Does Higher Education really cause economic growth?

Lant Prichart, of the World Bank & now Harvard wrote a stunning paper, that examined the data, ‘Where has all the education gone?’ and concluded that there was “little evidence between education and higher economic growth”. The University of Cambridge economist Ha-Jon Chang concluded, with a number of case studies, that “more education in itself is not going to make a country richer”. As Chang claims, South Korea, Taiwan and China did not achieve stellar growth on the back of HE, that came much later.

The argument is that investment in Higher Education always pays a massive economic dividend. Few question this statement but some economists doubt that this is true. It is certainly not true across southern Europe; Greece, Spain, Portugal or Italy, where high levels of university enrolment have been high, this has been matched with disastrous economic performance and low productivity.

In the UK, where Scotland has much higher enrolment rates than the rest of the UK, productivity and economic benefits are much lower. It has poorer levels of productivity, ranked 17th of 32 countries, for productivity levels amongst OECD countries. On another measure, it lacks investment in innovation, at 4.3 per cent of the UK total of £18.4bn (0.6 per cent of Scottish GDP compared to 1.06 per cent for the whole UK). A third measure shows anaemic internationalisation with only 50 companies accounting for 50% of Scotland’s exports.

A cost is a cost

Nearly five years ago I wrote a piece about student loans that turned out to be on the money (or not!). Student debt has been a disaster. Wherever you look, HE has been rising in cost but delivering much the same product. In some cases the quality has been falling, as quality and quantity of contact time falls. In the US the student loan book has topped $1.2 trillion, greater than the GDP of the majority of the world’s economies. When I wrote that piece, the government predicted and budgeted that it would lose 28%-30% of loan money but by 2013 it had ballooned to 35% and in early 2014 to 45%. I prefer to express this as 45p per £1 of student loans currently not repaid. This is a loss of around £10 billion in 4 years. To put that in perspective, that is the entire yearly budget for HE this year. And what do you think the total value of outstanding loans (in today’s terms) is projected to be in 2040? Answer: £330 billion.

Why has the government been so keen to sell this loan book? It takes it out of the PSND (Public Sector Net Debt) but that’s just creative accounting. In case you were wondering it also, for obscure accounting reasons, doesn’t show up on the deficit. But it is real debt.

Sorted – correlation not causation

So what’s going on here? Those who defend the system quote the higher lifetime earnings of graduates but this may be correlation not causation. If higher education acts as a sorting mechanism, without a great deal of causal economic growth, is shown in many contexts, the idea that it acts as a filter or sorting mechanism makes sense. Credentials act as a signal, rather than causal factor in recruitment. The rise of credentialism itself may be the real explanatory factor.

Shift back to vocational

Another emerging phenomenon is the recent rise of political will around vocational learning. Visiting Professor at Harvard, Pasi Sahlberg, claims that there is “…a clear international trend in the developed world to make vocational education a true choice for more young people”. In the last UK election Universities were barely mentioned, with the winning party holding firm on high fees. Interestingly, their main manifesto promise was 3 million apprenticeships. They won.

Singapore’s  Prime Minister, Lee Hsien Loong “is leading a campaign to build a system modeled on Germany’s apprenticeship system” Bloomberg May 2015.

South Korean President Lee Myung Bakcalled out “reckless university enrolment” and Singapore have now embarked on a strong vocational tack. Even Finland, that beacon of educational attainment sees clear vocational work in schools as essential to their economic future.

In emerging economies such as South Africa there is an amazing statistic: 477,000 job vacancies alongside 344,000 unemployed graduates. This story is echoed across Africa, where the problem is not a shortage of academic research, God knows we have enough of that in the developed world, but youth unemployment. What is known as the youth bulge (by 2050 60% under 25) is already leading to mass youth unemployment and underemployment, leading to social unrest. Witness Boko Haram, which erupted in Nigeria’s poorest state, the state with the highest levels of youth unemployment. Then along comes a gang of religious thugs and offers a gang, a purpose with a gun and a set of radical, fundamentalist beliefs. To what problem is education a solution in Africa? Youth unemployment. Africa does NEED vocational education more than academic education.

Conclusion

This critique is not aimed at the destruction of Universities, only a false premise that has become an assumption. I’d much rather we evaluated Universities on a mixture of economic, social and cultural factors, rather than unproven assumptions around economic growth. I say this as I believe it would lead to a re-evaluation of their purpose and funding. We’d shrink the bloated research budgets, put far more emphasis on teaching, put stringent controls on wasted capital budgets and restructure them so that they’d be more productive (lower costs) and not just focus on producing the next generation of academics.