Children, human capital and economic growth

One of the fundamental intuitions of economists is that there are difficult trade-offs to everything you do â in life and in policy. I think this is overblown often â that often there are âvirtuous circles;â full of mostly good things and vicious ones. As Fred Argyâs been at pains to argue, we seem to have two models of successful economic growth â and one has more odious trade-offs than the other.

Thereâs the free market model of the US. Itâs not all that free a market by the standards of a strong libertarian, but itâs much freer than lots of European economies. (Well even here this is something of a simplification. The US is regulated to buggery in lots of silly respects â try catching a taxi across several counties in New York and youâll see what I mean. But at least the US has lower total tax take and a freer labour market than most if not all Western European countries.)

Those two things (and the fact that itâs such a bloody big market) give the US economy a lot of dynamism. But there are plenty of people whoâd argue that the greater state expenditure on things like education in Europe generates a lot of good things that the US misses out on. (It used to be productivity, but the US has had plenty of that of late too â more than the Europeans). But the US also has a nasty underclass. Itâs alive and well â though probably living a more genteel existence in parts of Europe. But in other parts of Europe â in the Nordic countries in particular â the huge sums spent on âhelping and hasslingâ people into work and upgrading their skills and the degree to which they subsidise education generally provides one explanation as to why they might be able to perform creditably with a much more equal distribution of income than the US.

This is an argument for state intervention not just on the grounds of fairness but also on the grounds that properly done it can actually grow the pie â or at least involve pretty minimal sacrifices to the size of the pie. You might end up with some inefficiencies from higher tax rates but theyâre somewhere between offset and outweighed (depending on your prejudices) by the additional skills of your people.

Anyway, it occurred to me that there was a variation on this argument when I visited this post a while back on Crooked Timber. Remarking on the fact that the Netherlands had managed to find itself in the top spot in a UNICEF funded comparative study of child wellbeing in rich countries (pdf) the author agreed that Dutch society was indeed very âchild-centricâ â from government policy right down to community mores. This seems to be something broadly replicated in the Nordics generally. Hereâs the list of countries in order of their child welfare achievement.

Czech Republic
United States
United Kingdom

Australia is not there because some data was unavailable for the series, but where it could be measured it was somewhere near the middle. Now I guess the first reaction of some will be to challenge UNICEFâs methodology but though the aggregate measure involves â well â aggregating a bunch of rankings which canât really be easily compared, the things they look at seem reasonable and not very biased as such measures often are in alternative ‘wellbeing’ indexes.

Thus the categories that are measured are Material well-being, indicators of Health and safety, Educational well-being, Family and peer relationships Behaviours and risks and Subjective well-being (kids responses to âhow happy are you?” questions). I havenât looked it all over that closely â so perhaps you can pick some holes in it, but the âcore samplesâ Iâve taken seem sensible enough.

Thus child safety â which Iâve just chosen at random – is measured by three indicators.
â number of infants dying before age 1 per 1,000 births
â percentage of infants born with low birth weight (<2500g.)
â percentage of children age 12 to 23 months immunized against
measles, DPT, and polio
â deaths from accidents and injuries per 100,000 aged 0 â 19

Something quite similar emerges from an OECD study on âthe Position of Youth in the Labour Market in OECD Countries❠(pdf) â with the Nordics tending to have the lower scores on teenage NEET â not in education or employment.neet-oecd-15-19.gif

(There are lots of good graphs in this paper, not all of which clearly support my hypothesis â as in the case of Figure 5 on long term youth unemployment, which as you would expect, tends to be best in less regulated labour markets.)


All this makes me think that maybe part of the Nordic economic success is their success with children. As most readers of this blog will know, early childhood development has become a new craze – an area in which both the left and the right ought to be able to come together to recognise itâs importance. As the Chicago economist whose done more than any to bring all this to our attention, Nobel laureate James Heckman puts it in his arresting little sound bite âSkill begets skill; motivation begets motivation. Early failure begets later failure.❠Our lives are a classic case of ‘increasing returns’ with success in early childhood reaping rich economic rewards for the individual and for society and failure reaping horrible individual, social and economic suffering and failure.

As Heckman has shown, the benefits of good early childhood education â including a strong safety net of active programs for those most at risk â is a hugely worthwhile economic investment for the future (even when you measure some small sub-set of the benefits like lower imprisonment rates) quite apart from its greater fairness and broader contribution to wellbeing.

Anyway, Iâm no expert on this, but Troppo is frequented by such people, so Iâd be interested in their views. Is the success of the Nordics further evidence of the economic benefits of looking after kids well.

In the meantime, if by chance you find yourself behind a Rawlsian veil of ignorance and you get a peek on the other side of the veil, don’t pick being an adolescent in Japan.


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Fred Argy
Fred Argy
17 years ago

Thanks Nicholas for raising this fascinating topic again.

