Education

“Education is the most powerful weapon which you can use to change the world.”

— Nelson Mandela

In 1900, fewer than one in ten Americans finished high school. A college degree was a rarity reserved for a small elite. Today close to nine in ten Americans complete high school, tens of millions hold college degrees, and the country’s colleges and universities remain a destination for talented people from around the world. Inside of a century, formal education went from a privilege to an expectation. It is one of the most dramatic improvements in the entire series, and it is easy to forget precisely because it happened so thoroughly.

Why should an investor care about a trend that looks like a matter for school boards? Because human capital, the accumulated skill and knowledge of a workforce, is the raw material of every company you own. A business is only as good as the people who run it, build its products, deliver its services, and serve its customers. The long rise in education is a large part of why American productivity has climbed for generations, and rising productivity is, over the long run, what turns into corporate earnings and the returns those earnings produce.

The engine behind the earnings

There is a tendency to think of stock returns as random, much like the weather. They come from companies, and companies run on people. When a workforce is more skilled than the one before it, the same hour of work produces more value. That surplus does not vanish. Some of it goes to workers as higher wages, some to customers as better and cheaper products, and some to owners as profit. Education is, in a real sense, the slow accumulation of the capacity that all of that depends on.

The United States compounded this advantage in a particular way. It built a system that combined broad access with academic freedom and a culture that tolerated, even celebrated, unconventional ideas. That combination is why so much foundational research and so many new industries have emerged from American campuses, and why talented people have kept arriving to join them.

Concerns

The picture is not uniformly bright, and pretending otherwise would insult the reader. American students lag their peers in other wealthy countries on important measures, particularly in math. Achievement gaps by income and geography are wide and stubborn. The pandemic set learning back, and the recovery has been uneven. The cost of college has risen faster than almost anything else in the economy, and the question of whether a degree still pays for itself is a fair one that more families are asking out loud.

These are genuine problems. They are also the kind of problems the system has confronted before and responded to. The shock of Sputnik in 1957 produced a national investment in science education. Earlier reforms expanded access to groups that had been shut out. The current pressure on cost and outcomes is already producing experimentation, in tutoring, in alternative credentials, and in the use of technology, that would not be happening if everyone were satisfied. Dissatisfaction is uncomfortable, but it is usually the thing that precedes improvement.

The newest argument is about artificial intelligence in the classroom, and it deserves a fair hearing on both sides. The worry is real: if students use AI to skip the productive struggle of learning, to generate essays they never wrestle with and solve problems they never understand, they may come out the other side knowing less, not more. Early evidence suggests the concern is real. But AI can also be a remarkable teacher when it is used well, giving a struggling student patient, personalized help that a single teacher with thirty students cannot, adapting to each learner’s pace, and freeing teachers from routine work so they can do the human part of the job. AI in education is a genuinely valuable tool, and it is improving quickly. As with most tools, the outcome will depend less on the technology than on how thoughtfully it is used.

What it means for you

You are not going to fix American education from your brokerage account, and you do not need to. The relevant fact for you is that the long trend in human capital, despite real and serious weaknesses, continues to run in the right direction, and that this is one of the deep reasons the companies you own have been able to grow their output and their earnings decade after decade.

An educated, adaptable workforce is the quiet foundation under the productivity that, over a lifetime, becomes your returns. It is worth caring about as a citizen and a parent. As an investor, it is worth recognizing as one more pillar that is still standing strong.

Sources

National Center for Education Statistics, high school and college completion data. World Bank and UNESCO, global literacy and enrollment.

Important Disclosures