Will Brehm 1:45
Steve Klees, welcome to FreshEd.,
Steve Klees 1:52
I’m very glad to be here. Thank you for having me.
Will Brehm 1:55
You are an economist by training. But you have spent most of your career in the comparative and international education field. How do economists typically think about, or look at education?
Steve Klees 2:12
That’s a huge question, but the answer really depends on what kind of economist you’re talking about; they’re different schools of thought. But the the main dominant school of thought is called neoclassical economics. And neoclassical economics is really about competitive capitalist market systems. And within that education is a very important piece of understanding education, economics and development. In particular, neoclassical economists have developed something they call “human capital theory” that is a framework for understanding education’s role in the economy and in society.
Will Brehm 3:10
And how is human capital theory measured? How do economists see human capital?
Steve Klees 3:22
Well, human capital is a latecomer to economics, to neoclassical economics. Neoclassical economics goes back to Adam Smith, and the Wealth of Nations in the 1700s and the term “neoclassical” actually was coined at the end of the 1800s, and it’s about how a competitive market system operates. Human capital theory wasn’t developed till the late 1950s, early 1960s. Prior to human capital theory, economists understood the economy in terms of supply and demand, you’d always see economists talking about supply and demand – of small companies, small firms, small households competing with each other – and trying to understand how that competition worked, what you got out of it, how a market system worked.
Prior to human capital theory, economists had a lot of difficulty understanding labor and work. Labor prior to human capital theory was an anomaly. It wasn’t something you could talk about in terms of supply and demand. The economists in those days, in the 50s, look more like sociologists; it was a whole field of labor economics where they studied real world labor, they studied strikes, they studied unions, they studied how large firms operated. But education didn’t really fit into that structure at all – that way of thinking. And there were odd people out in neoclassical economics because they were more like sociologists, and they weren’t talking about competitive market structures and supply and demand, and human capital changed all that
Will Brehm 5:28
Steve Klees 5:29
Well, it really made economists able to talk and think about education and labor. Labor, especially, as a commodity like any other commodity that’s bought and sold on a marketplace, that has a price, that’s determined by supply and demand in the marketplace. Human Capital theory developed because it was explaining puzzles. People were trying to understand how economies grew. And they understood that there were more workers, and there was more capital investment, but they didn’t really have any idea about quality of work. And the whole idea of human capital, was it explained better, to neoclassical economists anyway, why some countries grew faster versus slower. They called it a revolution in thought, and the idea behind it was essentially simple – that education wasn’t just a consumer good, it was an investment. It was an investment in individuals, and it was an investment by society and societal development.
Will Brehm 6:48
So in a sense, it would be that if an individual were to receive education, or more education than another, they or he or she would be more productive in an economy, and maybe measured through income? Is this the way the neoclassical economists were seeing this?
Steve Klees 7:12
Yes. They looked at two outcomes of education in particular They looked at earnings, and they weren’t interested in private benefits as much; earnings were a benefit to you, income is a benefit to you. But they were interested in, within their framework earnings as a proxy for people’s productivity, like you said. And so, they were trying to get a handle on education’s connection to individual productivity. And secondly, education’s direct influence on economic growth, its effect on gross national product. So you saw starting in the 60s, lots of studies of the “rate of return”, they called it, the return on investment. So education in terms of earnings as a proxy for productivity, and in terms of economic growth measured by gross national product.
Will Brehm 8:15
So based on the rate of return methodology is is some education better than other education for foreign economy or for foreign individuals’ productivity?
