Results for “south africa”
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Is education good for growth?

It has long been received wisdom that education spurs economic growth. The education variable pops up as significant in many cross-country regressions. And many of the East Asian countries have had high investment in education and high rates of economic growth.

So how might a skeptical take on this matter look? Here is one pithy excerpt:

…there is actually a striking global correspondence between the world economic slowdown since 1973 and ever-increasing levels of educational spending. Comparisons between countries also confound the idea that more education translates into more growth. For example, South Korea is often given as an example of a country that made education a priority since the 1960s and saw significant economic growth. But as Professor Alison Wolf from King’s College London points out, Egypt has also prioritised investing in education, but its growth record has been poor (4). Between 1970 and 1998 Egypt’s primary enrolment rates grew to more than 90 per cent, secondary schooling levels went from 32 per cent to 75 per cent, and university education doubled – yet over the same period Egypt moved from being the world’s forty-seventh poorest country to being the forty-eighth.

A retort might be that education isn’t the sole determinant of growth – other factors may offset its positive economic role – but it remains a necessary one. But this argument doesn’t stand up either. The rapid growth of Hong Kong, another of the East Asian tigers, wasn’t accompanied by substantial investment in education. Its expansion of secondary and university education came later, as more prosperous Hong Kong parents used some of their newfound wealth to give their children a better education than they had had.

William Easterly doubts the evidence:

‘African countries with rapid growth in human capital [the fashionable term for people’s work abilities, especially levels of education] over the 1960 to 1987 period – countries like Angola, Mozambique, Ghana, Zambia, Madagascar, Sudan, and Senegal – were nevertheless growth disasters. Countries like Japan, with modest growth in human capital, were growth miracles. Other East Asian miracles like Singapore, Korea, China, and Indonesia did have rapid growth in human capital, but equal to or less than that of the African growth disasters. To take one comparison, Zambia had slightly faster expansion in human capital than Korea, but Zambia’s growth rate was seven percentage points lower.

‘…Eastern Europe and the former Soviet Union compare favourably with Western Europe and North America in years of schooling attained. Yet we now know that [gross domestic product] per worker was only a small fraction of Western European and North American levels. For example, the 97 per cent secondary enrolment ratio of the United States is only slightly higher than Ukraine’s 92 per cent, but the United States has nine times the per capita income of Ukraine’ (6).

My main worry concerns the hoary distinction between correlation and causation. The consumption component of education is commonly underrated. Rich countries spend more on education for the same reason that they consume more leisure. See my previous MR post on education and economic growth.

Diamonds are Forever…Not

How long can the diamond cartel last? I remember, as a kid, watching Milton Friedman tell us that the New York Stock Exchange was the only longstanding market monopoly he could think of. The NYSE has lost much clout, but why isn’t the diamond sector more competitive? Diamonds are found in many countries but the De Beers cartel has been dominant for much of the twentieth century.

But things are now changing:

…this stable, established and monopolistic system is now falling apart…other big miners got hold of their own supplies of diamonds, far away from southern Africa and from De Beers’s control. In Canada, Australia and Russia rival mining firms have found huge deposits of lucrative stones: BHP Billiton, Rio Tinto and Alrosa have been chipping away at De Beers’s dominance for two decades.

De Beers once controlled (though did not mine directly) some 80% of the world supply of rough stones. As recently as 1998 it accounted for nearly two-thirds of supply. Today production from its own mines gives it a mere 45% share. Only a contract to sell Russian stones lifts its overall market share to around 55%.

An Israeli named Lev Leviev has been instrumental in breaking down the old system:

Mr Leviev recently moved into diamond retailing. He claims that he is the only tycoon with interests in every stage of production from “mine to mistress” (a canard in the industry holds that men buy more diamonds for their mistresses than for their wives). But his real power lies in the cutting and polishing businesses. He has factories in Armenia, Ukraine, India, Israel and elsewhere. These give him power to challenge De Beers’s central clearing house and seek instead to channel stones directly, and at a lower price, to his own polishers.

The price of diamonds, however, has yet to fall. My more fundamental question is why these supply-side developments have taken so long.

Perhaps synthetic diamonds will put the market under for good. Few people if any can tell the difference. The diamond industry is spending large amounts to tout “the real thing.” But will a generation used to reproduction and “multiples” buy this line? And will men manage to move to a lower-cost signaling equilibrium in the marriage (and mistress) market?

The bottom line: File this one under “Markets Economists Do Not Understand.” But if there was one commodity I would not want to be holding today, it is diamonds. Someday students will wonder why they ever called it the “diamond-water paradox.”

How much is a Picasso worth?

Pablo Picasso’s Boy with a Pipe (the link is broadband with audio and video; here is a lower tech image) is on the auction block at Sotheby’s, this Wednesday evening. Some analysts expect the painting to go for at least $100 million, an all-time record. The Whitney family bought that same picture in 1950 for $30,000.

Are you thinking of bidding? Well, what else could you buy with $100 million?

One new opera house in downtown Toronto

15,625 pounds (or 7,087 kilograms) of gold

One six-album recording contract with Whitney Houston

Four years of ball-playing by New York Yankees star third baseman Alex Rodriguez

One Adam Sandler movie, including production and marketing costs

1.5 million hepatitis-B vaccines for children in sub-Saharan Africa and Southeast Asia

One day of Iraqi occupation by U.S. forces

Here is the full story. By the way, the Museum of Modern Art in New York is thinking of selling $27 million worth of its Picasso holdings, perhaps to buy more Damien Hirst.