Bail out universities rather than banks?

  • 12 June 2013
  • From the section Business
Combattenti. Exhibition in Rome's forum, May 2013
Image caption Europe's cities face economic tensions in the recession. Statues of "Combatants" in Rome's ancient Forum

World leaders will be gathering in Northern Ireland next week for the G8 summit. Like a bunch of well-dressed people standing around a car that won't start, they will be looking for ideas to revive the spluttering engine of economic growth.

But is it time to think differently about what creates new industries and jobs? Should education be recognised as the key to innovation rather than a drain on the public purse?

Should we be pumping money into universities as well as banks and propping up schools and colleges as well as currencies?

Andreas Schleicher, the OECD's influential big thinker on international education, says that western economies have reached a fork in the road. It's a case of up-skilling or downsizing.

"You have two choices. You can go in to the race to the bottom with China, lowering wages for low-skill jobs. Or you can try to win in innovation and competitiveness.

"In the long run, if you don't have natural resources to sell, skills are the only way of competing.

Way out of a crisis

"In the past, monetary policy and fiscal policy could be seen as a way to growth, but today, what remains is human capital. You can no longer bail yourself out of a crisis, you can't stimulate your way out of a crisis, the only way is to provide better skills."

This would also mean making fundamental changes to the school and university systems, argues the OECD's education expert.

Image caption The IMF's Nemat Shafik warns of the social cost of youth unemployment

Schools will have to give all pupils a chance to succeed and to tackle the stubborn, talent-constricting link between family income and academic achievement.

"Europe cannot afford to have success at school so strongly dependent on social background," says Mr Schleicher.

"That's where you cut off your supply. You simply won't get more people into university if you don't improve at the foundations.

"We're at the limits of what universities can do, because the pipeline is limited."

Mr Schleicher says the landscape of higher education will have to be reinvented, moving beyond the traditional university to a variety of smaller, specialist, advanced institutions, accessible in a much more flexible way.

Danger at the margins

Once the education system is reconfigured, he says, policymakers will have to encourage businesses to shift to a better-qualified workforce and "to create disincentives for low skills".

As an example, he says in Singapore employers have a tax incentive to hire skilled staff.

Image caption Squatters in middle age: A couple in Seville caught up in the recession

In Hong Kong there has been a policy of moving out low-skilled production and replacing it with more high-value industries.

"They are focused on moving up the value chain. In Europe we do the opposite. We are trying to cling on to low-skill jobs."

The costs of drifting downwards into a low-skilled economy are dangerously high, he argues.

Research by the OECD shows that those with the lowest skills are pushed to the political margins, disengaged and distrustful of society. It's a combustible mix.

'Survival skills'

Nemat Shafik, deputy managing director of the International Monetary Fund, says governments need to "think outside the box" about harnessing education in the cause of economic recovery.

In particular, she has concerns about the high level of youth unemployment, at its most acute in southern Europe, North Africa and the Middle East.

"It's the most worrying phenomenon. Not just because of the wasted potential and frustrated young people. It's also politically and socially very dangerous. We know that high rates of youth unemployment have a huge fiscal cost for countries, consequences for crime, higher rates of mortality, higher rates of suicide, higher rates of social instability," says the IMF's deputy head.

Even with the most optimistic view of a recovery, she says it will take years to tackle the levels of unemployment.

"Which is what brings us to the role of education. It does seem to us that some creative thinking about the future of education could start to make a dent in these unemployment rates," says Ms Shafik, the Egyptian-born former vice president of the World Bank.

It's not just a case of churning out more graduates, she argues, but about providing the "survival skills" for an unpredictable jobs market. Not least, because the relationship between education and labour markets can be complex.

In Europe and North America, having a degree makes someone much less likely to be unemployed. But in North Africa, it is the opposite, with graduates more likely to be unemployed than non-graduates, because the job opportunities are not there for them.

In sub-Saharan Africa, the problem is even more fundamental, with a lack of access to basic education erecting a barrier to employment.

Downward cycle

Ms Shafik also wants the education system to act as an advance guard on preparing for big social and economic changes.

In developed countries, people are going to have to work longer, but many jobs are going to disappear long before their occupants can afford to retire. "We have to think about what they're going to do," she says.

Many white-collar jobs in the middle layers of the labour market are going to be lost to outsourcing or technological change, she says. Universities should have a role in retraining these mid-career people.

"Universities will have to be places that people go in and out of all their lives. The idea that you get trained for three or four years and that's it for life is unrealistic."

But during a downturn, the tide can be running in the opposite direction. At the point at which educational opportunities are most needed, there is pressure to spend less. It's a cash-strapped Catch-22 situation.

In England, the raising of tuition fees has seen a plunge in part-time undergraduate students, down by 40% in two years. And these are exactly the type of people who are wanted for retraining.

"We are strong supporters of higher investment in education and infrastructure.

"But part of the problem of this crisis has been that many countries have cut back on investment in education, infrastructure, research and development and innovation, which are all the things that are going to create growth in the future."

Digital industries

Another way in which education is being seen as part of the economic crash recovery team is through its links to innovative technology.

Universities have been the golden goose for digital industries. Google was a PhD project, Facebook was invented for university students. Hi-tech industries cluster around universities, with Silicon Valley the blueprint other countries try to copy.

Image caption The windows of derelict shops near the G-8 summit have been disguised

The link between universities and industrial growth is going to become even more important, says Andy Haldane, the Bank of England's executive director for financial stability.

They provide the stable environment needed for long-term investment, he told the Global University Summit, an annual event that shadows the G8.

"What does it take to make investment and innovation flourish? It takes patience, a willingness to defer gratification… a willingness to experiment, to fail as often as you succeed."

But modern capital markets were hooked on "instant gratification", he told international business and university leaders at the summit, hosted by the University of Warwick.

"Modern capital markets, like modern football teams, are intolerant of experimentation and failure. They are short-termist and such short time horizons are inimical to research and development, counter-productive to investment and innovation."

In contrast, he said universities operated on longer timescales needed for research. "They can afford to be patient."

Mr Haldane said that the stakes were high for the need to invest.

"Economists only know one thing," he said. "If you ever meet an economist and they say they know two things, they're exaggerating.

"The one thing is this: Today's investment is tomorrow's growth."

Should there be a greater emphasis on education and training in the push for economic recovery?

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