Interview with Paul Romer on Mauritius

Via Mark Thoma, here is an interview with Paul Romer about growth in Mauritius.  One question is how much Romer’s growth theory was needed to generate this advice.  Second, I am surprised how little attention he gives to Mauritius being a small country.  I don’t think that country size makes the advice much different, but perhaps expectations should be adjusted.  Most small countries aren’t well-diversified and their growth rates depend heavily on real shocks.  Singapore is an exception, most of all because its citizenry is obsessed with accumulating human capital and thus it depends upon a general flow of foreign capital rather than specific sectors.  I don’t see harm in Mauritius trying to follow this same path but I wouldn’t expect them to succeed to a comparable degree.

Speaking of small countries, Fred Sautet has an interesting blog post on what happened to the New Zealand reforms.  Since the reforms starting in the 1980s, New Zealand has had excellent economic policies, probably better than Mauritius can expect to implement.  But New Zealand has not had stunning rates of economic growth.  A big part of the answer is simply that New Zealand still depends on the demands for dairy and agriculture.  Yes, many parts of the country are booming but the worldwide demand for commodities is a big part of the reason why.  The deregulation of agriculture helped but without rising food prices growth would be lower yet.  Earlier, it was Britain’s removal of imperial preference in 1972 that sent the country tumbling over the edge in the first place.  Yes freedom is still better but in general small countries are less of an "economic laboratory" than we might think.  Conversely, while there are some good explanations for "the Irish miracle," a small country with a few million people can with good luck grow quite rapidly. 

Just think about the determinants of your own family income; probably for most years policy changes are not #1 on the list.  A country of 1.2 million people, such as Mauritius, is more diversifed than your family, but not as much more diversified as you might think.  When it comes to real factors, Say’s Law does hold.  Demand for your labor depends on the production decisions of 300 million mostly wealthy and often quite diversified Americans.  That offers your income a great deal of protection, relative to what suppliers on Mauritius can expect.

Comments

Romer makes a case that there are large positive externalities from skilled labor:

“The more you have high-skilled workers, the more your domestic high skilled workers will benefit. Think about New York City, Hong Kong, Singapore. Why do so many people go there? It is to be around other people who are highly skilled. High skilled people benefit from being around many other high skilled people, and low-skilled people, whether they are construction workers or labourers, benefit when there is a more vibrant economy fostered by the high skilled people†¦†

According to Claudia Goldin, 100 years ago, the U.S. led the world in heavily supporting primary and secondary education. The result was both rapid economic growth and a relative reduction in inequality.

Today, the U.S. government is cutting support for education, especially tertiary education, in order to fund other priorities (primarily military).

What are the likely effects on growth and inequality?

Here's what Profs. Goldin and Katz have to say on this (http://kuznets.fas.harvard.edu/~goldin/papers/legacyaea.pdf):

The United States led all rich and industrialized countries in the establishment of mass secondary and higher education, and it led all in Europe by at least several decades for much of the twentieth century. The U.S. advantage in the schooling of its young produced, by midcentury, large differences between the educational stock of its labor force and that of other rich countries, a result that would hardly be surprising except for the fact that the United States had absorbed millions of less-educated immigrants. Only in recent decades have many rich countries caught up to, and even exceeded, the United States in years of education for young persons.

At the same time that the United States led the world in mass education in the twentieth century, it rapidly expanded its economic lead. No single factor can account for the economic dominance of the United States in the twentieth century and most of the favored explanations, be they rooted in technological, institutional, or natural resource factors, are complementary ones. But despite that admonition, it would appear logical that part, possibly a major part, of the economic precedence of the United States came from its enormous lead in education.

See also http://kuznets.fas.harvard.edu/~goldin/papers/virtues.pdf
where they discuss how this came about, including, but certainly not limited to, public funding. They also note that these trends have been reversed in the US since about 1980 (http://www.hup.harvard.edu/catalog/GOLRAC.html)

FWIW, I use "US" to refer to the country, not to the federal government, per se.

According to the National Center for Education Statistics, spending per pupil (in constant dollars) was $5641 in 1980-81 and $9614 in 2001-02. The idea that education is not being supported is ludicrous.

See http://nces.ed.gov/programs/digest/d04/tables/dt04_163.asp

ASOE,

It is disingenuous for you to say "They also note that these trends have been reversed in the US since about 1980 (http://www.hup.harvard.edu/catalog/GOLRAC.html)"

That is not at all what the link says. It says that since 1980, demand for educated workers has outstripped the supply, leading to income inequality. As noted, public spending on education during that time has doubled. So clearly public support for education has not slackened, as you assert, nor have you provided evidence that the U.S. has fallen behind other countries in funding.

What exactly is it that you want "the U.S." to do? I certainly think education could be improved, but is increased government "support" (funding?) the solution?

One obvious implication of all this is to use immigration policy to bring in more educable people and keep out less educable people, such as Canada explicitly does. In contrast, the U.S. has allowed in many millions of people who couldn't hack it Mexico and has concentrated its legal immigration policy on family reunification rather than on finding immigration applicants with high skills. The opportunity cost loss is obvious.

Does it appear that the quality of education in the US is positively related to feral involvement?

Graduate schools in the US are massively supported by federal money and US grad schools are undoubtedly the best in the world.

US undergraduate schools receive substantial federal funding and they rank highly when compared to the rest of the world.

primary and secondary schools in the US have little federal support and generally rank poorly in international comparisons.

Just an interesting observation.

I have no chance to go to foreign countries

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