Theodore W. Schultz

Theodore Schultz’s insights may sound obvious to the modern ear but the simplicity is where the genius lays. He had little time for the rich urban elite and believed that since most people in the world are poor, they should be economists’ focus.

Schultz grew up burning cow chips for warmth on a farm in the Great Plains states. His feet were planted firmly in agricultural territory throughout his career even when Harvard tried to tempt him into a prestigious academic role. But his professional interest in farming folk was not just about staying true to his roots. He understood the great economic contribution that ordinary people could make, as long as they were allowed to reach their potential.

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1979.

From an early age Schultz was aware of the value of education because, as his own story taught him, it’s the only way of escaping poverty. On his two-and-a-half mile walk to school and back, he had plenty of time to think. "As a little boy, it seemed to be a long, long way," Schultz said. "Especially throughout the wintertime, you had to be dressed very warm. It was terribly cold."

Schultz’s youth was tainted by the outbreak of World War I. As a boy who was quite strong and tall for his age, his schooling was interrupted to support local families and farmers in the field who were affected by the wartime shortage of labor. His interest in issues that later became his specialties was piqued at an early point in his life.

How to measure poverty?

Schultz set out to investigate an important area of economics, an investigation that would help humanity as a whole. He directed his attention to examining agricultural economics and poverty, which culminated in his world-famous work "What is the economics of being poor?"

"I was trying to understand the composition of what made people poor," Schultz said. "My first efforts went into identifying the poor. I’m not talking about the individual that is poor. I’m thinking of a whole community, or as it’s the case in some places, I’m thinking of the whole country."

How can you identify poor communities?

Schultz developed three effective methods to identify poor communities. The first examines the amount of income people in the community spent on food. "If the fraction of income spent on food is half or more, then that’s a pretty strong sign that they’re really poor," Schultz explained. "By this test, you will be able to identify most of the poor communities. You don’t have to go any further, but I went further."

The second indicator is average life expectancy in a given area. But, as he highlighted, the most important factor is the third, the level of skills, the abilities that people have acquired and their state of knowledge. "So many people don’t even have the beginnings of writing and skills, language command," he said. "Seventy five percent of the annual income of people in the United States is derived from work from a highly skilled population. And that’s what you have in Europe and Canada too."

How can we enhance poor people’s welfare?

Before Schultz, intellectuals held the common view that for an economy to progress, attention should be focused on advancements in industry and not agriculture. They held the view that agriculture was a symbol of the past, not the future. "Most of the world’s poor people earn their living from agriculture,” he countered. “So if we knew the economics of agriculture, we would know much of the economics of being poor."

As an example, he mentioned people in Africa. "People on the unproductive soils of the Sahara, on the somewhat more productive soils on the slopes of the Rift landform, and on the highly productive lands along and at the mouth of the Nile, all have one thing in common. They are very poor."

"While land per se is not a critical factor in being poor, the human agent is,” he said. “Investment in improving population quality can significantly enhance the economic prospects and the welfare of poor people."

On his journey to understand how one manages to live under poverty, Schultz immersed himself in the poorest communities on earth, interacting and living in the conditions he was studying. It was in India, where Schultz was introduced to the Nehru-Gandhi family, that he established strong bonds with the modern movers of India. "In retrospect, I value highly what I have discovered about the economic behavior of rural people while abroad,” he said.

"We in the high-income countries have forgotten the wisdom of Alfred Marshall, when he wrote that knowledge is the most powerful engine of production," he quoted.

Schultz would have been happy to see that in recent years the number of low-income countries that have followed his advice, thereby contributing to not just the local or regional community, but to a global one as well.

"Schultz is the economist I want to be. Schultz was an economist who lived in the real world. His ideas came from talking to real people."

Paul Donovan

Global Chief Economist
UBS Wealth Management