Education as Investment

Education as Investment

By Hazel Henderson

Hazel Henderson is the author of many books, including Planetary Citizenship (2004), a dialogue with Center founder Daisaku Ikeda, and Ethical Markets: Growing the Green Economy (2006). This essay was published as a contribution to the Center’s Fall/Winter, 2004/2005 newsletter.

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In this twenty-first century Information Age, politicians and leaders worldwide stress the key role of education as the bedrock of human development and social progress. Many economists have now widened their horizons accordingly and acknowledge that the wealth of nations lies in educated, productive citizens, increasingly described as “human capital.”

The World Bank began recognizing such new forms of capital in its Wealth Report in 1995 when it conceded that its previous narrow focus on financial and built capital (money and factories) was misplaced. The Wealth Report explained that 60 percent of its measure consisted of human capital, 20 percent environmental capital (Nature’s resources), and that finance and factories only constituted 20 percent of the real wealth of nations. Since then, the Bank has focused on education — particularly of girls — as one of the most productive investments that governments, businesses, and individuals can make. Of course, parents knew this all along!

So why is it that most economic textbooks, models, and national accounts —like Gross National Product (GNP) and Gross Domestic Product (GDP) — still categorize these investments in education as “consumption,” or “expenses,” as if these funds were just money down the rat hole? Such persistent errors force these crucial investments in our most precious resource, our children, to compete in annual budgets of local, state, and national governments with roads, police, sewage treatment, sports stadiums, and even weapons.

The growing breed of statisticians of quality of life and sustainable development (see for example, the Calvert-Henderson Quality of Life Indicators,www.calvert-henderson.com), have called for correcting such errors in national accounts for decades. In 1992 at the UN Earth Summit in Rio de Janeiro, 170 governments pledged in Agenda 21 to implement these corrections by including human resources, unpaid work, ecological assets, and subtracting pollution and resource-depletion.

Recently, another Agenda 21 recommendation has been implemented: the setting up of asset accounts to properly balance taxpayers’ public investments in vital infrastructure: railroads, airports, public health facilities, and other items still too often booked as “public debt.” The United States made these corrections in January 1996 with a stroke of the pen that contributed one-third of the surplus racked up in the last three years of the Clinton administration. Yet this stroke of the pen did correct an egregious error by which economists had overstated governments’ debts. In effect, they had counted these investments as “expenses” and “debt,” rather than the investments they were in valuable public assets like hospitals, concert halls, and universities with life spans of 100 years or more!

Since the United States made this quiet correction to its GDP, Canada followed suit in 1999. Instead of cutting social safety nets to try to reduce the economists’ “public debt,” they discovered a $50 billion surplus.

Now, Brazil is questioning why the International Monetary Fund (IMF) still insists on the old incorrect national accounting of its “public debt” as a percentage of its GDP. The IMF recently agreed that Brazil was right and that its vitally-needed urban infrastructure investments were just that: investments that would produce long-lasting assets essential for Brazil’s development. The IMF agreed grudgingly “on a pilot basis” not to add these investments into its calculations of Brazil’s “public debt.”

It is equally vital for educators and all those concerned with our children’s future to insist that economists at the IMF, the World Bank, and in national governments, re-designate investments in education as just that: investments. Once this is accomplished, these education investments should also be added to the new asset accounts as part of the infrastructure of all societies that pays dividends over at least 20 years and produces our precious “human capital.” Doing this would open the door to more long-term planning, motivate positive investment, and ensure a brighter future for our children.

We can all hold economists to account to see that these errors in their models no longer compromise our children’s future. Remember, economics is not a science, just a profession, with less quality control than most others. Never again should educators, parents, and concerned citizens have to fight annual budget battles over education. With correct accounting, these investments would be safely protected as the long-term assets they truly are.

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