T Manuel: Commonwealth Conference of Education Ministers

11 December 2006

Education is a substantial industry in its own right – the largest category
of public expenditure in most Commonwealth countries and up to 10% of national
output and income in many economies, including both public and private sector
activities and institutions.

Yet the links between education and the rest of the economy are seldom
explicitly addressed in education planning and finance. We broadly understand
that economic development relies on skills, knowledge and expertise and
education contributes to generating these. But we don't have much confidence in
formal skills development plans any more – what used to be called "manpower
requirements planning" has largely been discredited as an approach to social
and economic development.

We also understand that education has collective "public good"
characteristics, and so it is largely financed and organised by governments
rather than the business sector. But there are also important contributions of
non-governmental organisations (NGO) and enterprises to the education and
training industry and the interaction between government and private sector
activities and responsibilities are complex and vary from one country to
another.

Parts of this conference programme deal with these and related issues – how
we can make more rapid progress towards meeting the millennium development
goals for education enrolment and opportunity, how we can learn from each
other's experience in improving the quality and effectiveness of schooling, the
role of higher education in development, partnerships across international
borders and engagement between education institutions and local community
initiatives. Behind these practical and institutional challenges are several
deep and analytically difficult aspects of the interaction between education
and the economy.

You have a special and exciting opportunity here to reflect on these issues,
jointly and in the separate forums of Ministers and officials, stakeholders,
teachers and youth participants. Of course you will do so as committed
participants in the global project of education development, but perhaps you
will allow me to share with you a few ideas that come from outside the
education discourse, yet may have some relevance to your conference
deliberations.

The first is a concept associated with economic theorist Kenneth Arrow, who
wrote a paper called "learning by doing" in the early 1960s that greatly
influenced subsequent thinking about growth, productivity and investment. It's
an idea that has some bearing on the economic revival South Africa is currently
experiencing and probably also helps explain why those old "person-power
planning" models, even when more acceptably named, don't help very much.

There is nothing new, of course, about the idea of learning by doing –
practical experience in the classroom has always been part of well-structured
teacher education programmes; engineers, lawyers and accountants all know that
until they have actually experienced the difference between concrete slurry and
backyard sludge or between an audit statement and the first trial balance
spreadsheet, they don't have any claim to professional status. And the
difference between two years on the job and ten years of professional practice
is not just a few thousand dollars a month; it is also a good deal of real
knowledge and valuable capability.

But the implications of learning by doing for how we think about
productivity and growth largely went unrecognised in economic theory until the
1960s, and there is still a lot of unreconstructed policy advice around.
Kenneth Arrow's insights helped explain a puzzle in growth economics – that
measured productivity improvements typically follow rather than lead growth
spurts, although the standard theory treats productivity as a determinant of
output. It's an idea that also helps explain the dynamics of enduring growth
accelerations, increases in investment, productivity, output and employment
that become self-reinforcing virtuous cycles of economic advancement.
Well-directed investment in infrastructure and technology generates the
learning, organisational change and skills acquisition that emerge in the
national accounts statistics as rising productivity.

Faster economic growth in South Africa over the last five years has
highlighted our own skills shortages and the need to recruit and train larger
numbers of engineers and city planners and accountants. But faster economic
growth also generates a whole lot more activity, industrial capacity building,
technology replacement and organisational renewal that in turn stimulate
learning opportunities and increase the reward to skills acquisition.

This has become more evident in South Africa in the last five years, but it
is also a powerful global dynamic at present – in some respects not entirely
welcome, because rapid demand for skills has contributed to rapidly rising
remuneration in skilled and professional occupations, associated with widening
earnings inequality in many countries. This "high-skill" learning by doing in
the last 30 years has largely been concentrated in the financial services and
Information Technology (IT) industries, associated with investment in
electronic software rather than infrastructure or equipment.

What are the implications for education? One is that the quality of basic
language and mathematics schooling is critical, because this is the foundation
on which lifelong learning rests. Another is that colleges and higher education
institutions need to be ready to adapt and capable of responding to changing
economic and labour market trends.

Growth and investment create powerful feedback effects on the demand for
learning opportunities and the returns to human capital – indeed in South
Africa, as in other countries that have experienced an acceleration of growth
after a long period of economic stagnation, this feedback effect is like a
seismic shock to the education and training system, because it brings such
rapid growth in demand for some kinds of skills and qualifications.

