Economic growth is impossible without learning

cause of economic growth

If you think education is expensive, try ignorance,” as a former president of Harvard University famously said.

Whatever its primary purpose is (or should be), education has a huge effect on any country’s productivity and economic health.

When you look at the data, you see a clear correlation between the education level of a population (enrollment ratio) and its country’s GDP. Today, let’s go further and explore how learning is actually the main driving force behind current economic growth.

First off, how does an economy grow?

If you remember your economics class, you know growth usually depends on the increase of the four traditional production factors, namely

  1. Land
  2. Labor
  3. Capital
  4. Entrepreneurship

But in reality, these inputs are typically hard to change in developed economies. Instead, as some recent theories have proposed, economic growth comes down to two things:

  1. Working smarter (human capital)
  2. Using better tools (technology)

So, in knowledge economies, getting better beats getting more. Of course, working harder, using more machines, and extracting natural resources from more land will generate some growth. But that’s not where most of our productivity gains have come from in the last decades.

Rather, it has come from working smarter and using better machines. In other words, it’s been the result of a more efficient use of existing assets. Let’s look at the two ways of achieving that.

Human capital refers to the knowledge, skills and experience of a country’s workforce. By and large, the more trained and educated workers get, the more productive they become. The general principle behind this is the specialization and division of labor, which has been one of the most powerful economical force since the Industrial Revolution.

Technological innovation refers to the development and adoption of better processes and products. Even if they disagree on how much of the growth can be attributed to new technology, all economists agree it plays a major role. For example, Nobel Prize winner Robert Solow pegged it at more than 80%.

Now what drives the increase of knowledge and technology?

Effective learning, of course. In a world where change is ubiquitous, there no better way, sorry, there’s no other way to succeed.

Therefore, peak learners are really the core of economic growth.

Leave a Reply

Your email address will not be published. Required fields are marked *