Naked Economics: Undressing the Dismal Science pdfdrive com

particularly in poor countries. Something as simple as posting on-line the
amount of money allocated by the central government for a specific local
project, such as a road or a health clinic, can enable citizens to compare what
they were supposed to get to what actually showed up. “We got $5,000 for a
community center? That doesn’t look like a $5,000 community center. Let’s go
talk to the mayor.”
Human capital. Human capital is what makes individuals productive, and
productivity is what determines our standard of living. As University of Chicago
economist and Nobel laureate Gary Becker has pointed out, all countries that
have had persistent growth in income have also had large increases in the
education and training of their labor forces. (We have strong reasons to believe
that the education causes the growth, not the other way around.) He has written,
“These so-called Asian tigers grew rapidly by relying on a well-trained,
educated, hardworking, and conscientious labor force.”
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In poor countries, human capital does all the good things we would expect,
and then some. Education can improve public health (which is, in turn, a form of
human capital). Some of the most pernicious public health problems in the
developing world have relatively simple fixes (boiling water, digging latrines,

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using condoms, etc.). Higher rates of education for women in developing
countries are associated with lower rates of infant mortality. Meanwhile, human
capital facilitates the adoption of superior technologies from developed
countries. One cause for optimism in the development field has always been that
poor countries should, in theory, be able to narrow the gap with richer nations by
borrowing their innovations. Once a technology is invented, it can be shared
with poor countries at virtually no cost. The people of Ghana need not invent the
personal computer in order to benefit from its existence; they do need to know
how to use it.
Now for more bad news. In Chapter 6, I described an economy in which
skilled workers generate economic growth by creating new jobs or doing old
jobs better. Skills are what matter—for individuals and for the economy as a
whole. That is still true, but there is a glitch when we get to the developing
world: Skilled workers usually need other skilled workers in order to succeed.
Someone who is trained as a heart surgeon can succeed only if there are well-
equipped hospitals, trained nurses, firms that sell drugs and medical supplies,
and a population with sufficient resources to pay for heart surgery. Poor
countries can become caught in a human capital trap; if there are few skilled
workers, then there is less incentive for others to invest in acquiring skills. Those
who do become skilled find that their talents are more valuable in a region or
country with a higher proportion of skilled workers, creating the familiar “brain
drain.” As World Bank economist William Easterly has written, the result can be
a vicious cycle: “If a nation starts out skilled, it gets more skilled. If it starts out
unskilled, it stays unskilled.”
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As a side note, this phenomenon is relevant in rural America, too. Not long
ago, I wrote a story for The Economist that we referred to internally as “The
Incredible Shrinking Iowa.”
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As the working title would suggest, parts of Iowa,
and other large swathes of the rural Midwest, are losing population relative to
the rest of the country. Remarkably, forty-four of Iowa’s ninety-nine counties
had fewer people in 2000 than they had in 1900. Part of that depopulation stems
from rising farm productivity; Iowa’s farmers have literally grown themselves
out of jobs. But something else is going on, too. Economists have found that
individuals with similar skills and experience can earn significantly higher
wages in urban areas than they can elsewhere. Why? One plausible explanation
is that specialized skills are more valuable in metropolitan areas where there is a
density of other workers with complementary skills. (Think Silicon Valley or a
cardiac surgery center in Manhattan.) Rural America has a mild case of
something that deeply afflicts the developing world. Unlike technology or

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infrastructure or pharmaceuticals, we cannot export huge quantities of human
capital to poor countries. We cannot airlift ten thousand university degrees to a
small African nation. Yet as long as individuals in poor countries face limited
opportunities, they will have a diminished incentive to invest in human capital.
How does a country break out of the trap? Remember that question when we
come to the importance of trade.