Jere R. Behrman. Human Resource Development? Review of Issues and Evidence.
Shabbir, Tayyeb
Jere R. Behrman. Human Resource Development? Review of Issues and
Evidence. New Delhi: ILO-ARTEP, 1990. 105pp.
In the recent literature on development economics, the adjective
'human' is encountered with increasing frequency. On the one
hand, the 'human resource-led development (HRLD) strategies'
of the kind that were presumably adopted by the Newly Industrialized
Countries of Asia are being increasingly cast as the leading means of
achieving rapid economic growth. And on the other hand, in a manner that
is reminiscent of the 'growth versus distribution' debate of
the early 1970s, we are being urged to set our goals more in terms of
broad 'human development' of the society rather than merely
its 'economic growth'. These new trends in the economic
development literature are evident from the contents of the recent
academic journals as well as from the activities of the various
international organizations. The World Bank's choice of
'Poverty' as the theme for its 1990 World Development Report,
the United Nations Economic and Social Commission's April 1988
pronouncement of the 'Jakarta Plan of Action' regarding human
resource development in the ESCAP region, the United Nations Development
Programme's recent Human Development Report, and the Asian
Development Bank's analysis of the role of human resources in
economic growth in its 1990 Asian Economic Outlook are cases in point.
These new trends have raised some important questions regarding the
nature of human resources and their role in the process of the
society's development. In fact, over time human resource
investments have come to entail more than the traditional areas of
education and training of all kinds. Now the concept also includes a
fairly broad group of investments encompassing such areas as health,
nutrition, home environment of the children, and production as well as
the diffusion of knowledge. Some would even include human freedom and
the country's political system in the above list. Thus, the
question of an appropriate public policy towards human resource
investments becomes more important and, perhaps, more complex than ever.
In the light of the above facts, this book by Behrman, an eminent
economist with significant contributions to many areas of development
economics, is a very valuable addition to the literature. While the book
focuses on the 'growth dimension of development', it presents
a generally applicable framework which the author rightfully expects to
'carry over to most, if not all, common broader definitions of
development'.
Essentially, Behrman addresses the following question: Given that
many developing countries would like to change their comparative
advantage from low-skill-labour intensive to relatively
high-skill-intensive goods and services, to what extent can we justify
an activist public policy that would accelerate the rate of relevant
human resource investments over and above 'what would occur in the
normal course of development'? Apparently, the author perceives the
'normal' amount of human resource investments to be the one
that will presumably come about as a result of private maximizing
decisions made in response to market prices in an environment of no
market failures. He then seeks an answer to the above question by making
an appeal both to analytical considerations (Chapter 1 of the book) as
well empirical evidence regarding human resource-led development
possibilities (Chapter 2 of the book). The third and the last part of
the book gives a summary and main conclusions of the study.
In Chapter 1 of the book, Behrman develops essentially neoclassical
analytical frameworks to systematically evaluate the relative
desirability of an activist human resource investments (HRI) policy in
different contexts which, in fact, are illustrated well by the
subsection headings in this chapter. They are: 'A Simple Static
Starting Point', 'Dynamic and Disequilibrium Considerations', 'Growth Models with Human Resources',
and 'Micro Determinants of Human Resource Investments'. The
notable refrain in each case is the question: Are there any gains in
efficiency to be had by following an activist HRI policy?
The static framework is based on the standard tools of analysis
such as a production possibilities frontier (PPF) and the corresponding
Edgeworth box's 'efficiency locus'. This framewrok is
used (a) to illustrate that in the absence of market failure, the
perfectly competitive market solution is Pareto Optimal (the fundamental
theorem of welfare economics), and (b) to review conditions under which
markets may fall. However, the main merit of the static framework is to
set the stage for the dynamic analysis of an appropriate HRI policy.
In the dynamic context, the essential argument can be understood by
realizing that, at the aggregate level, economic growth can be
represented by an outward shift of the PPF. In principle, HRI can
favourably affect the nature of such shifts as well as the
economy's speed of adjustment to the new PPF. However, this is a
necessary but not a sufficient condition for an activist policy. The
latter may be warranted only when private and social benefits/costs
diverge and the first best option is in fact a HRI-related policy or a
non-HRI-related first best policy is somehow not available. In fact, by
using the above criteria in a persuasive manner, Behrman is able to
dismiss many of the arguments, such as production discontinuities that
are commonly presented in support of an activist HRI policy. On the
other hand, it is shown that there exist important factors such as the
informational externalities associated with exploring new markets that
may allow us to argue for socially beneficial intervention in the
market.
Macro growth models that specify a pivotal role for HRI are an
exciting recent development in the field of human resources. In fact, at
an analytical level, some of the most well articulated support for an
activist HRI comes out of such models. Increasing returns to scale and
externalities associated with production/diffusion of knowledge are the
most common basis for such a support.
Finally, Behrman uses Becker's Woytinsky Lecture framework to
analyze the role of such factors as externalities and capital market
imperfections in making the social rate of return larger than the
private one for HRI decisions by individuals. He then goes on to
describe the Mincerian earnings function specification, which is most
commonly used to estimate the private rate of return to education.
Though, in principle, this specification can be modified to estimate the
social rate of return as well, the process is beset with many practical
difficulties.
