily newsletter.

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