Few would challenge the proposition that human capital is fundamental to economic growth. Yet much evidence suggests that during what is arguably the most important era of growth—the Industrial Revolution—human capital had little bearing on economic development. Primary school enrolment in Britain, the cradle of industrialisation, was a mere 11% as late as 1850.
In a new paper, Mara Squicciarini of Katholieke Universiteit Leuven and Nico Voigtländer of the University of California, Los Angeles, attempt to resolve this conundrum by dividing human capital into two categories, one that had an impact on the Industrial Revolution and one that did not. The authors reckon that “upper-tail knowledge” rather than “average human capital” is what drives industrialisation. This matters presumably because while worker skills, such as literacy and primary education, boost productivity by utilising existing technologies, it is the skills held by top engineers and entrepreneurs that enables a society to innovate and foster the type of rapid technological progress that characterised the industrial revolution.
[T]he authors used a set of outcomes to capture economic development, including urbanisation, soldier height, wage rates and industrial productivity. As expected, wide-spread literacy did not predict growth.
Subscriptions to “Encyclopédie” per capita, on the other hand, were strongly associated with growth in each of the four measures after 1750...Ms Squicciarini and Mr Voigtländer argue that the subscription rate is a local indicator of the presence of highly educated elites who possess mathematical knowledge, scientific skills and entrepreneurial ability. Needless to say “Encyclopédie” was not a blockbuster; it had some 8,000 subscribers in total and those were likely highly concentrated in certain population segments.
The Economist blog writes about the importance of a skilled elite in driving economic development: