For development economists, study of the growth process of developing countries has an allure like Mona Lisa’s smile for connoisseurs of art. In the early post-war years, it was the view that shortage of capital was the bane of development. Countries were advised to attract capital through foreign aid and/or investment. One group, led by the World Bank, advocated market-driven trade, especially exports, as the engine of growth. Another pitched upon technology as the lever for growth and plumbed for its global diffusion.
In short, development is too complex a matter to be explained by a single variable. Surjit Bhalla suggests education as the way out. Each chapter of the book argues that the magic wand is education to increase income, create wealth, reduce inequality, empower women, create middle class or democratise the elite.
Road to empowerment
“Today you obtain education, tomorrow you conquer the work place, day after corporate boardrooms, and on the fourth day, the political landscape,” he writes. Indeed a fairy tale, but how many among millions of the educated unemployed in India would accept this theory? Bhalla refers to the economic revolution in the South and argues that ‘education’ or ‘human capital’ has brought about the “catch-up of the East with the West in terms of schooling, and therefore earning skills, and therefore incomes, which has ultimately resulted in an improvement in world inequality.” For Bhalla, the link between various stages is seamless and linear. He ignores the fussiness, the hiccups, roadblocks, etc., which administrators and policy makers have to grapple with in promoting growth in developing countries.
The author leans heavily on two Nobel Laureates in economics to draw his conclusions: Arthur Lewis, a pioneer in development economics in the post-World War II years, who studied the patterns of growth in developing economies; and Gary Becker, who worked on the role of education in society, especially the behaviour of individuals in making economic decisions. What Bhalla attempts is to marry their older theories and fit them into his framework. An uneasy alliance, in our view.
In his development model, Lewis did not condemn people living in developing countries to perpetual poverty and low income. He visualised sectoral shifts in production through relocation. In the early stages of industrialisation, there would be ‘unlimited labour supply,’ which would be absorbed by industries and there would be no upward pressure on wages. But, as the industrial sector develops to the point where supply of labour from agriculture shrinks, industrial wages will begin to rise. This stage is referred to as the ‘Lewisian Turning Point’ (TP). China reached it around 2004. Other examples are Japan, Taiwan and South Korea. India missed the TP due to lack of speedy growth in the manufacturing sector and the premature explosion of the ‘services sector,’ which was mostly in the informal sector and partly in the BPO. By confining his prognosis to the first stage, i.e. excess labour supply, and leaving out the TP, Bhalla does not do justice to Lewis. Further, he is wrong in clubbing China and India together and making no allowance for the different paths they have been pursuing to promote growth.
Human capital
Gary Becker is a different story. In his early writings, Becker emphasised the impact of education in life. He drew attention to educated women limiting family size to be able to give better education to children. Later, he shifted attention to other areas, especially human capital. His seminal work revealed that the substantial growth in income in the U.S. was not captured even after accounting for the growth of physical capital and labour. He attributed the residual or ‘R’ factor to human capital. There has been a plethora of work on human or social capital including by many economists in the Word Bank. It encompasses all the attributes of a healthy, vibrant society. Education is one of the elements and not the only one in human capital.
Bhalla makes an attempt to apply the Lewisian model of unlimited supply of labour to the migration of college-educated graduates from developing countries (South) to the U.S. His coinage is ‘Unlimited Supplies of Skilled Labour’ or USSL. Lewis’s model applied to domestic migration and it is infirm to apply it to global migration as the operational factors are very different. There is no freedom for global mobility of labour. The battles over immigration and visa policies are well known. The H-1B quota has remained fixed for many years. Therefore, to argue that this small number of migrants would impact U.S. wage levels is fanciful.
However, it is true that the U.S. wage level has remained stagnant and labour’s share of income has been declining since 1970.
Even as Bhalla exaggerates the role of education, the book does not have a single page on the quality of education required to promote growth. His contention that education creates the middle class, promotes democracy and confers other boons is difficult to accept. There are deeper and more complex sociological issues at work, which need to be debated.
The New Wealth of Nations ; Surjit S. Bhalla, Simon & Schuster, ₹599.
