Bail out universities rather than banks?

Combattenti. Exhibition in Rome's forum, May 2013 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.

Nemat Shafik 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.

Squatters in Seville, aged 55, June 2013 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.

Start Quote

Andreas Schleicher, OECD

Europe cannot afford to have success at school so strongly depending on social background”

End Quote Andreas Schleicher OECD

"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.

INVESTMENT IN RESEARCH

  • Finland 3.8%
  • S. Korea 3.7%
  • Japan 3.2%
  • United States 2.8%
  • Germany 2.8%
  • Austria 2.8%
  • France 2.3%
  • UK 1.8%
  • Italy 1.3%

Source: OECD, May 2013. Expenditure on research and development as % of GDP. 2011 data, S. Korea and Japan from 2010

"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.

Derelict shop with window posters near the G8 summit 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?

It's all well and good having R&D, but if people on the ground don't have the capital either personal or borrowed, then ideas can't fly. Far too much wealth is in the hands of people who couldn't change wheel, let alone develop new technologies. How on earth are they the right people to decide what should get funding and what shouldn't. Go to Germany.. engineers are in the board rooms.. THAT is why Germany is doing well and will continue to do well, research funding is the result of the right people at the top.

Derek, Romsey, UK

Education and Training are important, as is the emphasis on 'Employability' that often goes with them, but these factors are no substitute for jobs. This means jobs at all levels, including jobs for manual and less skilled workers, such as in manufacturing. These have been allowed to migrate overseas by governments of both main parties, and too little has been done to secure the interests of ordinary working people. The notion that unemployed individuals can up-skill to work in the knowledge-based economy is a fallacy: it's difficult for low-skilled individuals to do this, and the KBE is unsustainable anyway because these jobs can also easily migrate overseas. I have undertaken some research (as yet unpublished) in this area.

Dr Andrew Rothwell, Loughborough, UK

Yes. A huge BUT though. Economists really just describe the innocent fraud of "money" supply that needs restructuring bottom-up & top-down. We will go from crisis to crisis until the system of money supply is taken from private banks and made a public utility. As Thomas Edison said, "If we can issue a dollar bond we can issue a dollar bill. The element that makes the bond good makes the dollar good...."

Gordon, Aberdeen, Scotland

I worked in R&D all my life. It is obviously essential if we are to stay ahead in evolving technology. However, we can't all be technologists, scientists and engineers, and as the technology advances inexorably. more and more of the workforce are unable (or not motivated) to keep up. The lower skilled jobs have been exported in enormous numbers, making it much more difficult for the ordinary working man to get employment. The trouble with the whole economic system is it relies on continuous growth which is unsustainable long term. Fine when infrastructure and transport systems are being built, but when it's finished there is a very real threat of mass unemployment. This in turn could cause civil unrest and financial collapse. I agree that engineers and other technologists should have a lot more influence (as in Germany) on the way money is spent on universities, R&D and infrastructure. Our current administration appears to me to waste enormous sums with very little to show for it.

Martin, Bracknell

"Thinking outside the box" is not what is happening here. A sustainable economy is not about exploiting natural resources or being innovative and competitive. The real economy is what we do for ourselves among ourselves. We have chosen to denigrate the local homegrown economy in favor of climbing up the ladder in search of higher valued jobs and industries. All countries cannot be competitive and all win at the same time. Sustainable economics must mean a balance of trade both locally and globally. I trade with you goods and services that we cannot provide for ourselves. When we offload and offshore providing essential sustenance and well-being for our citizens to the lowest paying global provider and instead pursue the high-flying high-paying jobs, we face the crisis that is now upon us. Ireland has travelled this path and now face the consequences.

Kenrick, Canada

I totally agree. We cannot compete with the developing world for low skilled jobs and why would we want to? Why Dr Rothwell here thinks low skilled workers cant be retrained I don't know and not everyone has the drive or natural talent to develop BUT in general it is skills we need. Much of my family is from Denmark and you do not leave education with massive debt. You leave with good qualifications and skills. Of course you then pay a LOT of tax but you do not get something for nothing right? We need to be big on skills and big on investment if we want to swim with the sharks.

Alex, Salisbury

Why do we run political systems on a country basis when business & capital is a global business. It has become a world sending nat resources to Asia and then buying them back at ten fold. It is imperative to impose country specific rules to provide a balance. Keep technology & some manufacturing to provide a life path for all levels of education. We tried giving everyone a degree here in Canada and it did not work as expected. Unemployed graduates!

David, Ancaster, Canada

It was my experience that, by the middle of the last decade, commercial interests were already choking the life out of academia. Agendas were set not by the actual field of research, but by the commercial goals of private companies. Benchmarks were becoming increasingly monetised and degrading in terms of both trust and quality. Research is unpredictable in terms of resources, whereas investors and businesses demand concrete expectations, and these two things come into conflict. Researchers need to be as free as possible to pursue whatever direction the field takes, and at some level, that means public funding. Otherwise, it just degenerates into commercial product development, which is a different thing.

Tim , Reading

A joke doing the rounds some years ago. "What do you say to a PHD in Astrophysics?" "Big Mac and fries please". That is much the same today as then with so many leaving university with no prospect of work, a lost education which could, if used, would create economic strength. Instead we are losing many of the educated youth to competing countries. The result can only be that as the conditions of these countries rise, we will only take up the cheap jobs such as the textile manufacture which we have exported to poor countries which one day will no longer be poor. Meanwhile there are those who continue to gather wealth out of nothing such as what happened in banking where money was passed about gathering interest which was not earned until the big pot ran desperately short and hard working folk having to pick up the bill and then being made redundant as cuts are made left right and centre. Pour money into the right sort of education systems and reap the rewards of innovation born of properly used talent.

O.Naylor, South Shields

I think it's time to get back to making things of quality and real value that will last a long time. Or things that can be easily recycled. There's no reason why furniture can't be made to last for one hundred years. Reupholstering is easy and employs people. Fabrics can be recycled or composted. Timber looks good and is resilient and recyclable. Traditional technical jobs which can be run as small businesses are being made redundant by built in obsolescence which helps no-one in the long-run. Products should not be permitted to be imported unless they meet certain value characteristics for longevity, serviceability and or recyclability. The 'throw-away' society is permeating everything and it's bad news. I'm not advocating a return to the dark ages, more to trades that can service and repair, combined with niche quality manufacturing. The tech industry especially should take note. I'd love to know how many signed up 'environmentalists' are churning through the latest technology, regardless of the true cost of manufacturing each successive generation of device they work through every other year. People will always buy the latest widget, whether they need it or not, it's up to government to regulate to ensure we fully think it through...

Tim, Padbury, Australia

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