Assumption about education and growth may need to be revised

Austin Delaney and Tom Healy of the Nevin Economic Research Institute recently issued a very timely call for a debate on the funding of Irish higher education.

In an extensive study of various methods used around the world to finance what we uniquely call ‘Third Level’ education, the authors also briefly explore the connections between economic growth and higher learning.

The benefits, of many kinds, not just financial, to both the individual and society at large have been the subject of many pieces of learned research and are generally thought to be very positive.

As the Nevin report is about alternative funding models it is entirely understandable that the authors present only a very cursory examination of the links between education and economic growth and, for the most part, take it as read that more education is unambiguously always and everywhere a good thing. It is hard to imagine many people finding this proposition controversial. In addition, there is plenty of evidence (produced by the OECD for example) that the social benefits to higher education are even greater than the extra salary that a graduate can expect to earn.

But in any debate about education I think a closer examination of the underlying assumptions and evidence is warranted. First, it should be acknowledged that economists still find the underlying determinants of economic growth to be both mysterious and very controversial. There is a strong tendency to assume that education must be good for growth because it seems to be intuitively obvious. And, as the Nevin researchers say, there is some evidence that supports this basic intuition. But there is also evidence that suggests the link is much weaker than we might think.

What does seem to be almost completely uncontroversial is the idea that individuals who get a degree - or other higher qualification - do earn a lot more money over the course of their careers. That’s why making them pay a good chunk of their education costs is both fair and sensible. This part of the evidence base is uncontroversial. My own sense of the empirical backing for the benefits to society as a whole is that it is somewhat weaker.

As few as 10 per cent of my generation of went on to higher education in the UK. A subsequent massive expansion has taken that number close to 50 per cent over the course of three decades. There is nothing in the headline UK economic data over that period that suggests the economy received much of a boost from all of that extra spending on education. In particular, productivity - the core of any understanding of economic growth - has disappointed for most of that period. For those that think that education can only boost productivity with a lag, it is worth noting that current UK productivity growth, which presumably has been boosted by decades of prior investment in higher education, is spectacularly disappointing (and absent).

That's just one economy and analysis bordering on anecdote. By coincidence (and contrast), Bloomberg today published a piece by Charles Kenny with the title 'Why Education Spending Doesn't lead to Economic Growth'. Kenny cites research that estimates that only 10 per cent of US GDP growth between 1915 to 1999 can be attributed to more spending on higher education. He contends that 'at the global level, no relationship has been found between a more educated population and more rapid economic development'.

Not enough attention is paid to just what we mean by 'expanded higher education'. Tenured professors and teacher trade unions have done a magnificent job in persuading us that a euro of spending is a euro of spending - no matter what is being taught and studied, no matter who is doing the teaching, no matter what the quality of that teaching amounts to. But surely we can all agree that the social benefits of a degree in High Frequency Trading are zero to negative whereas a degree in medicine is of somewhat more value. It is not clear that society should fund all education activities equally.

Some researchers would contend that if we are to find the money for more education, it would be much better spent at an earlier stage: the evidence base for the positive returns to pre and early primary education is extensive and almost unambiguously uniform.

Kenny contends that in many countries, particularly in the developing world, one of the most common careers for anyone with a degree is to be a teacher. He asks, 'if badly educated students end up in comparatively well-paid jobs providing low-quality education to the next generation, why should we expect a dramatic growth impact from that?' Undoubtedly, this will be controversial and, indeed, is unfair to the teaching profession as a whole. But all educationalists, the good ones at least, will welcome the robust debate called for by the Nevin Institute.