When speaking about unemployment, arguably the sorest problem in many market economies, “better education” is one of the standard remedies proposed by economists. This recommendation is given to rich and poor countries alike. Yet since I am in Georgia, I am increasingly skeptical about this recipe. To what extent can the education and training of people, or, to use the economic term, the accumulation of human capital, foster economic development?

In Georgia, you may have studied law and you really know your trade, but there is an oversupply of lawyers, and your qualification does not help you much. Likewise, popular subjects like international relations do not yield high returns in the Georgian labor market. In general, many Georgians are formally well trained, even among the unemployed. According to UNDP data, 81% of the Georgian unemployed have completed secondary education, one of the highest proportions worldwide. Yet many Georgian university graduates must cope with depressing economic circumstances.

Many libertarian economists would deny that there is a problem. One of their convictions is that “every supply creates its demand”, an idea going back to the 19th-century French economist, Leon Walras. He showed in a crude mathematical model that in a market economy an oversupply of something is impossible – price dynamics approach to an equilibrium wherein all markets supply equals demand. Ever since, this line of reasoning was elaborated in various ways, transcending the strictly mathematical nature of the original argument.

Libertarians would point at first-order and second-order effects resulting from an oversupply of, say, international relations experts. The first-order effect would be that the compensation for their qualification would go down, causing an increase in demand and, as fewer people would choose to study this subject, a decrease in supply. Second-order effects would (among others) be that international relations experts would creatively open up new fields of application for their skills. For instance, somebody who was trained to manage and analyze the relationship between countries may apply this knowledge to the relations between companies and in this way become a sought-after business consultant. Among libertarians, there is a widely held belief that people will find opportunities to profitably apply their skills, even if there is no instantaneous demand for them.

There are three strong counterarguments. Firstly, the libertarian philosophy is hardly reconcilable with the observable facts. There is unemployment in Georgia, there are highly qualified people struggling to find jobs, and particularly in Georgia, it would be rather bold to attribute these problems to an oversized government. Secondly, even if the libertarian promise would be realizable and a truly free market economy would generate full employment, there is no guarantee that the equilibrium wages would be above the poverty line or the subsistence level. Thirdly, even the lowest possible wages will not create demand for certain qualifications. Nobody will ask for the services of wheelwrights anymore, even if they would work for free. Prices do not always align with supply and demand.

A GOOD EDUCATION IS A MARKETABLE EDUCATION

So are economists making hollow promises when they praise the benefits of educational reforms? I would not go that far. The call for “better education” is not wrong-headed if one defines good education to encompass exactly those skills that are demanded by employers. Seen in this way, Georgians who study international relations or law are in fact not acquiring “good education”.

Everybody of us has skills that turned out to be economically rewarding and others that were less beneficial or even irrelevant. For most people, namely those who do not work abroad, what determines whether or not a skill is useful to them is the economy of their country. Therefore a good education system equips pupils and students with useful skills for the actual economic circumstances prevailing in their society.

This means that if for most people the economic situation in a country is dim, as is the case in Georgia, the relevant qualifications may be entirely different from those in advanced Western countries.

USEFUL SKILLS IN A BORDERLINE ECONOMY

For the purpose of comparison, let us look at examples of relevant skills in two countries I know relatively well, namely Israel and Germany. Since the early ’90s, Israel could benefit greatly from the computer expertise of its Russian immigrants and establish an impressive high-tech sector. Yet this success did not come out of thin air. It could only take place because Israel already was what the famous business visionary Peter Drucker called a “knowledge economy”, and, particularly important, because there was sufficient capital available for developing and extending this industry. With the right computer qualification, you can now realize fantastic salaries in Israel, while the same skill would not help you much in Georgia.

In Germany, it is traditionally very lucrative to become a mechanical engineer, as there is a huge machine-building industry. The whole country’s economic fortune is centered around this sector. Yet with just a little manufacturing industry in Georgia, the improvements that can be achieved through better human capital in engineering are much more limited here.

And so it goes for most other formal skills you can think of – if there is complete economic slackness in your field of expertise, being an expert does not help you much. Consequently, for the huge majority of Georgians, those who are unemployed or underemployed, useful qualifications are of a kind usually not provided by the education system. Knowing how to repair machines, how to patch clothes and shoes, or even how to grow vegetables in a small garden, are essential skills for the survival of many families.

For those few who are formally employed by companies operating in Georgia, the education system should make sure to really meet the wishes of employers. Arguably, there is room for substantial improvement. This, however, is something to be discussed in a separate article.