Source: Carnegie
1999 Business Week Americas Summit, March 24-26, 1999, Bal Harbour, Florida
It is a pleasant surprise to find human capital on the agenda of this Business Week Americas Summit. But it should not be. Education is now high on the agend of virually every country in the region. The reason is obvious.
Latin America is committed to getting ahead in the global economy. The countries of the region have been undergoing a major process of economic reform and transformation over the last decade and more. Though the financial crisis that began in Asia in the spring of 1997 has hurt the region, reducing income from exports and raising the costs of external capital, it has reinforced rather than interrupted the process of economic reform. And even as renewed energy goes to deepening fiscal discipline, extending privatization, and completing the trade opening, new efforts on the so-called second stage of reform are underway –to reduce costs to the private sector via deregulation, to strengthen the rule of law, to improve banking supervision and prudential norms in the financial sector, to make judicial systems and bankruptcy courts work, and of course, to put education to work.
Why education? To compete in the global economy, the region has to have a labor force that has caught up with its competitors in Asia – in skills and therefore in productivity. So education matters. In its 1997 report on Latin America’s economies, the Inter-American Development Bank identified the lag in education as the greatest single obstacle to future economic growth in the region, and said that more rapid increases in education (one additional year of schooling over current trends for the workforce within one decade) could raise annual growth rates by 1.5 percentage points. And because education is the most effective investment for raising the productivity and incomes of the poor, it is the key factor for reducing the poverty, social tensions, and inequality that continue to plague the region. Reducing poverty and inequality will in turn make Latin America an even more attractive setting for long-term investment and the growth investment can bring.
So if the new global economy had a magic bullet for growth, competitiveness and an improved social and political environment, it would be education. The economic transformation of the last decade means Latin America is poised today to finally take advantage of this near-magic bullet.
But the task is far from a simple one. It is not a matter of spending more money, though that would help. It is not a matter of building more schools or printing more textbooks. It is a matter of deep systemic change in the way the public sector finances and organizes education. And if deep systemic change is to occur, public sector leaders, such as my colleague and fellow speaker today Paulo Renato de Souza, Brazil’s outstanding Minister of Education, will need sustained support for politically and technically difficult changes from the business sector. That support is best built on a good understanding of why Latin America has done so poorly in the past, and why it can now do better.
I have five parts to these brief remarks: (1) exports, education and growth with low inequality in East Asia; (2) Latin America’s weak education record; (3) the vicious circle of high inequality and poor education in Latin America; (4) the three big Cs of education reform; and (5) reasons for optimism.
East Asia: Education, exports and faster growth with less income inequality . . .
The first figure illustrates a simple point. East Asian countries, for the nearly 30 years preceding the recent crisis, enjoyed high rates of economic growth and low levels of inequality, putting them in the happy northwest corner of the figure. Over the same period, most countries of Latin America were stuck in the unhappy southeast corner, suffering low growth with high inequality.
There were two major differences between the regions. First, East Asia had stable prices (backed by low fiscal deficits and conservative monetary policy), generally competitive exchange rates that supported rapid expansion of labor-using manufactured exports, and via licensing, imported equipment, and the need to maintain its export niches, stayed open and competitive in global markets. Most East Asian countries let global competition set their standard; the public sector gave the private sector space to drive the economies – with minimum interference (and sometimes with strategic, market-friendly help).
Second, all the countries of East Asia, with the possible exception of Thailand, spent considerable public resources to expand primary and secondary education rapidly. Post-secondary education also grew rapidly, though with a high proportion of costs covered by households not the government. With fertility falling and economic growth rising, spending per school age child quadrupled over two decades in most countries.
In unhappy contrast, in Latin America, until the late 1980s, inflation, import substitution, a large public sector with heavy involvement in the productive sectors, and public policies that favored capital over labor, all contributed to lower growth, lower demand for labor, and persistence of long-standing inequality. With fertility decline delayed, and economic growth at a standstill in the 1980s, the public sector spent less and less per child on basic education, even as enrollments expanded.
Fortunately, the 1990s brought big changes in Latin America. You are aware of the changes in economic policy. Education programs and policy are changing too. I return to this point below.
Compared to East Asia, Latin America’s record in education has been weak . . .