This brings me to a second concept that has some bearing on how economists
think about education and in particular on the role of formal qualifications
and standards. There is a body of theory about how markets work that focuses on
missing or imperfect information and the transaction costs associated with
decision-making with incomplete information.

Michael Spence introduced the idea of "signalling" into this literature 30
years ago and for the first time economists were able to offer a coherent
explanation of why we have persisted in our modern education systems with those
arcane medieval rites of passage and colourful ceremonies and symbols and
formal titles associated with degrees and diplomas and professional
qualifications.

These are signals, simple indicators that carry information that would
otherwise not be evident in the ordinary course of trade and commerce. And so
we rely on the advice of a medical doctor or the engineer's calculations not
because we have conducted an exhaustive due diligence assessment of his or her
capabilities, but because a reputable academy of learning has done so.

In this way, formal qualifications play an important role in lowering the
costs of specialised transactions and directing consumers or businesses to
competent service providers. The system is best developed in the medical field,
where there is a whole hierarchy of certified specialisations, each occupying a
well-delineated set of conditions and associated therapies. I can tell you that
the field of economic and fiscal advice is characterised by no such
intelligible order yet: my staff happily offer opinions that are entirely
undisciplined in their range and diversity, they trespass merrily on everybody
else's area of expertise and they see no embarrassment in contradicting each
other and changing their minds.

So I have to conclude that economics remains a rather primitive intellectual
discipline and I hope, ministers, that you enjoy the benefits of better
structured ideas and advice in the field of education. Nonetheless, the idea of
signalling is helpful in thinking about the interaction between education and
the wider economy and the labour market. If qualifications are to do the job of
signalling properly, they need to be reliable and so standard-setting and
accreditations of institutions are important. There are interesting
implications for institutional autonomy and indeed for international
cooperation and alignment of standards. And these are not just questions
relevant to high-level professional competences – the entire structure of the
education curriculum, from early childhood learning through schooling and
further education, how performance is measured and how achievements are
communicated, yields a series of signals to parents, teachers and students that
influence education choices and occupational aspirations in hugely important
ways. It is no exaggeration to say that every aspect of social, cultural and
economic development, the life path of every learner, is influenced by the
integrity and coherence of this matrix through which educational attainment is
measured and signalled.

This surely serves as a reminder of a perspective on education articulated
so powerfully by a third Nobel prize-winning economist, Amartya Sen, one of the
keynote speakers at this conference in Edinburgh three years ago. In
Development as Freedom and elsewhere, Sen explains why basic education as a
right, an entitlement, as recognised in the millennium development goals and in
the main theme of this Commonwealth Conference, is both a moral imperative and
a practical foundation of social and economic progress.

Taking education as an entitlement seriously means that we have to deal
forthrightly and honestly with the challenge of improving the quality of
schooling. This means we must get to grips with outcomes, measures of
performance, quantitative indicators and searching assessments of the learning
process. It means dealing with management problems, proper budgeting and
financial administration, more effective long-term funding partnerships between
donors and poor countries, maintaining classroom buildings and providing books
and equipment, it means investing in technology improvements, it means raising
standards of teacher training and monitoring what actually goes on in
classrooms.

Education as a basic entitlement means that we need have no reservations
about asserting the responsibility of governments for education systems and
delivery. But we should also not let ideological presumptions get in the way of
supporting initiatives and new ways of doing things that might contribute to
more rapid progress in narrowing the education gap.

Faith-based organisations make important contributions to schooling in many
of our countries, there are effective non-governmental agencies operating in
thousands of local communities, regionally or nationally and across national
boundaries. Education depends on book suppliers, technology, management support
and other kinds of partnership with the private sector – there are no doubt
ways in which these arrangements could be strengthened.

In welcoming delegates to this conference from other Commonwealth countries
to Cape Town and South Africa, Minister Pandor and I know that we have a great
deal to learn from your experiences in addressing these challenges. Although
progress has been made over the past decade, we are still far from realising
the quality and availability of education required to ensure equitable access
to opportunities and a common South African nationhood. We are here to listen
and to share with you something of what we have learnt by doing, to understand
better the signals and indicators that tell us what I happening at the
interface between education, the economy and the labour market and to re-commit
ourselves to education as an entitlement and a progressive right that underpins
social and economic progress and the shared values on which the Commonwealth is
built.

Issued by: National Treasury
11 December 2006