Saturday, April 7, 2018

"Intelligent evolution of humanity"

First of all, I'm sorry for the long hiatus in posts: midterms, a bout of the flu, and starting a new work project have all taken away from the time that I normally spend on this blog.

Given that the project that I've started working on focuses on the gender gap in agricultural productivity levels in sub-Saharan Africa, I visited a number of seminal papers in agricultural economics and in the study of firm and individual-level productivity and efficiency. In this survey of the literature, I stumbled on Theodore Schultz's Nobel Prize lecture, "The Economics of Being Poor", after having read his work on smallholder farmer efficiency ("poor-but-efficient" hypothesis which states that farmers are calculating economic agents who are highly efficient in a traditional agricultural environment (Schultz, 1964)) and his consequent focus on human capital and the gains to labor productivity and entrepreneurial ability as the key to improving the well-being of the agricultural population.

In his lecture he discussed the entrepreneurship inherent in agriculture and criticized the government price distortions in developing countries: "experts fail to recognize how efficient they [small farmers] are... This allocative ability is supplied by millions of men and women on smallscale producing units; agriculture is in general a highly decentralized sector of the economy.... The allocative roles of farmers and of farm women are important and their economic opportunities really matter (Schultz, 1978b)." Yet he maintained that despite their efficiency in a traditional agricultural setting, small farmers needed further investments in human capital and skills to be just as entrepreneurial and efficient in a dynamic setting (i.e. one with constant technological and economic change made more dynamic by increased globalization in past decades).

He also gave the following hopeful exposition on humanity addressing natural resource constraints (economic growth models to come such as Nordhaus (1992) viewed natural resources including land and energy as lags on economic growth): "It is ironic that economics, long labelled the dismal science, is capable of showing that the bleak natural earth view for food is not compatible with economic history; that history demonstrates that we can augment resources by advances in knowledge. I agree with Margaret Mead: 'The future of mankind is open ended.' Mankind's future is not foreordained by space, energy, and cropland. It will be determined by the intelligent evolution of humanity."

In other words, that land is a fixed resource and that traditional sources of energy are a depleting resource do not preclude the fact that investments in human capital can modify the production function and the relationship between the traditional inputs and output.

Look no further than the growth and takeoff of alternative, renewable energy sources and the expansive yields from sustainable farming as examples. As much as Schultz critiqued government for distorting agricultural systems that he viewed as otherwise efficient, he may not have appropriately appreciated government's unique role in incentivizing the resource allocation decisions of firms towards that "intelligent evolution of humanity" that he spoke of. For example, we've seen in the last decade the role of government in incentivizing alternative, renewable energy sources through large-scale investments and subsidies for the research and development and market viability of those energy sources.

The interesting and challenging piece of the lecture is connecting those two goals: improving the human capital and skills of much of the population (key to improving well-being) and moving towards a more sustainable future that is not tied to traditional, fixed or depleting natural resources. While positing these ideas, he also provided advice to economists that is still relevant today:

"We all know that most of the world's people are poor, that they earn a pittance for their labor, that half and more of their meager income is spent on food, that they reside predominantly in low income countries and that most of them are earning their livelihood in agriculture. What many economists fail to understand is that poor people are no less concerned about improving their lot and that of their children than rich people are."

If you want a more humorous speech, try this one that he gave at the Nobel banquet. 

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