Higher education is in an expensive muddle with too many useless degrees; The Great Stagnation of American Education

Higher education is in an expensive muddle with too many useless degrees

A long summer break has allowed me to reflect on some issues which, although extremely important, I somehow seem to miss in the hubbub of events and financial news.

I think there is too much higher education. Roughly 50pc of youngsters now go to university to get a degree. In my day, the proportion was more like 5pc. (The policemen are getting younger too.) Now doubtless 5pc was too low but I am pretty sure that 50pc is too high. Photo: Alamy

By Roger Bootle

7:37PM BST 08 Sep 2013

I have found myself reflecting on higher education. This isn’t just idle speculation. Education is an important part of modern economies and has a major bearing on how they perform. This is an area in which Britain both excels and does appallingly badly – in different parts, of course. I realise that what I have to say may tread on a few toes, because I am no professional expert in the field. Still, I do have some basis for comment. Many moons ago, I taught economics at various levels. I now consume large amounts of the output of the educational establishment, in the shape of applicants for jobs at my company. Above all, I am the parent of teenage children and, like so many other parents, am anxious about their prospects.I think there is too much higher education. Roughly 50pc of youngsters now go to university to get a degree. In my day, the proportion was more like 5pc. (The policemen are getting younger too.) Now doubtless 5pc was too low but I am pretty sure that 50pc is too high.

Things are as they are primarily because education is a part of society where market forces have played little role. Now, regular readers will know that I am not a free market fundamentalist: I recognise market failure and I believe in some forms of government intervention. But when a whole segment of economic activity is scarcely touched by market forces then all sorts of peculiar things happen.

Thousands upon thousands of young Britons have been going to universities to get worthless degrees, which they have somehow thought would help them to progress in their careers. But many have been sold a pup or, rather, until recently anyway, they have been given one.

Now don’t get me wrong. I am not an educational Luddite. I was very fortunate to be the beneficiary of an extremely good grammar school education which took me on to two Oxford degrees, for which neither I nor my parents paid a penny. I am immensely grateful and I am appalled by the financial burdens that so many youngsters are saddled with today. But, that said, I approve of the way that finally some sort of market principles are making their way into the educational world and that youngsters and their parents are beginning to ask themselves whether it is actually worth going to university if this is what it costs.

For many students the rewards are paltry – or even non-existent. You regularly hear about the so-called graduate premium, that is to say the extra earnings that someone can command if they have a degree. This is often of questionable relevance in many thousands of marginal cases.

The average premium may be so many thousands of pounds per annum, including all the super-bright graduates, but of what relevance is this to our nice but dim Jason who is considering a degree in Beckham Studies at the University of Boothill?

Although having a university degree now confers much less status than it did, still so many of the old attitudes linger on. Parents are proud that little Johnny is now “a graduate”, in the way that they never were. So Johnny is proud and, of course, the educational factories that pour out little graduate Johnnies are proud to be producing them.

Even so, we have reached the point where a lot of parents and their children have realised that the worth of many degrees is low but they fear that without one, umpteen activities are blocked because they admit only graduate level entries. And they are right to be worried. But these restrictions need to be radically relaxed. The truth of the matter is that there are all sorts of things in life for which a higher academic training is extremely useful – and some for which it is positively useless or even disadvantageous. On the whole, academic studies do not teach you much about how to get on with work colleagues, to be decisive, to value timeliness, to realise what to prioritise and, of course, they do not teach energy.

As part of my job, I see umpteen CVs and I interview many young people. A lot of them suffer from what I call “qualificationitis”, that is to say they study for one academic qualification after another without ever seeming to practice whatever it is that they have become qualified for.

Frequently, when they come for interview with me, they ask if there is scope at Capital Economics for them to acquire another qualification. A qualification for what I wonder?

“What is the learning method at Capital Economics?” they ask. The reply I give them, I am sure, frequently appals.