In a recent paper I highlighted three key indicators for the most recent decade and a half. They were employment rate, growth in GDP per hour and GINI coefficient. And I looked at three groups of countries – the Anglos, the larger continentals and a third group made up of the Nordics and smaller Europeans. I found that the third group matched or out-performed the Anglos on employment and economic growth per head and did so with a substantially lower level of inequality (as measured by the GINI).

Your post looks at other, no less important, social welfare indicators such as education, health, child well-being etc. – all of them crucial to equality of opportunity. They produce a very similar picture.

Yet our policy makers don’t seem interested in drawing any policy lessons from group 3. They obviously cannot adopt their ideas lock stock and barrel (the tax increase would be unacceptable) but they won’t even dip their toes in the water.

I have a dream – that a brave political leader with Howard’s articulation skills will emerge who will convince the taxpaying public to accept the need for higher taxes and public debt on the grounds that their loss of individual freedom will enhance the freedom of others and truly advance equality of opportunity. But alas it is proving too difficult for both major political parties. Even the Nordic countries are jacking up on their high taxes.

So I fear, Nicholas, that we are whistling in the wind!

Paul Frijters
Paul Frijters
17 years ago

Hi Nick,

wow, what an impressively researched blog! Having consciously decided to abandon the Dutch ship and throw my lot in with the Aussies, let me at least state the areas of child education and egalitarian features that you will not see in the Netherlands and that made us decide Australia was a far better country to live in and to raise our kids than Northern Europe:

– unlike the Netherlands, after-school care and mid-day care is well-organised in many schools and towns in Australia. In the Netherlands we had to arrange somenoe to pick up the kids every lunchtime and at 3. This basically made it miopssible for both parents to work, usually meaning the women worked part-time. I way prefer the Australian system.
– IT education is far, far superior in this country where its quite normal to see 12 year olds with labtops sendnig their teachers their homework in fancy presentations. In the Netherlands, many teachers are IT-illiterate.
– The PISA study into education standards does not support the notion that education is better or more equal in the Netherlands and the Nordic countries than Australia at age 14. In my personal experience, if education is better in Northern Europe, then it is after 14 and especially at undergraduate level.
– unlike much of Northern Europe, Australia is literally swimming in sportgrounds, fully-furbished parks, free barbeque facilities, free life guards, etc. The degree to which kids can play organised and individually in this country is just unrivalled.
– unlike Northern Europe, the atmosphere on the streets in the big cities is much less aggressive here. Much less.
– The degree to which adolescents in this country are ‘co-opted into the system’ seems much higher here than in Northern Europe were a lot of the ‘public space’ is regularly vandalised and subject to intimidation by groups of youngsters. That situation only seems to exist here in isolated areas. For the most part Australia seems to manage to keep its youngsters away from too much harm towards themselves and others.

Now, I note that the situation in Australia has come about via the policies and good luck of several generations in this country and hence dont want to make this a partisan issue. Whilst one can always try to admire something about other countries (and for me the number one thing would be the lack of a priavte-public divide in education), I think it a mistake though if Australia elevates Northern Europe as the pinacle of good living. Life here is far better than there in my opinion, and not just because of the weather and the sun giving us those vital shots of melatonin.


James Farrell
James Farrell
17 years ago

If Dutch children lack sports grounds, they don’t seem to have enough books either. They have the second highest proportion of families (after Portugal) who have less than ten books in the house. And the Belgians are almost as bad (must be the Flemish ones). This is surprising given the picture Paul paints of children spending their afternoons at home with their mothers.

As you said, Nicholas, lots of good graphs.

17 years ago

I agree with Paul. Very similar factors weighed on our decision to move from France. The only real difference is that I think that in France primary and secondary education is quite good, if and only if the children are externally motivated, whereas beyond the few elite universities (about three) undergraduate education is terrible.

Also re secondary education, the economics and philosophy textbooks I saw were terrible – more propaganda than textbook.

I agree with N Gruen about funding from debt, especially since we don’t really have any at the moment.

I strongly disagree with the conclusion NG draws from that Robeyns post. She speaks, to my mind, of a model in decline.

Also, just for starters what about how much we spend on them, monetarily? What about the commitment, very rare in Europe in my experience, that many parents make to their childrens’ schools, sports clubs, etc?

Also, she acknowledges that Northern European and German children are often, by our standards, simply appallingly badly raised. Having them visit your house is quite stressfull, indeed, simply sharing a train or plane with them can be stressfull enough.

17 years ago

The nature versus nurture debate is fundamental to this issue. If we were all born with certain genetic predispositions that would prevent some from getting ahead over others then developmental psychology would bare little relevance. It is clear that we need to attribute more to the way in which we educate and care for our communities than we do. Which means that socially we all need to start accepting responsibility for issues encountered by individuals.