Steve Klees 8:27
Yes. I should explain a little bit about rates of return. Rates of return are a measure of benefits and costs. In neoclassical economics, the private sector is motivated by profit. Profit is a signal that this endeavor is valuable. Adam Smith talked about the invisible hand of supply and demand working in the public interest. That’s the profits supposedly representing where peoples’ benefits exceed their costs; where the outcome of whatever you’re making, tables or software or whatever, the benefits exceed the costs. And so economists were looking for something as analogous to that in the public sector. So the idea was to explicitly study the benefits and costs of public sector activities, whatever field, education, health care, environment, transportation, and rate of return is a summary measure, after you figure out what are all the benefits to an education investment, what are all the costs of that investment, and it’s a summary measure to try and get at – gosh, you know, you’re making 20% on your investment, the benefits exceed costs by 20%. And so that’s applied to lots of different types of educational activities, and other sector activities, to study the returns to education, of various types of vocational education versus academic education; of higher different levels of education, higher education versus early childhood, or primary education; different programs of education. Anything where you can find reasonable monetary measures of outcomes. Sometimes you can’t do that, you’re just looking at test score differences between different programs. And then economists do a more limited array of what they call “cost effectiveness” analysis. But mostly economists really like to go after cost-benefit analysis, because that gives them a metric that they can compare with returns in the private sector: Is this a better investment to take your money out of the private sector, tax it and put in an education or health care or environmental protection?
Will Brehm 11:13
This sort of thinking of cost-benefit analysis of education to an economy, do you see this is problematic in anyway?
Steve Klees 11:24
Yes, the paper you mentioned that I did, and actually much of my work over the last – I hesitate to say it – 40 years (I’ve been working in this field for a while) has been with the problems of neoclassical economics, generally. And more specifically, with the internal dynamic, the internal problems with that field that gives you measures like benefit-cost studies of rates of return. My work has been recently basically saying that even not taking in a critical outside neoclassical economics look, which we can talk about in a little bit, of political economy perspective, for example. But even if you take the neoclassical economics perspective, there are so many problems within that framework, that for me, the benefit-cost analysis/rate of return type measures just fall apart; that they become almost meaningless.
Will Brehm 12:41
How, so? Let’s dig into it, human capital theory, rates of return analyses. If you’re saying that there are problems of the internal logic of neoclassical economics for human capital theory, and for rates of return analysis, can you can you dig more into that? Like how, so? What are some examples of this?
Steve Klees 13:05
I don’t know whether to start with the details or the broader picture. Let me just start with the broader picture, because I think, then the problems with the details become clearer. And the broader picture really revolves around one central idea of neoclassical economics, and that’s the idea of economic efficiency or societal efficiency. They sometimes called it Pareto efficiency after an Italian economist a century ago called Pareto, and it’s a complex idea that I find completely unsound and unreal. And I’ll try and explain the idea briefly, explain why I think it’s unsound, and then give you how it manifests itself in this cost-benefit/rate of return type studies. So efficiency is something, you know, it’s a common sense concept. So to us, people talk about efficiency of this or that; it’s an engineering concept, it’s a physics concept of, you know, you can do more with less somehow. But in education, you can talk about it sensibly, right? Limited ideas of efficiency, like you can talk about an educational system as inefficient because it has a lot of dropouts, or a lot of people repeating grades, or a lot of people who aren’t learning much. So there’s a common sense idea of efficiency that makes sense to all of us. And I have no objections to that. It’s the economist concept of efficiency that’s problematic. And that’s not about an individual sector or individual project, as much as it’s the overall society is deemed economically efficient if it operates according to the assumptions of a very highly competitive market framework that in abstract neoclassical economics discussion is called “perfect competition”. Perfect competition is a competitive system that is so highly competitive that you’ve got many buyers and many sellers of identical products: that nobody’s big, nobody can influence prices, they’re all taking prices in the market, they’re all small potatoes. Consumers and producers are the two major motivators and movers of the economy. Consumers are just out there maximizing their happiness, and producers are just out there maximizing their profits. And if everything functions according to, and information is perfect, you know everything about everything. If you operate according to these simple assumptions, the whole economy is deemed efficient. And what they mean by that is that somehow, not only is there no waste, you’re you’re doing everything as cheaply as you possibly can. But you’ve got the right balance of everything, the correct balance of everything. So you’re producing the right amount of chairs and tables, and movies and hamburgers, and software. There’s something called “correct balance”. And that’s what’s efficient in this. And it’s completely separable from their other major concept, which is equity or fairness or the distribution of these things. So the distribution is sort of irrelevant to efficiency. You can have an efficient society in which half the people in the world are starving. That’s that can be efficient, because efficiency is just about those people who have effective demand, meaning they have money. And they can wave that money in the marketplace and demand goods and services. And so efficiency is really to economists about forgetting equity, forgetting distribution. Are we producing as much as possible with the inputs of land/labor/capital/technology that we have? In the theory, and in practice, this is just simply absurd.