Incidentally, Behrman ends this chapter by critically reviewing
some of the recent characterizations of the human resource-led
development.
In light of the various analytical considerations presented in
Chapter 1, some of the relevant testable hypotheses are: To What extent
are the assumptions underlying the recent macro models borne out
empirically? Do human resource investments cause economic growth at the
macro level? What about the HRI-productivity link at the micro level? In
Chapter 2 of the book, Behrman reviews the results from a large number
of studies to determine the nature of the existing evidence regarding
human resource-led development possibilities. Such studies have been
grouped in three categories: partial equilibrium evidence on rate of
return to HRI, country studies, and cross-country studies. The above
review of the evidence leads Behrman to reach the following two
conclusions. First, the apparent evidence showing an association between
HRI and productivity, both at the macro as well as the micro level, is
much weakened once we control for other relevant factors. Inadequate
controls for such relevant factors as the quality of investments,
ability, and family environment have to led to upwardly biased estimated
rates of returns in many of the micro studies. Second, the existing
evidence on social vs. private benefits/costs indicates that, in
general, there is not much empirical support for an activist HRI policy
except for 'basic education and health'. However, he also
points out that some relevant hypotheses, which in a prima facie sense
lend support to an activist HRI policy, still need to be tested
empirically. It would be particularly interesting, it is pointed out, to
test the realism of the assumptions underlying the recent human
resource-oriented growth models.
This book by Behrman is an extremely significant contribution to
the literature on the important subject of human resource-led
development, a topic in which interest is growing fast. Since the
frequency of unsubstantiated assertions and claims tends to grow in
direct proportion to the growth of interest in an area, this book is
particularly timely because it calls attention to the importance of
adopting consistent and objective criteria for public policy decisions.
In fact, it is not difficult to agree with the author's suggested
approach to determine the desirability of an activist HRI policy. It is
sort of a hierarchical approach which asks us to first evaluate the
given issue analytically, then see what light the empirical evidence
sheds on the analytical hypotheses, and finally, if public policy is
warranted, choose the 'best' policy. The time-honoured
methodology of evaluating social choices in terms of efficiency vs.
equity trade-offs can be applied equally fruitfully in the case of HRI.
While the neoclassical analytical framework developed by the author
does its job well by encouraging us to think about the issue of an
appropriate HRI in a rigorous manner, we should not forget that such
analysis has its limitations too. For one thing, practical aspects of
any efficiency-related redistribution are often swept under the
proverbial rug. If, for given prices, initial distribution of endowments
does not correspond with the core in which the optimal allocation lies,
then, in theory, non-distortionary taxes/transfers can solve the
problem. However, in the real world such redistributions are often
easier said than done. Witness the messy practical problems associated
with the attempts to redistribute land in many developing countries when
such redistributive reforms are often considered critical for growth and
efficiency.
Another point that is worth noting has to do with the empirical
evidence presented by the author regarding possible upward biases in the
estimated rate of return for such HRI as education. In fact, Behrman was
one of the pioneers who initiated this line of enquiry which has
entailed significant advances in methodology and very clever use of
data, especially in the case of studies that used data on siblings (or
other kin)to control for unobserved family factors. As a result of such
studies, while there is now a widespread realization that some of the
conventional results that do not control for relevant variables
overstate the marginal effects of HRI, there still is not a consensus on
the exact degree of such an upward bias. Also the methodology underlying
some of these studies is not without its detractors.
In any event, the overall framework presented by Behrman is viable
and, in fact, it lends itself to some interesting extensions, such as
allowing us to relax Behrman's assumption of an unchanging international price as a given country changes its comparative
advantage. In a dynamic general equilibrium sense, simultaneous
development of several countries would increase the relative supply of
high-skill products which, ceteris paribus, could raise the relative
price of the products embodying traditional skills. Thus, there may be
less of an incentive to change one's comparative advantage in
favour of the high-skilled products if we consider possible changes in
the international relative price.
Another idea which is worthy of further exploration is that of
ranking all feasible policies by some efficiency criteria in order to
pick the best policy. The author touches upon this interesting notion
(p. 5) and it could be developed further with the expected high payoff.
In terms of the technical quality of this publication, the book has
all the trimmings--along with the usual academic fare such as an author
index and a subject index, we are also treated to an executive summary.
However, the reading pleasure would have been further enhanced if some
of the distractions due to occasional printing errors were absent.
In conclusion, this book has many valuable aspects. The basic
points it makes are well taken. Since its major finding is that the
existing empirical evidence does not justify any significant activist
HRI policy, its implied prescription is that we should rely on free
market solutions. However, it points out that, analytically, there are
several untested hypotheses that imply a bigger role of public policy in
HRI than is warranted by existing evidence. In essence, the findings of
Behrman essentially amount to a voice of caution urging us to do more
research before we go ahead and commit substantial resources to any
particular policy option. For the interim period, the author advocates a
balanced public policy which could be decided on a case-by-case basis.
The most significant contribution of Behrman's book is that it
encourages the use of a consistent, objective, and scientific approach
to policy analysis regarding HRI. It does so in a lucid manner that is
highly persuasive. The book embodies scholarship of a very high quality
and is recommended for academic researchers as well as policy-makers in
this field.
Tayyeb Shabbir
Pakistan Institute of Development Economics, Islamabad.