Now, there are many other ways that spending on primary education can be justified—that education is a universal human right, education is a merit good, the demands of political socialization demand universal education. I suspect that the actual positive theory of education has more to do with those than with the economic returns. But for the purposes of the present exercise of comparing alternative uses of public funds across sectors one cannot invoke “human rights” as a reason to spend on schooling without a counter of “intrinsic values” of an unchanged natural environment, which returns the debate to non-quantifiable values.
I find this (Copenhagen Consensus 2008 Perspective Paper, Pg7) the weakest argument so far, since of course rights have non-infinite moral value and we can extract things like willingness to pay, hedonic utility, etc from how much rights on worth.
I think this is a much more plausible view of much of the drop-out phenomena than is “credit constraints.” First, strictly speaking, “credit constraints” is not a very good description of the problem. Let us take the author’s numbers seriously that the return to schooling is, say, 8-10 percent. Let us suppose that families in developing countries could borrow at the prime interest rate. The real interest rate in many countries in the world is around 8 to 10 percent. So given the opportunity to borrow at prime to finance schooling many households would rationally decline the offer. Second, imagine one relaxes the pure credit constraint—would that money flow into education? Returns on investments from micro-credit programs (which typically have lending rates between 12 and 20 percent per annum) are profitably at those lending rates. One would need more research but the range of investments for which households usually borrow have much higher returns (and quicker) than 8-10 percent.
(Copenhagen Consensus 2008 Perspective Paper, Pg8) Huh this take did not survive the test of time well, given the last 13 years of research on microfinance.
Linch, Can you explain. What did not survive the test of time?
The belief that micro-credit has good investment ROIs for the typical recipient.
I deliberately chose not to use this as one of my chosen excerpts, though I don’t think it reveals a weakness in anything Pritchett believes — I read him as a skeptic about these “rights” who nevertheless acknowledges that other people would rather talk about rights than economic return in discussions of education. But whether he believes in the concept or not, your objection to the concept seems correct to me.
Linch we can also use HDI (Human Development Index) and calculate education ~= money
Here is what I get for children’s education
6 years schooling = 890 PPP USD per year
9 years schooling = 2800 PPP USD per year
12 years schooling = 8500 PPP USD per year