Returns on knowledge can indeed be predicted, economists argue

Are cuts to education and research bad for the economy? And are extra investments actually beneficial? Give us two more years, economists tell the cabinet, and we can calculate it.

Most political parties have their election manifestos ‘costed’ by the Netherlands Bureau for Economic Policy Analysis (CPB). Based on models, it estimates what the plans will deliver economically.

Science and education have always been treated as an expense item in the CPB’s calculations, because it is so difficult to predict what the economy gains from them. In principle, politicians can cut education without faring badly in the CPB model. This has been the subject of debate for years.

Two years

At the request of the Ministry of Education, SEO Economic Research has now mapped out how much scientific knowledge is already available on the returns of education and research. Outgoing minister Moes sent the results to the House of Representatives on Tuesday, February 17th. SEO believes it is possible to build an initial model within two years.

Last Friday, the Netherlands Bureau for Economic Policy Analysis presented its assessment of the coalition agreement. Regarding the plan to invest an additional 1.5 billion euros in education and research, the government’s financial watchdog could essentially only say that this would increase ‘human capital’. The CPB believes this is good for the economy, but in the absence of a model it does not know exactly how beneficial it will be.

A lot of evidence needed

A model is a prediction machine, but it only works if there is a great deal of predictive data, SEO explains. Those data come from scientific research demonstrating a link between policy and its outcomes.

Does education improve with smaller classes? Or is it better to spend money on teacher training? And which types of research should we primarily subsidise? If researchers gather insights on these questions, they can be used in a model.

There is already considerable evidence for the economic value of education, SEO says. And we also know that corporate investments in research and development yield two to three times more than they cost. However, more clarity is needed about the returns on public investment in research, SEO writes.

Broad prosperity

SEO does add a caveat. Education does not only generate economic growth but also has other social benefits. The Education Council has previously listed these as well. A few examples: healthier behaviour, a lower likelihood of illness, fewer teenage pregnancies and less crime.

SEO therefore believes that predicting economic growth should be a steppingstone towards a broader model. There should also be greater insight into the value of education and research for what is referred to as ‘broad prosperity’.