InnovationandHumanDevelopment:JamesH

James Heckman is a distinguished economist and Nobel laureate, renowned for his pioneering work in the fields of labor economics, econometrics, and human capital theory.

Awarded the Nobel Memorial Prize in Economic Sciences in 2000, Heckman’s research has influenced policy design worldwide, emphasizing the importance of investing in human capital from an early age to foster economic growth and reduce inequality.

As a professor at the University of Chicago, Heckman continues to lead groundbreaking studies that shape the future of economic research and policy.

Today, we invited Professor James Heckman to dive deeper into his research and expertise.

Wall Street Frontline: Hi, Professor Heckman, thank you so much for joining us today.

James Heckman: Okay, nice to be with you.

Wall Street Frontline: How do China's demographic challenges compare with those of other countries that have faced or are facing similar issues? What lessons can China learn from the successes and failures of other nations' welfare policies in managing demographic transitions?

James Heckman: Well, it's funny you ask that. I mean, it's not funny, it's an important question. I noticed today I just walked into the office here, and it looks like the headlines of the Financial Times today has a family affair, birth rates dive in rich nations. It's a problem all around the world.

Last October, and actually last September as well, I was in Budapest for a conference that was held in which many different scholars came from around the world, looking primarily at the declining fertility rate in Eastern Europe. It's a very general phenomenon around the world. In countries like the Czech Republic and Hungary, the replacement rate and fertility were below replacement levels,substantially below. And many countries are deeply concerned about this, especially countries that are not willing to open their doors to migration. Migration is, we're below replacement in the United States. If you look at native-born Americans, people who are resident in America and have their children in America, but we have many immigrants coming. In fact, that's a problem now in the recent presidential election. But putting that to the side, traditionally, America has opened its doors. And so one way to increase the population and get a population that will support the welfare state and institutions like pay-as-you-go security, social security, these rely a lot on migration. And especially in the United States, we've had a lot of migration of unskilled labor. Traditionally, we've had a lot of skilled labor. So there's a big debate.

But the point is around the world, the problem is basically the same in many countries. In East Asia, it turned out that it started in the 1940s, late 1940s, with the decline of Japanese fertility. And it declined tremendously. It's also been a decline in Chinese fertility, but many other countries are experiencing decline in fertility. And relatively speaking, even India, which is still above replacement in its growth rate, but it's barely above replacement now, it's much closer to breakeven than you might think. Even in rural India, where a lot of uneducated women are living in relative poverty without a lot of modern knowledge and a lot of modern creation in healthcare systems, nonetheless, they're still having a decline in fertility. So it's a real question about what causes this. But it is a universal phenomenon. And the most direct problem is the fact that an aging population typically is a population that's much less resilient. And it's much less able to support the age pyramid. We now see in China, this very large gap that at the base, the new entrants of people, the young people being born into China, are much smaller than the age cohorts that they're supposed to be supported. So there's been a relative decline in the proportion of people being born in China. And that has serious implications, not only for the support of things like social security, but also for the growth of the labor force, for the flexibility of the workforce, and so forth. I mean, a lot of policies that were put in place 30, 40, 50 years ago around the world are essentially obsolete. I mean, in China, think about how much the life expectancy has increased, especially in the eastern part of China. But even in the West, it's increased. In European systems, the average life expectancy is well over 70 years, sometimes into 80 years. In Japan, it's over 80 years. So if you go to Japan, I don't know if you've been to Japan recently, you'll see a lot of very old people doing a lot of ordinary tasks.

And so as a result, I think the nature of the population and the nature of the society will change. It's older, probably more conservative, more risk-averse, less willing to save. And this has aggregate effects on the economy. But it also has an effect on the dynamism in the society. So if you get a lot of old people, it's not as vital a society, to be honest. Even though I'm old, I'd like to think I'm still vital, but that's another matter. But I do think that generally speaking, the society becomes very sclerotic, slows down, doesn't really develop at the same extent. And we know it's the young people. New knowledge is embodied in new young people, is a driving force towards improvement in the technology and in the science and in the creativity of a society. In China, many people have been talking about the fact that the one-child policy caused the decline in fertility. That's heavily debated. It's not obvious. And the reason why I say that is Japan never had a one-child policy, and yet its fertility rate fell dramatically. Its fertility rate fell even before there was even modern contraception. The birth control pill was only made publicly available in the 1960s. But abortion and prevention of fertility was already being heavily practiced in Japan in the late 40s and early 50s. Japan was ruined. The economy was ruined by the war. Millions of people were killed. The same was true in much of East Asia, and for that matter, in Western Europe as well, in Russia particularly. So these countries experienced a massive decline. And as a result, it became very difficult for young people to raise families. And the capital stock was low. Living conditions were very poor. It was only in the 1960s that you started getting what was already happening in the United States, which was a baby boom.