There’s actually in theory neoclassical economists have something called “second best theory”. And second best theory says that if you don’t live in the first best world of perfect competition with all those tight assumptions – unreal, impossible assumptions – but let’s say have one monopoly in one sector in which everything else is highly competitive, second best says in the second best world with just one imperfection, you have no idea if the economy’s efficient at all, there’s no idea if it’s close to efficient at all. Because this framework is so tight that you only get this overall efficiency of the correct balance of things if prices are the accurate signal sending benefit and costs signals to producers that act in the public interest. With one price off, all of the prices are affected. So in practice, efficiency demands, for example, that you have the correct balance, the correct inputs balance of producing yachts for rich people and rice and beans for poor people. Well, that’s just a distributional issue to me. That’s an equity issue to me. There’s no right balance of yachts and rice and beans; there’s no right balance of computer software, higher education, early childhood education, nutritional programs, roads building. There’s no correct balance of that. And in practice, there’s just no vantage point in the sky. That’s what this efficiency idea is. Where you could separate what we produce from who gets it. They’re all integrally tied in practice. And this is what in practice they’re trying to do with cost-benefit analysis of rate of return: get an idea of whether something in particular is efficient or not.
Will Brehm 20:06
Just hearing that, it just makes me think that the theory of the world in neoclassical economics doesn’t match the reality that I live in. I mean, certainly people do not have perfect information when it comes to to buying anything. But at the same time, I also think that this separation of equity and distribution from efficiency seems to have actually happened. The world I see today, there seems to be a huge gap between the rich and the poor, that those eating rice and beans and those on their yachts.
Steve Klees 20:48
Yes, absolutely. The real world today is very problematic in terms of distribution, as we all know. In terms of equity.
Will Brehm 21:04
How is this embodied in rates of return?
Steve Klees 21:08
The whole efficiency framework is translated into guidelines for the public sector through cost-benefit analysis. And not costs and benefits to private individuals they’re after, they’re after costs and benefits to society as a whole. Because they want to correct the market, to account for all the costs and benefits to society as a whole. And so if you’re thinking about education, you think about the benefits of education. They buy benefits in terms of earnings to an individual. That’s a benefit to society if earnings reflect productivity. That’s problematic because earnings are a price, and prices are distorted in real world economies. So there’s no reason to believe that earnings reflect productivity at all. Earnings are determined by market power, by the vagaries of who’s got skills and who doesn’t have skills, on where firms do their business. So the idea of earnings as a proxy for productivity is a problem.
A second problem is that even if you wanted earnings as a proxy for productivity, that’s just one individual benefit. That is a social benefit, because it measures productivity, but there are what they call externalities. There are benefits to other people who were not included in the market transaction, you decide how much education you’re getting, some supplier gives it to you, a public school or private school, a training program, the benefits to education go way beyond you. And those are not taken into account in the market. So when there are benefits beyond the individual, they’re called externalities, because the market doesn’t take them into account. And therefore, the market is making inefficient decisions, because it’s not counting all the benefits. So in education, you can think of lots of benefits that aren’t just to you, your education benefits other people through your coworker productivity, through your family, through household health decisions, through helping your children, through lowering crime rates, through lowering welfare rates. It’s got lots of these external effects. And the second problem with rates of return is measuring those all are very problematic.
And the third problem with rates of return is that even if we were trusting earnings as a good measure, it’s very hard, I would say impossible, to figure out the effect of education on earnings. This goes to our problems, not neoclassical economics, but our problems with research methods generally. Separating our causes from effect, impact evaluation is extremely difficult to the point where I think it can’t be done quantitatively. If, for example, you took 1000 people and you ask them what’s their income, and then you try to figure out what are the dozens of factors that make those incomes different. And then you’ve actually tried to build a mathematical model that would separate those dozens of factors, so that you could say, “Well, their income went up, because they were a union this much, because they had another year of education this much, because they were in a high demand field this much, because they were healthy that much.” I mean, it boggles the mind. I’ve done another paper on the economist statistical procedure called regression analysis that tries to do that – it tries to take the dozens of factors affecting some outcome and separate them out. And my view is that we just can’t do that. So that even the minimal idea of looking at the impact of education on individual earnings is problematic. Taking them all together, I find rates of return and cost-benefit analysis, generally not a good basis for decision-making.
