ABSTRACT
Investment, or the accumulation of capital, is a necessary condition of economic growth. This is agreed on by economists, although many differences exist about the way in which investment operates to raise the national product, about its relationship with technical change in the economy and about the optimum allocation of investment between different sectors of the economy. We have been dealing with education as an investment good and therefore the question immediately
arises about the role of education in the process of economic growth. This is an area of some controversy in several respects. First, when economists and policy-makers assert the importance of education for a growth or development programme they may in fact have certain kinds of education — notably higher level science and technology, technical training, agricultural education and perhaps medicine-in mind. These cover only a fraction of educational activity and to say that they are a condition of economic growth is quite different from saying that education as a whole is an investment which is necessary for growth. This is linked with the fact that education is both a consumption and an investment good, although the consumption-investment division cannot be drawn along the kind of lines mentioned above, i.e. 'technical' versus the rest. Another difficulty is one of measurement. This arises from the fact that education as an investment does not have an independent existence; it is 'embodied' in human beings, or, more specifically in members of the labour force. Thus, while physical capital, having an independent existence, in principle identifiable and measurable1 as a factor of production, and also has a return which is measurable, education is intangible and not measurable apart from the labour in which it is embodied and its return or earnings is also mixed with the return to labour. And attributing differentials in earnings of labour to educational differences is of course subject to all the difficulties of measure-
ment discussed in the previous chapter. A further difficulty in analysing education and economic growth is the long-term nature of educational investment. This, like the difficulty of measurement, stems from the embodiment of education in labour, which has a working life of thirty to forty-five years, far longer than most capital goods. Long-term investment may have an influence on economic growth which is difficult to detect because it is apparent only in the long run, when so many other things change (perhaps due to long-term investment undertaken in previous periods). Thus its effects, like those of social overhead capital investments such as transportation systems, are difficult to ascertain. And finally, there is the question of technical change, which as well as the accumulation of capital is a universally experienced constituent of the process of economic growth. Technical change is linked on the one hand to the process of scientific discovery, to research and development and thus ultimately to education. It is also linked to physical capital investment, as it is through investment (in, say, technically more advanced machines) that technical progress is incorporated into the production process and into economic growth. The role of education as part of the research and development side of technical progress is complex, and its ultimate effects on economic growth are difficult to specify exactly, because the effect is an indirect one.
