The economic assessment of education: Social Efficiency or Social Reconstruction?

Educational policy is a very complex process: the all too familiar assertion “we should invest more in education” is really of little help. Investment in education, something difficult to reject, competes however with many other public expenditures also highly beneficial from a social point of view. Even within the educational sector itself, more precision is required regarding the allocation of scarce economic resources. The social decision maker would surely appreciate a somewhat more precise recommendation: investing in primary education, or in doctorate studies? Reducing the number of students in the classroom? Increasing teacher’s salaries? In this sense, some information regarding the impact on social welfare not only of different public investment alternatives, but also of different policy models in the education sector would be highly desirable. Furthermore, as the final impact of these expenditures depends to a great extent on the positive reaction of the recipients of the investment (schools, teachers, students), the establishment of some link between expenditure and results would also be welcome. It is in this context where economic analysis may provide some very useful tools. On the one hand, a measuring rod of the relative social profitability of different education investment and policy alternatives: their Internal Rate of Return. A simple quantitative measure that allows comparing the social benefits associated to different education expenditure, as well as in relation with public investment in other sectors. On the other hand, an analysis of the better ways to link investment with results, based on the study of the incentives of the agents involved. Accountability seems to be the issue here. Yet, and in order to ascertain the positive impact of different education measures, as well as whether the recipients are reacting as expected, the analyst needs to know very precisely which are the social objectives pursued. Without knowing the final destination one does not know whether we are approaching it, or just the opposite. In the case of both accountability and the Internal Rate of Return methodology this final social objective is related with economic growth. Being so, the contribution of economic analysis to the assessment of education alternatives fits very well with the Social Efficiency ideology regarding the education process. Yet, this may be somewhat short-sighted: surely, education efforts may have some other objectives as well. Not to mention the fact that the way this contribution to economic growth is ascertained may also be flawed.