Remodeling the Little Red Schoolhouse

By Christopher Farrell There are many prisms through which we can view the 20th century. One central image is defined by the two World Wars. Another way to look at the past 100 years is by focusing on the 50-year Cold War. Yet another popular impression is that the century marked a period of unprecedented technological advance, from wonder drugs to nuclear power to the microchip.

Here's another viewpoint: A century driven by dramatic economic forces. The "economy was the dominant arena of events and change, and economic changes were the driving force behind changes in other areas of life in a way that had rarely been seen before," writes J. Bradford DeLong, economist at the University of California at Berkeley, in the online draft of his book, Slouching Toward Utopia? (You can read the draft chapters at

A recent article written by Claudia Goldin, an economist at Harvard University, supports DeLong's thesis. Goldin is one of the country's leading economic historians, and she's written a number of seminal papers on income inequality, labor market dynamics, the women's movement, and the emergence of mass education in the U.S. In The Human Capital Century And American Leadership: Virtues of the Past, Goldin makes a strong case that the 20th century was the "human capital century."

EDUCATION INVESTMENT. Her deftly written paper examines why the U.S. took the lead around 1900 among wealthy industrialized nations in establishing mass secondary education. She discusses how a major part of America's current economic dominance came from an enormous investment in education, and looks into the trend of the rest of the world emulating the U.S. model. Anyone grappling with education reform in the U.S. or struggling to understand globalization can profit from reading her paper. (You can download the Human Capital Century at, along with a more recent -- and much shorter -- elaboration co-authored with Harvard labor economist Lawrence F. Katz.)

As the 20th century dawned, Britain, Germany, the U.S., and other industrial giants worried greatly about falling behind their major economic competitors. Businesses in every nation were concerned about a lack of skilled workers as a new high-tech economy emerged (at least it was high tech back then), marked by the spread of electrification, the internal combustion engine, and the embrace of scientific research by industry.

Then a novel idea quickly took hold -- the key to robust economic growth was people and training, not technology and capital. The wealth that mattered was "human capital," which includes education, on-the-job training, skills, and enterprise. "Education might uplift, build moral fiber, enhance art, literature, and culture, and produce public officials, as even the ancients knew," writes Goldin. "The novel concern at the dawn of the 20th century was that post-literacy training could make the ordinary office worker, bookkeeper, stenographer, retail clerk, machinist, mechanic, shop-floor worker, and farmer more productive, and that it could make a difference between an economic leader and a laggard."

LEADING THE WAY. It took an enormous public investment, however, to turn this idea into reality. The U.S. led the way, largely through the expansion of secondary education. The record of the "high school movement" is remarkable. Goldin notes that in 1910, less than 10% of young people graduated from high school. Yet, by 1940 the median 18-year-old in America was a high school graduate. In sharp contrast, European nations confined their secondary education efforts and expenditures to an elite cadre of youngsters.

Goldin suggests two factors largely accounted for the revolutionary American approach. For one thing, in a dynamic economy with high rates of internal migration, the demand was for flexible, widely applicable skills that weren't tied to any particular place, industry, or occupation. The second major influence was an egalitarian tradition embraced by most parts of society since the early days of the republic. The push for mass education rather than elite education came from a widespread grassroots movement of local associations that wanted to keep their communities viable and democratic.

The payoff for both individuals and society was substantial, too. Goldin calculates that the return on one year of secondary education was worth more than a 10% increase in wages. Income inequality declined as more people gained an education. The economy benefited from an increasingly productive workforce and technological entrepreneurs, especially in the second half of the century.

FALLING BEHIND. The good news is that most other nations are now emulating the American approach to mass education. Many of the world's wealthiest nations have caught up with -- some may have surpassed -- the U.S. in educating their young people.

Even poor countries are investing heavily in secondary education, especially as their economies grow and incomes rise. For instance, school enrollment rates for girls are weak in the poorest countries -- those defined as having a per-capita income below the U.S. level in 1900. But when the per-capita income rises above that level in developing nations, gender distinctions all but disappear, with the exception of some Muslim nations. The payoff in these trends should be faster rates of economic growth in many developing nations in coming decades.

Goldin expresses some concerns about the future of education in the U.S. For instance, she notes that a secular public education system was crucial for maintaining support and fairness in a religiously diverse nation. But the use of vouchers to create more competition for public schools is now stymied in many poor neighborhoods by the lack of anything but parochial private schools, she contends.

NATIONAL YARDSTICK? Plus the egalitarian, decentralized approach that is the hallmark of U.S. education now seems to allow far too many youngsters to fall through the cracks. They never learn the basic skills demanded by today's New Economy, she argues. Indeed, I wonder if the virtue of a decentralized system that created mass education is now a handicap in the global economy. The best way to raise student performance -- from inner cities to the suburbs -- may be through nationally mandated standards.

Today, many American parents and employers are concerned that too many youngsters aren't prepared for the world of work in a high-tech economy. If you're among this group, or just interested in education, Goldin's economic history is invaluable. It combines a renewed appreciation of the accomplishments of the past with a focus on the challenges of the future. It's well worth a look. Farrell is contributing economics editor for BusinessWeek. His Sound Money radio commentaries are broadcast over National Public Radio on Saturdays in nearly 200 markets nationwide. Follow his weekly Sound Money column, only on BW Online

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