Let’s focus on education. My teachers Claudia Golden and Larry Katz make an impressive and largely convincing argument that the trends in inequality between the top twenty percent and the bottom eighty percent in the United States, at least, have been overwhelmingly driven by the race between technology and education. Technology has kept running at a more or less constant pace. Education has not. From, say, 1920 to 1980, the United States essentially followed the recipe of Berkeley chancellor Clark Kerr: the United States ought to provide as much education for free to its citizens as they wanted.
Devotees of the right approved of this policy. People who worship Ayn Rand and have read The Fountainhead a few too many times or Atlas Shrugged a few too many times thought that universal free public education was a way you could separate the sheep from the goats, the strivers from the moochers--a way that the strivers could strive and attain the eminence to that they deserve. People on the left noted that if you make education free you get an awful lot of educated and well-trained people, so the return to human capital goes down, the education premium that those who have been to college and have been trained in the professions can demand becomes a lot lower. And as your accountants and lawyers and doctors facing competition in the labor market can demand lower salaries, that leaves more money for the assembly line workers and the janitors and the home health aids and the nurses and the waitresses.
Around 1980, this strategy of growth and equality through education in the United States breaks down. Since then the costs of higher education have been rising at an extraordinarily rapid pace in the United States, as government subsidies are withdrawn, and as private colleges react to rising sticker costs of public colleges by raising their own sticker prices. In addition the universal commitment to pre-college high quality education has been in decline. This has stuck. Thus, unless we see a major change in American political economy, this education road that appears to have been very effective at promoting equality between the 1920s and the 1970s is now closed to the United States.
Chile has been massively upgrading its commitment to education in the past decade. Is this education road to growth and equality open to Chile now? Or if not why not?
Israel did it in the 1990s. It managed to reconfigure its place in the European division of labor, to accommodate a population that suddenly became much much more educated to a remarkable degree very very quickly. Israel is not that much small in economy than Chile.
On the other hand, distance matters a lot. Israel is very close to the population centers of Europe. When you want to sell the work of your most highly-trained and educated workers abroad it is a lot easier if you just have to fly from Tel Aviv to Zurich than of you have the fifteen-hour flight from Santiago to Los Angeles. Is it that long? It’s only twelve hours.
So perhaps Chile will be the first country to over-invest in higher education. From our perspective it’ll be interesting to watch what happens. From your perspective there’s rather more at stake.