We did have a baby boom after the Second World War. I mean, historically, and I don't want to go on too much about statistics, but historically, in the 1930s, during a time when there was a Great Depression and people were very, very poor, relatively poor for the country, the fertility rate declined. People were very pessimistic about their future in America. Then after the Second World War, America came out of it relatively unscathed compared to other countries. I mean, China suffered huge losses. Japan suffered huge losses. Germany, huge losses. Russia, huge losses. All of Eastern Europe. England, too. And so what happened is we came out of it, and there was a lot of excitement because we were the only economy, major economy standing and able to sell goods around the world. Then as these other economies recovered, they too experienced baby booms. They too began to have the same kind of fruits of their labors, but delayed. And as a result, the structure of the whole economy and the whole fertility process was still promoted. There was still a growth in Europe, except in Eastern Europe. It was a very strong, sharp contrast. In Eastern Europe, which was under the Russian sphere, things were very draconian. The Russians administered those colonies in a very, very severe way. So the Russians took a lot of capital and factories and the like from East Germany, and for that matter, even from Budapest. I mean, Hungary and East Germany, of course, had been fighting with the Nazis. And so the Russians felt entitled to get reparations, and they did. But the fact is these economies were poor. As the economies improved, fertility improved, but not to the same extent as in the West. So it's a general economic force.

In China, there's a special phenomenon, though. After the revolution in 1949, the status of women improved dramatically. I think it was a major feature of the 1949 revolution, and it's true of many communist countries, when they are launched, that they provide equality of education for women. The whole educational workforce increases, the quality of education rises, and many more women were given opportunities, more so than even was true in the West. So even though the level of living was lower because of the poverty and the war, the equality for women was higher. What that meant, though, was at the same time, women were working at a much greater rate and were engaged in the workforce. These factors rival the activity of bearing children and raising children. So it becomes a tough business, where the woman is working at the same time raising children. And many people say, well, why should the woman do it? And that's a logical answer. But physiologically, I think we know why. Very strong bonds between the mother and the child, and they're renewed. Fathers can play a role, and they are playing increasingly a role. And we know that helps promote fertility. When men are more cooperative and helping in childbearing, fertility rates go up. That's very commonsensical.

But right now, given all the opportunities that the modern world opens, many women and many families are deciding not to have children. And it happens two ways. Many people are not getting married at all. So the marriage rates are declining. That's one of the major sources of decline in fertility in most countries around the world. But even within the fertility of marriage, even within the institution of marriage or cohabitation, in Northern Europe, they may not get married, but they live together for long, stable relations. They might as well be married. For all practical purposes, they are married. So the structure, though, is such that they provide opportunities for women that didn't exist 60, 70, 80 years ago. And as a result, what's happening is that many women are choosing to either not have any children at all, not to get married. That's less common, but some still do. And many other women are delaying because they're more educated. And so that pushes the whole biological clock back. And that creates problems, which are much written about in terms of biological delay. And as older women, fertility declines. On top of that, education itself creates a situation where you're delaying the whole process. And so as a result of delay, you'll have like four years for college education, maybe a master's degree or some advanced degree. So the woman would be in her mid-20s. You know, 50 years, 100 years ago, she would have had children already by the time she was entering college or even graduating high school. So the opportunities for women increased. And then the cost of childbearing went up.

And then on top of that, there's a growing line of research that's talking about the, I guess I should say the declining virility and declining, what should I say, fecundity of women having to do with the environmental threats like plastics, like hormones, like a variety of additives that are appearing in modern diets. These help accelerate nutrition, prevent starvation, but at the same time seem to have a negative effect on fertility. So there are a range of factors that are operating against fertility in the modern world.

Wall Street Frontline: Your studies emphasize the critical periods for skill formation in children. Can you elaborate on the role of early interventions versus later life interventions in shaping individual outcomes? What policy recommendations would you make based on your findings on skill formation?