At the beginning of the 1990s, workers in Latin America has an average of 5.2 years of education, nearly a third less than would be expected for countries with the region’s income levels; and more than a third of the children entering primary school were not finishing, over twice the rate of other regions in the world. The education gap was worsening right through 1995. Compared to East and Southeast Asia, the region’s shortfall increased from less than one year in 1970 to about four years in 1995 (click here for graph). Moreover, the increase in average education has brought only limited improvement in the distribution of education, especially compared to the improvement in East Asia (click here for graph).
The problem in Latin America is not lack of schools, nor even poor access to schools in rural areas. The problem is poor schools – schools at the primary and secondary level that too often simply do not work. The symptom of poor schools is high repetition and drop-out rates, especially among the poor – who depend so thoroughly on public schools. Though children from middle-class and high-income households do reasonably well, often relying on private schools, children of the poor lose out in many countries of the region. In the mid-1990s, children from the poorest 40 percent of households in Brazil, Colombia and the Dominican Republic were less likely to finish fifth grade than the poorest children in Ghana, Kenya and Tanzania (click here for graph). (Brazil’s record has improved substantially in the last five years, in large part because Paulo Renato and his President have put substantial political clout behind improving primary schools; these data show the bad hand history dealt them.)
The region’s inequality makes education progress tough, and the poor education record has helped perpetuate the region’s inequality . . .
Latin America has the highest level of income inequality of any region in the world. In some countries, the richest 10% of the population is three times as rich as the next 10% (compared to 30% richer in the U.S.) and 30 times as rich as the poorest 10%. The magnitude of income inequality in Latin America poses a real challenge for education policy-makers like Minister de Souza. Why?
First, with high income inequality, the poor are poorer. The lower family income, the more difficult it is to keep children in school. In the mid-1980s, Brazil and Malaysia had similar average income levels, but the poorest 20% of households in Brazil were almost twice as poor as the poorest 20% in Malaysia. Had Brazil’s income distribution been similar to Malaysia’s, school enrollments of poor children in Brazilian households in the 1980s would have been an estimated 40% higher. That is a very large number!
Second, the greater the income difference between rich and poor, the greater is the tax burden on the rich to finance any given quality education for the poor -- and yet the greater the likelihood of a psychological, geographic, and in some countries, linguistic and racial divide between rich and poor. In these circumstances, the rich resist financing extensive education for the poor -- or find ways to direct education spending by the public sector to programs where they can capture more of the benefits, e.g., university education.
In a vicious cycle, moreover, limited education for the poor locks in high income inequality. We should have no doubt that the great divide in Latin America (indeed now in the world) is no longer between capital and labor, but between educated and uneducated labor (click here for graph). Today's inequality is about Bill Gates', not Karl Marx' world. In Latin America, between 1991 and 1995, wage gaps between the skilled and unskilled grew in six of the seven countries for which data are available (click here for graph). The demand for educated workers replaced the limited supply, and the wage premium to the educated grew more rapidly. The exception, Costa Rica, has a long history of widespread access to education. In contrast, in Korea in the 1980s, there were more and more secondary school and university graduates; with more of them, their skills were no longer as scarce, their wage premium fell, and wage inequality declined.
Latin America can benefit from the virtuous circle of more education, leading to lower income inequality, in turn leading to more education. The key is more coherent and sustained public policy focussed on major systemic reforms and on reaching the poor.
But now the region is poised to embark on major education change. The following ten commandments of education reform emphasize three Cs: competition, consumer choice, and a coordinating role for government.
With good intentions, but often driven by populist tendencies and patronage, many Latin American countries constructed highly centralized public education systems in the postwar era. These public systems became state-run pseudo-monopolies, concentrating the functions of financing, purchasing and production of services in the hands of a central government that allowed providers little autonomy and gave consumers no role at all. The early centralization of education created bureaucratic incentives for expansion of employment, strengthening teacher unions and depleting public budgets even as salaries stayed low; made consumer satisfaction irrelevant, inviting a decline in quality; and failed to reach the poor even as they forfeited the support of the middle and upper classes.
The reform alternative is messier and tougher to implement: a decentralized system with greater local and parent control; more choice for poor parents among public schools and via subsidies or vouchers between public and private schools; and a new role for government, emphasizing assessment, accreditation and provision of information instead of centralized provision. In practical terms, it is captured in the following ten commandments that I developed when I was Executive Vice-President at the Inter-American Development Bank:
(1) Greater autonomy at the school level in reasonably small schools (no more than 300 - 500 students), with heavy emphasis on parental involvement. Decentralization to local governments is no panacea; though in some circumstances it can help, local politics can make matters worse if social fissures are great at the local level. Decentralization all the way to the school level should be a goal.
