Here’s Why “Fixing the Schools” Is Fakeonomics

Let’s start off with a confession: I’ve long considered as among the worst kind of fakeonomics the idea that fixing America’s schools could solve the problems created for U.S. workers – and by extension the entire economy – by standard trade liberalization policies.

At the very least, its supporters never managed to explain exactly how this could be done, a pretty conspicuous shortcoming given the decades of unsuccessful efforts to solve the nation’s education problems. At the worst, as I documented in my book The Race to the Bottom, the education cheerleaders ignored the determination of most other countries, especially the increasing potent trade competitors of low-income Asia, to push their own workers steadily up the knowledge and skills ladders – while at the same time still generating huge labor surpluses that would long keep their workers orders of magnitude cheaper than Americans.

Since my book came out more than a decade ago, even more evidence has come out revealing the folly of trusting solely or even mainly in education to strengthen the workforce’s – and therefore the nation’s – ability to deal with heightened foreign competition. In particular, jobs even in high tech services and the professions became just as vulnerable to offshoring as positions in labor-intensive manufacturing. And largely as a result, real wages for college-educated Americans have been sagging in real terms since the Great Recession began into the current recovery.

In particular because trade enthusiasts – including President Obama – are still peddling this position, it’s great to see signs that major economists are starting to agree. Take the latest column for the Project Syndicate website by Ricardo Hausmann. A former chief economist at the Inter-American Development Bank who now teaches at Harvard, Hausmann has spotlighted research showing that education per se has failed to pay significant dividends – either in terms of economic growth or of broad-based inclusive growth – not only throughout the high-income world, but in developing countries as well. Especially stunning are the figures he cites for China, which is widely considered a classic example of how prioritizing rigorous schooling could work miracles even for the world’s largest national concentration of poor people. (India now enjoys this dubious distinction.)

But for me, the most eye-opening and potentially important aspect of Hausmann’s article is his recognition that better schooling is especially marginal to improving workforce skills. In his words:

“Most of the skills that a labor force possesses were acquired on the job. What a society knows how to do is known mainly in its firms, not in its schools. At most modern firms, fewer than 15% of the positions are open for entry-level workers, meaning that employers demand something that the education system cannot – and is not expected – to provide.”

It’s a fancy way of expressing a reality long known in American manufacturing circles (at least those not dominated by offshoring interests): “The best kind of job training is a job.”

As Hausmann emphasizes, improving education should be a core priority of any society that values success and material well-being – not to mention wisdom and culture. But it’s no substitute as an engine of sustainable prosperity for what Harvard Business School professors Gary Pisano and Willy Shih have dubbed the “industrial commons” – that great and intricate network of productive and innovative capabilities and assets, human and otherwise, that recent history teaches can be threatened via negligent trade policies no matter how excellent a nation’s schools become.