The benefits of a better education

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The Benefits of a Better Education

Social market economy and grand theory of capital and inequality

One of the measures to see the change in the role of government in the social sector is to look at the total tax collection from the rich and the subsidies afforded to the less privileged people in the society. Thomas Piketty, a Nobel Prize winning economist, shot to fame in 2013 when he published his book “Capital in the Twenty-First Century,” which focuses on wealth and income inequality. As can be seen from his book published by Prof. Thomas Piketty the growing tax collection has enabled the developed countries (US, Britain, France and Sweden) to take on social welfare functions. A major portion goes to health and education.

Better schools, better education, better economies:

The benefits of a better education are in general, discussed in terms of personal gain: higher wages, greater economic mobility and of course a better life. But not all the benefits are private or personal: Local economies flourish, resulting higher GDP when there are more skilled and productive workers. That’s the conclusion of the economists Eric A. Hanushek of Stanford, and Ludger Woessmann and Jens Ruhose of the University of Munich, whose new paper from the National Bureau of Economic Research takes a look at the financial return for states who invest in improving the quality of education. They find that the payoff can be significant. Using data from other countries and from the National Assessment of Educational Progress, they built a model that predicts the economic effects of improving education. According to their model, if all students in the U.S. could be brought up to basic
mastery as defined by NAEP, the U.S. GDP would increase by $32 trillion, or 14.6 percent. As for education policy reforms, the emphasis should be on quality or excellence in education and equality of educational opportunity. The origins of the reform movements are to be found in both the politics and economic developments of the ‘social democratic’ or ‘liberal’ bipartisan political consensus. The objectives of the reforms are to deal with declining international competitiveness and the raising of educational standards.

Grand theory of capital and inequality:

From his comprehensive historical analysis, Piketty derives a grand theory of capital and inequality. As a general rule wealth grows faster than economic output, he explains, a concept he captures in the expression: r>g (where r is the rate of return to wealth and g is the economic growth rate). Quote, “The issue here is faster economic growth will diminish the importance of wealth in a society, whereas slower economic growth will increase it, meaning there will be more inequality.” Unquote. According to Piketty, the rate of return to capital has always been higher than the world growth rate, but the gap was reduced during the twentieth century, and might widen again in the twenty-first century. Spending on education and health accounts for 12-18% of national income in all the developed countries today. Primary and secondary education are almost entirely free for everyone in all the rich countries, but higher education can be quite expensive, especially in the United States. In all the developed countries, public spending covers much of the cost of education and health services: The goal is to give equal access to these basic goods: every child should have access to education, regardless of his or her parents’ income, and everyone should have access to health care.

Commitment to increase investment in education:

As eminent economists have identified that the obstacles to development are self-reinforcing where, low levels of household income preventing domestic savings, which in-tern retard capital formation, thus low investments hinder productivity growth, and keep household income back at low levels. This is the poverty- growth vicious cycle. It is a well- known fact that poverty is accompanied by low levels of education and if facilities are afforded to all students, irrespective of their parents’ family income, it will eventually change the status- quo, which in-tern will lead to improvements in output both in food production/agriculture and industries/services. This will break the vicious cycle. Unfortunately, in Sri Lanka, the governments of the day do not spend even 4 percent on health and education, where more than 25 percent of our people live below the poverty line. (As per Central Bank report 2017, only
3.9% of GDP on health & education) In fact, there has been a reduction in the capital expenditure on health & education during the last two to four years. Our health and education services are fast deteriorating to a level where we could end up in having unhealthy and less educated children similar to the population living in least developed countries. The successive governments have failed in bringing social justice and much-needed economic welfare
to the people. Consequently, the income inequality and social unrest are fast spreading across the regions, sub-districts and cities. Most of the top Business leaders and Professionals are of the view that the quality of life of not only poor, even the middle class is drastically declining. More and more people have become dissatisfied with the government machinery. This will lead to social unrest which makes the system un-governable.


We need to be mindful that these ‘social- infrastructure’ activities-health & education- are interwoven with socio- political fabric of the society. What went wrong as that the successive governments wanted to bring in private medical colleges, without first improving the state university system, and where they should have concentrated on ‘non-medical sector’ higher education initially for much needed reforms in education. It is in this context only that a clear strategy of increasing public investments in education, at least 4-5% of the GDP should be viewed. This will enable the governments to mitigate the ‘student unrest’ to a certain extent.

Jayampathy Molligoda

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The Professionals for a Better Future (VIYATHMAGA) is a network of Academics, Professionals, and Entrepreneurs who love the country and wish to contribute actively towards the development of a prosperous Sri Lanka where all citizens can live in peace and harmony. VIYATHMAGA is not a political organisation. It is a civil society movement, wishing to contribute towards the betterment of the country.

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