Hoover Digest

Healthy Schools, Healthy Economy

Monday, August 13, 2012

In addressing our current fiscal and economic woes, too often we neglect a key ingredient of our nation’s economic future: the human capital produced by our K–12 school system. A better education system would lead to a dramatically different future for the United States because educational outcomes strongly affect economic growth and the distribution of income.

Over the past half century, countries with higher math and science skills have grown faster than those with lower-skilled populations. Recently we compared GDP-per-capita growth rates between 1960 and 2000 with achievement results on international math assessment tests. The countries surveyed included almost all of the Organization for Economic Cooperation and Development (OECD) countries, plus a number of developing countries. What stands out is that all the countries follow a nearly straight line that slopes upward—as scores rise, so does economic growth. Peru, South Africa, and the Philippines are at the bottom; Singapore and Taiwan, the top.

The U.S. growth rate lies above the line because—despite the more recent shortcomings of our schools—we’ve long benefited from our commitment to the free movement of labor and capital, strong property rights, a limited degree of government intrusion in the economy, and strong colleges and universities. But each of these advantages has eroded considerably and should not be counted on to keep us above the line in the future.

In recent PISA tests, the United States was thirty-first in math, indistinguishable from Portugal or Italy.

Current U.S. students—the future labor force—are no longer competitive with students across the developed world. In the OECD’s Programme for International Student Assessment (PISA) rankings for 2009, the United States was thirty-first in math, indistinguishable from Portugal or Italy. In “advanced” performance on math, sixteen countries produced twice as many high achievers per capita as the United States.

If we accept this level of performance, we will surely find ourselves on a low-growth path.

This doesn’t have to be our fate. Imagine a school improvement program that made us competitive with Canada in math performance (which means scoring approximately 40 points higher on PISA tests) over the next twenty years. As these Canadian-skill-level students entered the labor force, they would produce a faster-growing economy.

How much faster? The results are stunning. The improvement in GDP over the next eighty years would exceed a present value of $70 trillion. That’s equivalent to an average 20 percent boost in income for every American worker each year over his or her entire career. This would generate enough revenue to solve easily the U.S. debt problem that is the object of so much current debate.

The drag on growth is by no means the only problem produced by our lagging education system. Greater educational disparity leads to greater income-distribution disparity. If we fail to reform our K–12 education system, we’ll be locking in inequality problems that will plague us for decades, if not generations, to come.

Take our own state of California. Once a leader in education, it is now ranked behind forty other U.S. states in math achievement, placing it at the level of Greece and foreshadowing a bleak future of ballooning debt and growing income disparity.

But the averages mask the truly sad story in the Latino population, soon to become California’s dominant demographic group. Hispanics attending school in California perform no better than the average student in Mexico, a level comparable to the typical student in Kazakhstan. An alarming 43 percent of Hispanic students in California did not complete high school between 2005 and 2009, and only 10 percent attained a college degree.

Failing to reform our K–12 education system would lock in inequality problems for decades, if not generations, to come.

Anyone worried about income disparity in America should be deeply disturbed. The failure of the K–12 education system for so many students means that issues associated with income distribution—including higher taxes and less freedom in labor and capital markets—will be an ever-present and distressing aspect of our future.

Examples abound of the ability to make sharp improvements in our K–12 system. By not insisting on immediate and widespread reform we are forgoing substantial growth in our standard of living. The problem is obvious. The stakes are enormous. The solutions are within our reach.