(2) Greater emphasis on teacher performance and knowledge and on accountability of teachers to school directors and of teachers and directors to parents. Teacher knowledge – not just formal training – must be considered in evaluations.
(3) Student testing and evaluation to give communities and parents information about performance, and to give school directors and teachers a tool to fix what isn't working.
(4) A new role for the center - not of direct administration of programs, but of evaluation, provision of information for communities and schools, dissemination of best practices, and where necessary, financial transfers to guarantee minimum levels of spending in poor communities.
(5) New mechanisms to turn confrontation with teacher unions into collaboration and cooperation. Some unions in some countries are politicized and may reject changes. But reforms that come from the top and do not benefit from the experience of good teachers alienate teachers who have only the unions to speak on their behalf. Somehow, teachers must be involved in the reform process.
(6) New mechanisms for financing at the university level, such as financing by the business sector; introduction of tuition and fees, no matter how modest, e.g. for use of laboratories and sports facilities; loan and scholarship programs (for the students from poor families who make it through the primary and secondary system and are eligible to attend universities), and other reforms that generate more accountability.
(7) Diversification of post-secondary education; e.g. community colleges and technical institutes to meet changing needs at lower costs than universities.
(8) More public spending on child care, pre-school education, and after-school adolescent programs; these are high return investments that will raise success rates in primary and secondary school, especially for the poor.
(9) In vocational training, emphasis on competitive supply by the private sector, and on employer-driven, i.e., demand-driven programs. In secondary education, no matter the model, more emphasis on problem-solving.
(10) Development of special programs for hard-to-reach groups, especially for indigenous groups outside major population centers.
These ten commandments all reflect three Cs: competition, consumer choice, and a coordinating role for government. The three Cs reflect the simple proposition that the public sector can benefit from market mechanisms to make it effective. The public sector has a clear and legitimate role in the financing of education, and in guaranteeing full access of all to information about the schools and programs its finances, whether directly or indirectly. In the unequal societies of Latin America, it is government that must ensure that education reaches the poor. But a justifiable emphasis on that public responsibility need not imply a rejection of approaches that mimic the market advantages of competition and consumer choice.
There are good reasons for optimism . . . education reform is on the political agenda.
Why be optimistic? First, economic reforms and liberalization have generated a new round of demand for better education. Latin America's future competitiveness in a global economy requires a more skilled and flexible labor force. Structural reforms and rapid technological change are making the lack of secondary school graduates a badly felt bottleneck in many countries.
Second, declining fertility rates in the 1980s are finally diminishing what had been for three decades tremendous pressure on the school system to accommodate more and more children every year. As quantity levels off, there is now room to focus on quality.
Third, the region's democratization is spurring the growth of civil society groups (NGOs, community groups, and increasingly pluralistic labor movements) that are more effective constituencies for better education, especially among the poor, where individual parents have traditionally had little voice. Democratization has also brought to power Latin American presidents emphasizing education, such as Brazil's Fernando Henrique Cardoso and the former Bolivian President Gonzalo Sanchez de Lozada. A new style of ministers of education has emerged, with more technical experience and more political clout; no longer is this the last cabinet position to be filled, more often satisfying regional and political rather than professional requirements.
Fourth, and after many years of efforts, new approaches and ideas for education are flowering in the region. These include parent-managed schools in El Salvador; the dramatic increase in attention and federal financing for primary schools in Brazil; subsidies to poor families who keep their children in school in Honduras and in the federal district in Brazil; autonomous secondary schools in Nicaragua; child care by mothers in their homes in Colombia; community colleges in Argentina; education in indigenous groups' languages in Bolivia; in Chile the healthy exploitation of private school initiatives, the pragmatic fine-tuning of its voucher system and the dramatic decision to put off reducing the value-added tax in order to lengthen the school day; and in Mexico successful outreach with television to bring secondary education to the remotest rural regions, and heavy targeting of spending to preschool and primary education in the poorest areas.
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In summary: Reforms are needed. They are possible. They are happening. But they are tough. They will only be sustained politically if they are understood and adequately supported. Let me end where I began. It should not be a surprise that education is on our agenda here today. It is a sign of real change, and a reason to be optimistic that change is upon us. Thank you very much.