James Heckman: I think in the 1900s and back in the 19th century, we would think a lot that the family was a pretty much of a intact nuclear family. Now, that was kind of the ideal family in places like Victorian Britain, in the United States, among middle-class families and so forth. It wasn't necessarily the same family that had a lot of children who were going to work at six years of age in factories and things like that. That was a very different environment for children. And it's an environment that gradually was challenged and then eliminated, where women and men did not think it was a good idea for children not to go to school. And so by the late part of the 19th century, early part of the 20th century, compulsory schooling started becoming a feature of modern societies, which means then that child labor was reduced, which also then increased in some ways the demand for the mother staying at home and helping to foster the child. The child was no longer making money for the family. The wife was starting to make money for the family. And so the nature of the relationship, the household change, and with it the role of women.

I think one of the most important developments, way to measure economic development in a country is what the role of women is, how much independence and autonomy women have. And I think this is something that gets ignored. We typically think, well, you know, in a country like, take India traditionally, where you had this caste system and women were very traditional and mostly didn't get any education. And they were very, basically the phrase that was used most often would be something like barefoot and pregnant, would be describing their lifestyle, their very, very limited lives. And that's changed totally. And it's changed almost everywhere. Even in rural India, it's changing. Not to the same extent as it's in New York, but it is changing. The child is now born into a family. And the family and the mother is thinking that her job is primarily to cultivate herself.

Wall Street Frontline: Be herself？

James Heckman: Yeah. she may have a kid, she may like the kid, she plays with a kid, but she doesn't see the kid as a primary responsibility in the same way that a more traditional mother might in the past, where she would see herself as raising the child and in producing the kid and giving the kid values and shaping the kid in a traditional way. So we're really talking about the question of what, how it is we emerge as human beings. And the same now affects children skills. So if you count on the family as providing that formation of skills, teaching values to children, passing on cultural traditions, deciding, then yes, you can, you will have essentially, we know there's a lot of evidence that those early years are very important in shaping the skills of children. The brain develops very rapidly. It never stops developing.

But in the early years, the brain is like a sponge. Literally, you're absorbing. And it's more than a sponge. It's a sponge. And it gets all these neurons activated. You see different stimuli, you see music here, you see reading over there, you see sports here, see all these different things. And then what happens, you either use those neurons that you develop, or you lose them. As we don't use those neurons, we basically then phase them out. We can see that in neurological studies where some very brilliant studies by neuroscientists in France and other places have shown how, as people learn, they will replace certain parts of the same areas of the brain, something like quantitative knowledge, will you replace more sophisticated quantitative knowledge with less sophisticated. And you can see it in the formation of gray matter, connectivity among different neurons, and in building the circuits that help define our thought and feeling process. So, the early years where the family is sort of encouraging that, have really been taken for granted by many, many cultures. We assume the family plays this role. They produce the children. But now let's take another environment, take the extreme environment with no order. You're free to choose whatever you want. So, the child, there's no sense that you're going to impose any will on the child. So, here you have this little kid. The kid's free to do whatever you want. You could spoil the child. You could do whatever you, you're not going to try to teach the child anything in particular. If you can't count on the family to teach, then you can, in fact, hinder thedevelopment of that child.

Now, I'm not saying there aren't lots of ways in a free environment to stimulate the child, but I'm saying we have to recognize the traditional family has changed. And with it, some childbearing, some child practice, childbearing for sure, but child rearing practices have changed. And we've also come to understand more importantly than we ever did, the importance of interacting with the child, engaging the child, encouraging the child to learn. And we've gotten a much richer body of knowledge, which continues to evolve. And I think that's the part that's really important. But that's why I went on in this other business about the family, is that if there really are institutions out there that would say it's a very demeaning role for a woman to raise a child. If she sacrifices her career for the well-being of her own children, then it could well be that the child is going to prosper, but the mother will not.

So you run into a very serious question. Whose welfare should we consider? Whose well-being should we consider? And is a woman who's working necessarily compromising the abilities and the development of a child? And the answer is no. But we have to develop institutions that essentially understand and react to the new environment in which children are being raised.

Wall Street Frontline: How do you foresee technological advancements such as automation and artificial intelligence affecting the future of welfare policies and the labor markets? What role can welfare policies play in mitigating the potential negative impacts of technological change on employment and income distribution?

