Thursday, October 23, 2014
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Mind over Mines

PARIS – According to the Bible, Moses led the Jews on an arduous 40-year journey through the desert – just to bring them to (virtually) the only Middle Eastern country without oil. But Moses may have gotten it right; today, Israel boasts an innovative economy, and its population enjoys a high standard of living.

In general, resource-rich countries tend to be less developed economically and socially, because exporting their natural resources often triggers currency appreciation, making imports cheap and industrial development difficult. Moreover, governments in these countries are under less pressure to tax their citizens, so they are more prone to autocracy.

But there is more to this distinction. A study by the OECD’s Program for International Student Assessment (PISA) has found that there is a significant negative relationship between the money that countries extract from national resources and their school population’s knowledge and skills.

Israel is not alone in outperforming its oil-rich neighbors by a large margin when it comes to educational outcomes. Indeed, this pattern is evident across 65 of the countries that participated in the latest PISA assessment – and is a powerful predictor of a country’s long-term wealth and social outcomes.

The few resource-rich countries that achieved high scores on their PISA exams, including Canada, Australia, and Norway, have established deliberate policies to save their resource rents rather than consume them.

Countries with little in the way of natural resources, such as Finland, Singapore, and Japan, are much more likely to mine for their people’s talents and intelligence. At the same time, their citizens understand that they must live by their knowledge and skills, and that these depend on the quality of their education.

So, how highly a country regards education seems to depend, at least in part, on its perception of how education and expertise affect its success. Indeed, valuing education may be a necessary condition for building a world-class educational system and, in turn, a world-class economy. Furthermore, economies that have not relied on their citizens’ knowledge and skills in the past may not be able to turn things around unless their leaders persuade the public to change their perception of education.

The most troubling implications of PISA’s most recent study concern the developing world. Many of the countries with below-average GDP have successfully converted their national resources into physical capital and consumption, but have failed to translate them into the human capital needed to sustain their economic and social gains.

There is an important message for the industrialized world, too. In the wake of the global economic crisis, it is tempting to maintain today’s standard of living by means of short-term solutions, like printing money. But the only sustainable option is long-term growth, which requires giving more people the skills to compete, collaborate, and connect in ways that drive the economy forward. Without sufficient investment in knowledge and skills, people languish on the margins of society, technological progress fails to translate into productivity growth, and countries lose their ability to compete in an increasingly knowledge-based global economy.

To convert knowledge into jobs, economic growth, and social progress, we need to develop a better understanding of the skills that drive strong and sustainable economies and societies, ensure that the educational system is adapted accordingly, develop effective labor markets that meet people’s potential, and improve governance. The OECD’s new Skills Strategy provides a framework to support countries as they build, use, and maintain their human capital to boost employment and growth and promote social inclusion.

The currency of the twenty-first-century economy cannot be printed by any bank, produced through speculation, or inherited. It depreciates as labor markets evolve, and as individuals lose what they do not have the opportunity to use. That currency is knowledge and skills, and it can be strengthened only through sustained effort and investment.

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