“Essentially, you are apprenticed to a master of their trade and you sit by him or her being given small tasks and absorbing what he or she does. As you become more proficient you are given bigger tasks under less supervision. Eventually you get to do stuff under essentially no supervision and at some later point you are given someone else to supervise.”

Getting education right really matters. Michael Gove has made some real impact with secondary education and there has been an advance too in higher education.

The system of charging students a maximum of £9,000 per annum may not be perfect but the important thing is to get some sense of market value into the process. Not because education is all about money. It isn’t, and it ought not to be.

There should be plenty of scope for some people to study ancient Egypt even though this will bring them no pecuniary reward. Equally, as the pace of technological change is incessant, we need people who have the ability to be able to acquire new skills as things change. This may argue for more general and less specific skill-focused education but does not excuse the disastrous and expensive muddle we have got into about higher education.

Too many people study too many useless degrees and too many resources are taken up in the teaching of them. We need to recognise that there are many worthwhile things that a youngster can work at which do not require a degree to be able to undertake them successfully. There is much more to life and learning than getting a degree.

Roger Bootle is managing director of Capital Economics.


SEPTEMBER 7, 2013, 2:30 PM

The Great Stagnation of American Education


For most of American history, parents could expect that their children would, on average, be much better educated than they were. But that is no longer true. This development has serious consequences for the economy.

The epochal achievements of American economic growth have gone hand in hand with rising educational attainment, as the economists Claudia Goldin and Lawrence F. Katz have shown. From 1891 to 2007, real economic output per person grew at an average rate of 2 percent per year — enough to double every 35 years. The average American was twice as well off in 2007 as in 1972, four times as well off as in 1937, and eight times as well off as in 1902. It’s no coincidence that for eight decades, from 1890 to 1970, educational attainment grew swiftly. But since 1990, that improvement has slowed to a crawl.

Companies pay better-educated people higher wages because they are more productive. The premium that employers pay to a college graduate compared with that to a high school graduate has soared since 1970, because of higher demand for technical and communication skills at the top of the scale and a collapse in demand for unskilled and semiskilled workers at the bottom.

As the current recovery continues at a snail’s pace, concerns about America’s future growth potential are warranted. Growth in annual average economic output per capita has slowed from the century-long average of 2 percent, to 1.3 percent over the past 25 years, to a mere 0.7 percent over the past decade. As of this summer, per-person output was still lower than it was in late 2007. The gains in income since the 2007-9 Great Recession have flowed overwhelmingly to those at the top, as has been widely noted. Real median family income was lower last year than in 1998.

There are numerous causes of the less-than-satisfying economic growth in America: the retirement of the baby boomers, the withdrawal of working-age men from the labor force, the relentless rise in the inequality of the income distribution and, as I have written about elsewhere, a slowdown in technological innovation.

Education deserves particular focus because its effects are so long-lasting. Every high school dropout becomes a worker who likely won’t earn much more than minimum wage, at best, for the rest of his or her life. And the problems in our educational system pervade all levels.

The surge in high school graduation rates — from less than 10 percent of youth in 1900 to 80 percent by 1970 — was a central driver of 20th-century economic growth. But the percentage of 18-year-olds receiving bona fide high school diplomas fell to 74 percent in 2000, according to the University of Chicago economist James J. Heckman. He found that the holders of G.E.D.’s performed no better economically than high school dropouts and that the rising share of young people who are in prison rather than in school plays a small but important role in the drop in graduation rates.

Then there is the poor quality of our schools. The Program for International Student Assessment tests have consistently rated American high schoolers as middling at best in reading, math and science skills, compared with their peers in other advanced economies.

At the college level, longstanding problems of quality are joined with the issues of affordability. For most of the postwar period, the G.I. Bill, public and land-grant universities and junior colleges made a low-cost education more accessible in the United States than anywhere in the world. But after leading the world in college completion, America has dropped to 16th. The percentage of 25- to 29-year-olds who hold a four-year bachelor’s degree has inched up in the past 15 years, to 33.5 percent, but that is still lower than in many other nations.