James Heckman: Well, I'm not as negative as many people about the job loss being created by it. I see it as a different way. I see it as providing opportunities to do new things. And as a result, being able to expand the possibility so we can do more things. We can complete studies more quickly. We can understand phenomena much more quickly. I just saw recently some studies that were done looking at cancer treatments and looking at diagnostics and using these new technologies of AI, ChatGPT, and some of the very innovative technologies. It was possible to process and analyze and extract lessons from data much faster rates than even five years ago. As a result, new things came into existence. So that's the, what people miss is that people think that there's a fixed number of jobs and we're all going to be working the same way 20 years from now as we do today and the machine will take over and people won't have a job. There'll be millions of new jobs created 20 years from now. There'll be new tasks that people can do, things they can make. So what we're going to find is a huge bundle of opportunities. We just need to train the people to take the advantage of those opportunities. So it's not that it's going to destroy jobs.

Now, there is a problem. People who are trained to a certain technology are also going to be found obsolete. And one of the sad parts about life is the older you are, the harder it is to learn and the harder it is to adapt. And so you're going to find a group of people who are literally not as productive as they once were, relatively speaking. So we need to do something about those people. And then we have to think about social policies that accommodate them. So if they're really getting, they're not as productive as they were and they don't justify the current wage, we might think very strongly instead of just giving them welfare and taking them out of society, we should consider subsidizing jobs and employment.

And of course, for the younger workers, teaching them new skills and adapting. So there really is a, there's a life cycle, you know, when you, you know, in Illinois, many years ago, there was a cell phone company that was coming in with new technology. And they made the implementation of this technology very, very weak in the sense that they were going to have new technology to replace secretaries. So now everybody was going to use a word processor. So then people were given the option, you know, do you want to learn to use the new word processor or do you want to retire? Well, as you might expect, the older people retired, the younger people learned and somewhere up and down the line, more able people stayed on the job, less able people retired and so forth. And so there is going to be an adjustment and that's, we have to account for the adjustment. That's what we should think about is the adjustment. It's not a permanent condition. I think the whole pie is going to expand. We're going to have more opportunities, not less.

Wall Street Frontline: As a Nobel Prize laureate, what advice or encouragement would you offer to young scholars and students aspiring to make significant contributions to their fields?

James Heckman: Well, I would say the most important thing is to try to do something unique, to try to individuate yourself in a way. Many people want to be safe and say, I must follow a certain path. But if you're talking about productivity, you're talking about like a new novel, a new book, a new idea that what's going to carry the day is something that's different, that advances what we know. So and almost always that's something that's different. It may not be, could be more. I mean, one thing that advanced travel tremendously was the luggage with wheels. Remember the wheelies that were put in, that was done 70 years ago, 50 years ago, sorry. And that wasn't very advanced, but it was huge, huge in the sense of people before were carrying bags around. Now they could roll them on wheels. And you see, the point is that's an obvious change, nothing fundamental. That's an example of an incremental change that was extremely valuable nonetheless. But there are huge breakthroughs like quantum computing, like work that's being done now and the AI that we talked about.

So I think the idea is to try to, I would always try new and hard problems. And then the other part for advice is to understand that you need to be able to learn how to fail. In other words, it's like, it sounds strange, but it's important because it's important that you try new things and almost anything that's new, anything that's different and something that's going to maybe improve the world has an element of risk in it. And the element of risk is such that you could fail and you could fail badly. And what we know is that we need just as much to be able to try new things, to be able to recover from the failure, from those new things not working out and yet still continuing.

So there was once a, it's an old saying, various people are attributed to it that I don't know who really caught it up, but it matters not to try and fail and try and fail again. It matters much to try and fail and fail to try again. That was something that all school children learned many years ago, but it's really an important idea. And that's part of the experimenting process, trying something new, but that's with yourself too. That's trying out a new you. See, in New York, you can try that. You can develop a new personality on a private level. But in the world of ideas and workplace, you say, oh, here's a new way to organize the office. Here's a new way to think about building a product. Here's something that isn't young yet. So think about those things that are not there that are not obvious. The more you follow along in the path, it's safe. There's safety in numbers, but there's also not a lot of reward and a lot, a lot of curiosity. So that's the, I think there's benefit from this, taking risks and learning to get up on your feet when you fail, but also, also to work on something that you are really interested in. You have to want to do it. If you're doing something just to make money and you can do something that you really want to do, even though it may not have so much money or may not have such prestige, it can be something you really value.

