results of the calculation look different. The problem with the Bank’s (former) reliance on those static, abstracted and individualistic calculations was that the prescription that resulted from the calculations—to withdraw investment from higher education because the rates of return seemed to be lower—ensured that emerging nations would remain stuck. The reasoning was circular and perpetuated under-development. Fortunately a number of nations in East and South East Asia ignored the prescription and in doing so, showed that higher education was central to modernization. It is inconceivable that any nation could participate effectively in either the tasks of national construction or a networked knowledge-heavy global world without an advancing system of higher education and research. The Bank now fully accepts this, though it is yet to spell out exactly why it was wrong before.
But the very notion that we invest in higher education to receive an automatic return on our investment was always problematic. It ignores the contextual factors that affect the outcome of that investment. In itself, higher education is a necessary but not sufficient condition for development. It provides conditions of production for value creation in all of the market sectors and it is vital to the building of the machinery of states and the expansion of global connections. It is an indispensable condition. But by itself it is not enough. Its full effects depend on changes to production and investment, work organization that uses skills and innovation effectively, the maturation of nation-states and much else.
How then are we to factor in the contribution to development made by higher education and research, which is largely indirect rather than direct? The answer, within economics, starts first of all in Samuelson’s (1954) notion of public goods, goods such as knowledge that are primarily non-rivalrous and non-excludable, goods that are necessary to the functioning of markets but are not themselves produced as needed by markets. Even so this construction remains overly individualistic, and market bound. My own view is that we need to step out of the frame of economic thinking, to situate markets and production historically and to understand their conditions of existence. Amartya Sen’s (2000) argument about human capability takes this step. In Development as Freedom, Sen