Then there is its cost. Education is exceedingly expensive and always has been, and thus, even in affluent countries, it is beyond the financial capacity of most families. This constraint is compounded by the fact that without education, few families are able to become well-off in the first place, which creates a self-reinforcing, vicious cycle: because they lack education, parents cannot afford to pay for the education of their children, ensuring that their children will not be able to pay for that of their grandchildren, and so on. This means the government’s schooling requirement must be accompanied by a willingness to pay for it. Otherwise, as was the case throughout Western history (until the United States led the way to universal, free schooling), education remains the exclusive province of the rich and wellborn, who use it to secure a privileged status for their progeny.
A country’s productivity, at first blush, may not be as dependent as education on government. Most production in the United States and other rich countries is in the private sector. Nevertheless, let’s look at the role of government with respect to the two determinants of productivity noted earlier: the technological quality of a country’s production facilities and the country’s aggregate work effort (i.e., the percentage of the population employed times annual hours worked per employee).
With respect to the former, the role of government is indirect but vitally important. Workplace technology represents intellectual property (a form of human capital) that must be protected by government through the issue of patents. Also, technology is invariably grounded in the latest scientific discoveries; for the last hundred years the pace of scientific discovery in the West has depended on a variety of government subsidies. The United States, even in the nineteenth century, found ways of underwriting scientific research, and this has contributed mightily to America’s huge lead in technology.
Regarding the second, aside from the eagerness to work of a country’s labor force (where the United States has a strong edge), work effort is very much hostage to government policies regarding income support based on disability and unemployment, national old-age pension provisions, mandatory retirement and minimum wage requirements, collective bargaining rules, allowable hours of work, public employee pensions, and a host of other government restrictions on working.
That said, I know that many readers of this book have a visceral distrust of government, or at the very least share a high degree of skepticism as to its efficacy. I share this skepticism. Nevertheless, it is an unarguable certainty, in any country at any time, that if the generation of human capital were left entirely to the decisions and resources of individuals, families, and private enterprises, there would be much less of it. This is not an issue of ideology, but of standard economic theory, subscribed to by economists across the ideological spectrum.
All of these governmental intrusions, especially in education and basic research, involve what economists call “public goods.” Public goods are expenditures that generate enormous benefits to the community beyond those realized by any individuals willing to pay for them in private market transactions. In the instance of education, for example, while it is clearly beneficial to the individuals who possess it, it also confers great benefits on society as a whole: it results in more skilled and efficient workers, better citizens, informed voters, better parents, and so on. Education’s status as a public good is compounded by the fact that, for most of the educational cycle, its immediate beneficiary—the child—has no capacity to pay for it. Well, why can’t parents pay for it? Parents are only indirect beneficiaries of their children’s education, and, while many parents may want the best for their children, they may not have the money, or they may not be willing to forgo a large portion of their own needs to pay for it. Even if all parents sacrificed equally to finance their children’s education, the quality of education any child received would then still be dependent on their parents’ income. Therefore Americans a long time ago, and all developed countries today, have come to accept education as a collective responsibility, to make sure that the lifetime well-being of their children does not depend on the good fortune of having rich—and altruistic—parents.
An even purer instance of a public good is basic scientific research. As will be discussed at length in chapter 6, basic research is one of the most fruitful and cost-effective generators of applied human capital, which is why the United States has for decades invested so much in it, and why China, Japan, Korea, and the most advanced countries of Europe are doing so now. The only alternative funding sources for basic research would be private firms or private universities. However, if industrial firms picked up the tab, its benefits would easily spill over to “free-riding” competitors who would be able to take advantage of its findings (say, in new product development), without having had to contribute anything. If universities paid for basic research out of their own funds (for prestige and as a lure for top faculty and students) they would have to push the cost onto their tuition-paying students, who would receive no direct benefit at all. In summary, nearly all the specific components of human-capital investment involve public goods; as such, they are either paid for by the public (through one or another government action), or they just are not produced at the scale needed or, in some cases, produced at all.
Finally, there is one aspect of American human-capital development, immigration, where we must look to government because government—in this case at the national level—is the sole arbiter of whether to admit immigrants into the country, and under what criteria. Most countries in the world do not permit immigration on any meaningful scale. Others, like the richer countries of Western Europe, have welcomed immigrants only recently, and generally grudgingly, and those immigrants who make it in are likely to become poorly assimilated, second-class citizens. In sharp contrast, America, founded by immigrants, has welcomed them from the beginning (except for some notable but time-limited gaps), with the result that immigration has provided the United States with one of its most unique and long-standing advantages in human capital. However, as chapter 8 discusses in detail, the full human-capital benefit from immigration does depend on the details of which immigrants are admitted, and that necessarily is determined by the Congress and the president of the United States.
Although government has an indispensable role in creating human capital, not everything that governments do is wise. Governments—very much including the federal, state, and local governments of the United States—can also destroy human capital, or hold back its development. In taking the reader through all the ways that American human capital is created or used, this book will show where our governments might do more, but also where they might do less and, most often, where they should do things differently.
THE REST OF THIS BOOK
Given the indispensable role of government in generating human capital and making America the world’s smartest society, it matters a great deal how, specifically, government executes that role. Happily, the United States has long been a leader in developing vast amounts of human capital and for a few more years it can still be characterized as the world’s smartest society. But this is only because it continues to benefit from human-capital investments made in the nineteenth and twentieth centuries. The rest of this book will delve in some detail into each of the three legs of America’s “human-capital tripod”—its schools, its workplaces, and its immigration policy—and recommend important changes in policy that could substantially and rapidly increase the country’s human capital. As noted earlier, most of these changes would neither expand the role of government in the United States—a highly fraught issue these days—nor increase its overall cost.
Education America’s educational supremacy is being threatened by several factors. Large numbers of young Americans, mainly from disadvantaged backgrounds, are getting an exceedingly poor education, and have been for a long time. America’s middle-class youth are getting a middling education that used to be good enough for them to get by but, in the competitive twenty-first-century economy, will soon leave them