The cost of a university education has risen faster than the rate of inflation for decades. Between 2008 and 2012 state financing for higher education declined by 28 percent. Presidents of Ivy League and other elite schools point to the lavish subsidies they give low- and middle-income students, but this leaves behind the vast majority of American college students who are not lucky or smart enough to attend them.

While a four-year college degree still pays off, about one-quarter of recent college graduates are currently unemployed or underemployed. Meanwhile, total student debt now exceeds $1 trillion.

Heavily indebted students face two kinds of risks. One is that they fall short of their income potential, through some combination of unemployment and inability to find a job in their chosen fields. Research has shown that on average a college student taking on $100,000 in student debt will still come out ahead by age 34. But that break-even age goes up if future income falls short of the average.

There is also completion risk. A student who takes out half as much debt but drops out after two years never breaks even because wages of college dropouts are little better than those of high school graduates. These risks are acute for high-achieving students from low-income families: Caroline M. Hoxby, a Stanford economist, found that they often don’t apply to elite colleges and wind up at subpar ones, deeply in debt.

Two-year community colleges enroll 37 percent of American undergraduates. The Center on International Education Benchmarking reports that only 13 percent of students in two-year colleges graduate in two years; that figure rises to a still-dismal 28 percent after four years. These students are often working while taking classes and are often poorly prepared for college and required to take remedial courses.

Federal programs like No Child Left Behind and Race to the Top have gone too far in using test scores to evaluate teachers. Many children are culturally disadvantaged, even if one or both parents have jobs, have no books at home, do not read to them, and park them in front of a TV set or a video game in lieu of active in-home learning. Compared with other nations where students learn several languages and have math homework in elementary school, the American system expects too little. Parental expectations also matter: homework should be emphasized more, and sports less.

Poor academic achievement has long been a problem for African-Americans and Hispanics, but now the achievement divide has extended further. Isabel V. Sawhill, an economist at the Brookings Institution, has argued that “family breakdown is now biracial.” Among lower-income whites, the proportion of children living with both parents has plummeted over the past half-century, as Charles Murray has noted.

Are there solutions? The appeal of American education as a destination for the world’s best and brightest suggests the most obvious policy solution. Shortly before his death, Steve Jobs told President Obama that a green card conferring permanent residency status should be automatically granted to any foreign student with a degree in engineering, a field in which skills are in short supply..

Richard J. Murnane, an educational economist at Harvard, has found evidence that high school and college completion rates have begun to rise again, although part of this may be a result of weak labor markets that induce students to stay in school rather than face unemployment. Other research has shown that high-discipline, “no-excuses” charter schools, like those run by the Knowledge Is Power Program and the Harlem Children’s Zone, have erased racial achievement gaps. This model suggests that a complete departure from the traditional public school model, rather than pouring in more money per se, is needed.

Early childhood education is needed to counteract the negative consequences of growing up in disadvantaged households, especially for children who grow up with only one parent. Only one in four American 4-year-olds participate in preschool education programs, but that’s already too late. In a remarkable program, Reach Out and Read, 12,000 doctors, nurses and other providers have volunteered to include instruction on the importance of in-home reading to low-income mothers during pediatric checkups.

Even in today’s lackluster labor market, employers still complain that they cannot find workers with the needed skills to operate complex modern computer-driven machinery. Lacking in the American system is a well-organized funnel between community colleges and potential blue-collar employers, as in the renowned apprenticeship system in Germany.

How we pay for education shows, in the end, how much we value it. In Canada, each province manages and finances education at the elementary, secondary and college levels, thus avoiding the inequality inherent in America’s system of local property-tax financing for public schools. Tuition at the University of Toronto was a mere $5,695 for Canadian arts and science undergraduates last year, compared with $37,576 at Harvard. It should not be surprising that the Canadian college completion rate is about 15 percentage points above the American rate. As daunting as the problems are, we can overcome them. Our economic growth is at stake.

Robert J. Gordon, a professor of the social sciences at Northwestern University, is at work on a book about the American standard of living since the Civil War.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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