For example, if I, suppose I'm a woodworker and I'm really good at making cabinets and I can have a very deep sense of satisfaction by being a craftsman, I can build really good cabinets. Now, maybe I won't win a Nobel prize for getting a cabinet, but I'll have a deep sense of satisfaction that this is my work. It's an expression of me, and it's a matter of workmanship.

Wall Street Frontline: What do you see as the next big challenge in economics that the researchers should focus on, inspired by your work and the recognition?

James Heckman: Well, there's so many good challenges. I mean, there's a huge amount of work that needs to be done. One thing is exactly, there's a whole literature now of a kind of, I think, bad social science. It's called an industrial organization. People are saying, the famous economist Robert Solow wrote this essay years ago about the computer, and he'd say the productivity of the computer is everywhere but in the statistics. And so people are saying, wait, there's this productivity slowdown. And people just keep saying this over and over again. I was at a conference in Paris last month, two months ago now, where people were repeating this over and over. And the problem with that is that that's a model as a model for a technology of the 1920s and 30s. We don't know how to measure the productivity of things like AI, the internet, the ability to communicate, the fact that we can speak to each other this way. This was impossible 30 years ago. Now it's possible. It's easy. You take it for granted. You take wheels on bags is forgiven. But honestly, these kinds of things, I think, are very hard to measure. But the trouble is we use traditional measurement systems that don't catch up with what the new data are showing.

And this is especially true in China, where we use old statistics to talk about productivity. But this is like using capital and labor, categories that are 19th century, early 20th century categories. They were not measuring the full level of innovation, convenience, benefit, welfare, willingness to pay, happiness, a variety of other measures, which we could use but don't. So I think there's a lot of challenge, for example, in that problem.

But the deepest thing, the thing that's really hard for most people to see, and I think this is something, take the most prosaic thing, the most meaningless, tiny thing, just something very obvious. Take, for example, a, I don't know how a shower. Take a shower. Take a shower at a hotel. There are a lot of accidents happen in showers and hotels, people put soap, you get on the floor they fall. In fact, the president of the university has a broken hip because he fell in a shower in a hotel. Just literally he's using a cane. Now you ask, well, what can I somehow make a soap that has more traction so that I don't make it slippery and people fall. Can I develop a surface. Those are all questions that are immediately practical and they have huge advantages. And this is true of almost everything. Think about using the computer.

And years ago, you know, when you were programming, you wouldn't know this but back in the time when I started out as a graduate student that if you wanted to program. What you had to do is you had to really use something called compiler language, very advanced very advanced IBM language, very few people could use this language. And then it became available the standard languages like Fortran and came available and then out of it Python and a whole set of languages evolve. And each one of those represents an opportunity.

So when it's challenging for people. It's always a benefit to say can I eliminate that challenge. Can I make a task easier. Can I make you do more things with what you have. And the secret is right in front of you almost always it's like people, you know, they're looking for some great insight, you know that the road to Damascus when the light shines on you. Well, sometimes that happens. But a lot of times you just look at something very pedestrian and say, well, gee, you know, I can make a better mousetrap, or I can do this. There's all kinds of ways to innovate and create new things. And I think that's important.

Wall Street Frontline: How do you hope your Nobel Prize will influence the legacy of your work and the future directions of economic research.

James Heckman: I'm very happy to do my work. I'm lucky. I've been lucky. I mean, there are some great minds, and I respect them deeply. And there's a lot of important work that I've learned from a lot. I just feel lucky myself. So it's more of a personal thing. I do feel, however, that when we learn about human skills, and we learn about the way people are formed, and the way identities are created, and the way we can measure productivity. I do feel there's a huge opportunity here to do something very important. And we can improve the life of people around the world, because we're understanding the choices that they face and what those choices can be and what they might become. And so I see this in a way that says, creating more opportunity.

But also I raised this question, which I'm working on right now. Deep question I raised you. I spoke openly. And that's about identity. Because in a real sense, we're almost always trying to find our identity. We think we have formed identities. But it's amazing. People change their identity quickly. And say, well, I refuse. I know I must do this. I must do that. And then suddenly an opportunity comes. No, I don't have to do that. I will do it. And so it's that kind of ability to understand who we are, how we become who we are, and how we might improve what we might be able to do. So I see it as a form of human liberation. But then I would say liberation with constraints.

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