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. Scandinavia, in contrast, lagged behind economically for a long time in spite of having achieved close to full literacy at the beginning of the 19th century. 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. Since education and literacy are two of the most common measures used in the academic literature this distinction would, if true, help explain why most previous studies have tried but failed to find a strong link between growth and human capital during the transition to the new manufacturing processes of the 18th and 19th centuries.

To test their theory, the two researchers used city-level subscription rates to “Encyclopédie, ou dictionnaire raisonné des sciences, des arts et des metiers” (English: "Encyclopaedia, or a Systematic Dictionary of the Sciences, Arts, and Crafts") in France around 1750. “Encyclopédie” was an attempt to collect scientific and cultural knowledge and was at the heart of the Enlightenment. In the analysis, subscription rates are therefore used as a measure of "upper-tail human capital" to contrast with literacy rates, which indicates "average human capital". In addition, the 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.

The results do not imply that subscribing to “Encyclopédie” caused economic growth or that reading it made people highly innovative. Instead, 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. Their findings therefore support the hypothesis mentioned in the paper that "the Industrial Revolution was carried not by the skills of the average or modal worker, but by the ingenuity and technical ability of a minority."

This is not to say that literacy rates and primary school enrolment are unimportant, but rather that they may not be sufficient to foster a transition to a new economic system.