Will Brehm 25:48
But yet, it has been. These methods and this particular theory have been dominant and have been used to make decisions in education systems, among other sectors. So what’s the scholarly track record of those using rates of return and human capital theory? All of the critiques that you put forward seem very plausible to me, but yet rates of return and human capital theory has had quite the long longevity in academic research.
Steve Klees 26:23
Yes, it’s certainly has. And just two things to say in response to that. One is you asked about their track record, and in terms of track record, there’s no testing this. This isn’t something you can predict and then find out was a true. Because, I say the rate of return to expanding higher education is 12% in your country at this time. Is that a good investment, if you decide 12% is a good return, and you put your money in. But there’s no validation of whether you got 12% or not, so there’s no track record in terms of these predictions. They’re making predictions now, for example, about education and GNP. And I just find those scary and absurd. There’s some very interesting economists, very competent economists doing this. Eric Hanushek and [Ludger] Woessmann, and they tried to do regression analysis to say if your PISA scores go up (the PISA being that international test that people take as a proxy for cognitive achievement), how much will your GNP go up? And they come to these conclusions like a 10% increase in cognitive skills gives you a 2% boost on GDP and if everybody moved a standard deviation on PISA, your GNP would grow seven times in the next 30 years. I mean, this is carrying this framework to an absurdity to me. They can’t separate out the impact of education from the dozens and dozens of other factors that influence GDP or GNP, and then to take that out as its influence now and project that 30 or 40 years in the future is just the height of irrational use of a framework of this kind. And I understand why they do it. These are reasonable people, you want good information for decision-making, and to economists, this idea of efficiency, separable from equity is the touchstone.
But the real question for me is the second question you asked: basically, why has this framework been dominant for so long? And neoclassical economists would say at the very simple answer – it’s because of its explanatory power. It explains differences in investments in health and differences in individual behavior. And it’s true, I mean, in differences in individual behavior, this is useful framework because your decisions are affected by the returns to you, and you make decisions about your educational investment versus your investment in health care, versus your decision to go to a movie or your decision to buy a house, about returns to you. And that’s fine. So there is some use for this framework in terms of understanding people’s motivations. But in terms of societal’s efficiency and investment preferences, this framework is bankrupt and it’s empty. So to me, and to many critics, it’s not the dominant framework because of its explanatory power, it’s the dominant framework because it fits. Human capital theory is embedded in neoclassical economics, and that’s embedded in capital market – it fits with a capitalist market economy. The critics would argue the reason there’s so much attention to efficiency and rates of return and technical views of whether you invest in this thing, or that and how much do you do is because it makes sense in terms of efficiency. If you lose that efficiency framework, you realize that this is just a way to support a market system. This is neoclassical economics is an ideological justification for capitalist market systems to be efficient. To act in everybody’s interests aside from equity. If you question that, then you can see neoclassical economics generally, and human capital theory, as basically an ideological framework and ideological bulwark.
