How Important is Human Capital for Economic Development?

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How important was human capital–specialized scientific knowledge typically in the hands of relatively few elites–to the British Industrial Revolution? According to a 2016 working paper, not as important as you’d think. Economist B. Zorina Khan finds that “evidence from the backgrounds and patenting of the great inventors in Britain suggest that the formal acquisition of human capital did not play a central role in the generation of new inventive activity, especially in the period before the second industrial revolution” (pg. 21). It turns out that “scientists were not well-represented among the great British inventors nor among patentees during the height of industrial achievements…Instead, many of the most productive inventors, such as Charles Tennant, were able to acquire or enhance their inventive capabilities through apprenticeships and informal learning, honed through trial and error experimentation” (pg. 23).

By examining the patent record, Khan finds that

the patterns are consistent with the notion that at least until 1870 a background in science did not add a great deal to inventive productivity. If scientific knowledge gave inventors a marked advantage, it might be expected that they would demonstrate greater creativity at an earlier age than those without such human capital. Inventor scientists were marginally younger than nonscientists, but both classes of inventors were primarily close to middle age by the time they obtained their first invention (and note that this variable tracks inventions rather than patents). Productivity in terms of average patents filed and career length are also similar among all great inventors irrespective of their scientific orientation. Thus, the kind of knowledge and ideas that produced significant technological contributions during British industrialization seem to have been rather general and available to all creative individuals, regardless of their scientific training (pg. 18).

In short,

The overall empirical findings together suggest that, by focusing their efforts in a particular industry, relatively uneducated inventors were able to acquire sufficient knowledge that allowed them to make valuable additions to the available technology set. After 1820, as the market expanded and created incentives to move out of traditional industries such as textiles and engines, both scientists and nonscientists responded by decreasing their specialization. The patent reforms in 1852 encouraged the nonscience-oriented inventors to increase their investments in sectoral specialization, but industrial specialization among the scientists lagged significantly. This is consistent with the arguments of such scholars as Joel Mokyr, who argued that any comparative advantage from familiarity with science was likely based on broad unfocused capabilities such as rational methods of analysis that applied across all industries (pg. 20).

“More generally,” she writes,

the experience of the First Industrial Nation indicates that creativity that enhances economic efficiency is somewhat different from additions to the most advanced technical discoveries. The sort of creativity that led to spurts in economic and social progress comprised insights that were motivated by perceived need and by institutional incentives, and could be achieved by drawing on practical abilities or informal education and skills. Elites and allegedly “upper-tail knowledge” were neither necessary nor sufficient for technological productivity and economic progress. In the twenty-first century, specialized human capital and scientific knowledge undoubtedly enhance and precipitate economic growth in the developed economies. However, for developing countries with scarce human capital resources, such inputs at the frontier of “high technology” might be less relevant than the ability to make incremental adjustments that can transform existing technologies into inventions that are appropriate for general domestic conditions. As Thomas Jefferson pointed out, a small innovation that can improve the lives of the mass of the population might be more economically important than a technically-advanced discovery that benefits only the few (pgs. 23-24).

I’m reminded of something Matt Ridley said in his TED talk years ago:

We’ve gone beyond the capacity of the human mind to an extraordinary degree. And by the way, that’s one of the reasons that I’m not interested in the debate about I.Q., about whether some groups have higher I.Q.s than other groups. It’s completely irrelevant. What’s relevant to a society is how well people are communicating their ideas, and how well they’re cooperating, not how clever the individuals are. So we’ve created something called the collective brain. We’re just the nodes in the network. We’re the neurons in this brain. It’s the interchange of ideas, the meeting and mating of ideas between them, that is causing technological progress, incrementally, bit by bit…Because through the cloud, through crowd sourcing, through the bottom-up world that we’ve created, where not just the elites but everybody is able to have their ideas and make them meet and mate, we are surely accelerating the rate of innovation.