The whole skills discourse today comes from human capital theory and a skills discourse seems like common sense. It says if people only had better skills, they would be better off, and their countries and societies would be better off. That skills discourse based as it is on human capital theory and neoclassical economics is very problematic. People today have talked about the “triple economic challenge” that we face, and they talk about the three things: job creation; poverty elimination; and inequality reduction. Human capital theory and neoclassical economics generally gives one simplistic answer to all three challenges: lack of skills or equivalently, the mismatch between what education is producing and what businesses in the economy need. For the critics, lack of skills is not why people are poor, are not why jobs are scarce, and not why societies are so unequal. The culprit for the critics is that the very structure of the world system in which we are living, capitalism most particularly, but patriarchy, racism and other structures. Those very structures are problematic. While capitalism has increased our ability to produce material goods tremendously, so it looks very productive in that way, in another sense, it’s one of the most inefficient and destructive structures that you can imagine. Why? Because almost half the world – the World Bank says 3 billion people – are relegated to the margins of society. Capitalism has not created jobs for them, livelihoods for them. For the vast majority of our global population, if capitalism was an efficient system, we would be taking advantage of the skills and develop the skills of the 7 billion people on the planet and produced a lot more. Capitalism in its 200, 300 years hasn’t done that, and isn’t doing that. You know, some people talk about we live in a meritocracy. What nonsense! These 3 billion people are relegated to the margins of society because they’re not meritorious? It’s not that at all. It’s poverty, unemployment and inequality, not to mention environmental destruction and other problems, are not failures of capitalism, as they’re sometimes seen, but the logical outcome of its inherent structure. So that that in many ways, contrary to prevailing economic views, human capital has been a very destructive discourse. This is contrary to what the majority of economists think as it’s been brilliant, but it’s been a destructive discourse, because it’s really blamed individuals for their lack of skills, their lack of investment in the right skills, the lack of good choices. And so instead of understanding problematic structures that we need to do something about, we’ve been directing attention towards the supply of individuals and how to fix that. And we’ve been fixing it for decades. And the payoff with poor countries is abysmal. And the payoff even within rich countries is abysmal. The inequalities within the US, the level of hunger in the United States, the level of marginalization, the level of poor dead end jobs, the level of insecurity, the level of environmental destruction, this is not an efficient system.
Will Brehm 36:04
Turning to alternatives. I mean, is it even possible, or can we even have an education system in a capitalist economy without human capital theory? It almost seems like many of these problems that we see in education in terms of equity that you were just mentioning stem from the capitalist economic systems that that are pervasive in most countries. So how can we envision and create education systems in alternative ways that account for equity while still being in capitalist economies?
Steve Klees 36:48
Yes. All you’re asking today’s tough questions.
Will Brehm 36:55
Steve Klees 36:57
That’s okay. Let me preface my response to education with a little bit on how these alternatives are viewed to the very structures in which we live. Because education can only be successful if it’s a part of a challenge to those structures in fundamental ways. And there’s a lot of alternatives. Everything is contested terrain in this world; everything is up for grabs, up for debates with different views. So I view the alternative to neoclassical economics as what I call “political economy”. Political economy is a contested term and people on the right use it as well as people on the left. I’m using it more from the left of center point of view of critics of capitalism, critics of other world system structures. And for me, a political economy perspective today raises questions about the structures of the world system in which we live.
It’s the intersection of feminist perspectives, of post- perspectives, postcolonial, post structural, neo-Marxist perspectives, queer theories about heterosexism in society, disability theories, critical race theories. Not that these theories are identical, not that these approaches are identical, but all of them see marginalization as central, and all of them see marginalization not as failures of the world system -they’re failures for sure – but more is a logical consequence of the structures of patriarchy and racism and capitalism in which we live. And while there’s agreement that reproduction is pervasive, that is this marginalization is not an aberration, systems are out there that reproduce and legitimate marginalization and inequality. And the education system is part of that, as are all of the systems in which we live.
But the critics, the political economists, as I label them agree that while reproduction is pervasive, there are lots of spaces for progressive action. Through exercising individual and collective agency. You have the ability, and especially collectively, we have the ability to challenge these structures. And collective challenge is perhaps the watchword of political economists. Social movements like the women’s movement, like the civil rights movement. These are worldwide now. Like the landless movement in Brazil and now other countries. The poorest people in the world are organized and having an influence on policy. The untouchable movement in India, not anti-globalization, but the alter-globalization movement and in human rights movements and the children rights movement. And so there’s lots of examples of contestation at the systemic level and in education.
There’s lots of examples in every education in every city, in every country, and in every school system of what political economists call more progressive approaches to education. The legacy of people at Paolo Freire, the famous Brazilian educator who founded a field that we call today “critical pedagogy”. Critical pedagogy is a political economy approach to education, arguing that while reproduction is pervasive in schools, there’s lots of ways to challenge that. And so people, individual teachers challenge that all the time. They close their doors to their classroom, they use different learning materials, they teach their students differently about fairness, about equity, about the structures in which they live, they raise questions on that. And it’s not just individual teachers, there are systems of it. In Brazil, the landless movement which I just mentioned, have their own schools that are Freirean, that are participatory, that are so different from the technicist technical approach to education that we have today throughout the world. In Brazil, something called the citizen school movement that, again, is very participatory, that involves the community. We say “community involvement” all the time, but this is serious community involvement. This is serious democracy for students, for teachers, for administrators, participating and directing curriculum, directing grading, making decisions at a local level together, and sometimes very explicitly challenging the types of feeding education into work and into the labor market that dominates so strongly. On the alternative, for most political economists, when you reject the sort of functionalist view of sociologists, of society, of efficiency of markets, and say, “This is not something in which everybody is benefiting, there’s conflict here, there’s different interests, and the only way that’s going to change is through struggle, through individual and collective struggle.”
What that means in terms of alternative system-wide is difficult to say. At a minimum, where we’re not a neoliberal form of capitalism. Capitalism in the 60s, and 70s was a much more liberal capitalism in which government intervention was recognized as necessary to correct the ills that were essentially built into the structure of capitalism. Neoliberalism starting in the 80s with Reagan and Thatcher and Kohl in Germany said: Government is the problem, the market is the solution. We need to get away from that. We need to restore the legitimacy of government action, we’ve got the sustainable development goals of the United Nations on the table. Goals that are very ambitious about improving the world, we’re not going to get there under neoliberal capitalism. We’re not going to get there when we think it’s illegitimate for government to direct action. We’re not going to get there if everything is a public-private partnership and depends on corporate profitability in order to direct that system.
And maybe we have to move beyond capitalism. At the local level there’s lots of alternatives. And broadly speaking, it’s the subject to a whole another conversation. And I have a paper coming out next year on capitalism in education that talks about alternatives, so maybe we’ll do another podcast there. But the broad answer is, you need to build towards a more participatory democracy and more towards a workplace democracy. The problem with capitalism is that our workplace is authoritarian. We teach democracy in the political sphere; we don’t have a lot of that at a very participatory level either. But we need democracy in the workplace as well.
Will Brehm 45:28
It seems like a lot of what you’re saying is that we have to think beyond the connection of education as being for the development of human capital, and having a different value of education. And there can be many it sounds like, and many different ways of achieving those values or putting those values into action. But it seems like that’s the first step: decoupling, or de-linking the connection between education and human capital development.
Steve Klees 46:05
No, I would agree. And to be fair to human capital theorists, some of them recognize that broad connection. It’s got narrowed in practice so much that all we’re looking at as the connection to education to the workplace. But citizenship can be subsumed in that human capital framework. The problem is its basis in efficiency. You want to talk about the many things education does, the many more things we want it to do. We don’t want to just make education about workplace. We don’t want to make education just about literacy and numeracy. We need education for peacebuilding, for people to not be aggressive, for people to be fair with each other, for people to have resilience, and people to be creative. So there’s lots of purposes of education, and human capital theory and practices just narrow the field too much. And more broadly speaking about this political economy framework versus a more mainstream dominant human capital neoclassical framework, the political economy framework doesn’t offer the technical policy guidance that rates of return give. For neoclassical economists, policies are a dime a dozen. You just do your cost-benefit analysis and this year, vocational education is better than academic education, higher education is better than primary education.
If you reject that framework, what you have is human capital theory, neoclassical economics – our ideologies masking as science. It’s absurd to think that there’s some way to assess technically, the tradeoff between higher education and primary education, between education and health and the environment. All we have is a messy, participatory democratic struggle of individuals and groups with some common interests and some different interests. And for me, what we have to do is find ways to facilitate that struggle and in doing so, economics and the dominant scientific perspective says you need to stay neutral and objective. For me, I’ve learned that you always take sides. That when I write a paper, when I teach a class, when I’m doing research, when I engage in policy, when I engage in my life, I always have to take a side. And if you don’t think you’re taking a side, you are because this is a struggle. This is contestation. And I guess my concluding point is that for me, this is what I said in the paper you cited, neoclassical economics and human capital theory are ideological dead ends. But fortunately for all of us, there are lots of alternatives.
Will Brehm 49:29
Well, Steve, Klees, you gave us a lot to think about in this conversation. Thank you so much for joining FreshEd, and you’re definitely welcome back when that new paper comes out on capitalism in education.
Steve Klees 49:41
Thank you very much for having me.
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