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Saturday, June 27, 2015

Mass varsity education – is it worth it?

THE US business model for higher education is spreading. It gave the world the modern research university – a blend of the 17th century Oxbridge college system with the German research university developed in the early 19th century.
The result: the likes of Harvard, Yale, Caltech, Columbia, taking eight of the world’s 10 best universities (15 of the top 20) and more than 50% of the first 100. Today, they are the prime movers of the world’s intellectual and scientific life. That’s not all. They led the world in creating mass higher education – driven in part by the US economy’s need for innovative skills and managerial talent, and in part, by the desire to give war veterans a chance to better themselves.
For Americans, college has become the passport to prosperity. Given its success, the US-style market-based research university has become the global gold standard. And so, competition intensifies among nations to create world class universities a lá American style. Global tertiary enrolment ratio (share of student-age population at university) rose to 32% in 2010, from 14% two decades before. Malaysia’s ratio was 48% in 2012. Spending on higher education across the rich OECD nations reached 1.6% of GDP in 2011 (1.3% in 2000). In the US, it’s 2.7%; Malaysia, 1.5% or 7.7% of national budget. European-style education where everything is done by the state, is giving way to the US market-based system in which the private sector provides a large part of the education, and individuals pay most of the tuition. But costs are rising.
Value for money
On the research side, most will agree that America’s top universities are probably getting their money’s worth. In 2014, 19 of the 20 global universities that produced the most highly cited research papers were US-based. But on the educational side, the outcomes are less clear. Numeracy and literacy tests suggest that US graduates (same as Malaysia) perform poorly and scores are slipping; and that students don’t learn hard enough these days. Overall US graduation rate is only 59%. For Malaysia, total enrolment for higher education rose 70% over the past ten years to reach 1.2 million. Yet, tuition fees globally have doubled (adjusted for inflation) over the past 20 years. US student debt today, at about US$1.2 trillion, exceeds credit card debt and car loans. Nearly one-third of student loans is in default, and rising.
Is going to university a bad investment? On paper, an undergraduate degree in US still yields an average 15% return. In emerging nations, the return is supposedly higher – but falling. Whereas individuals do appear to get a decent return, it is less clear whether society as a whole does. The real dilemma arises from two underlying tensions: between research and teaching; and between excellence and equity. This raises the broad policy issue for society: whether rising public investment in tertiary education makes sense?
If graduates can value-add more than non-graduates because their continuing education makes them more productive (and thereby, boost economic growth) then, society is better off. Yet poor test scores, as does the testimony of employers, suggest otherwise. Graduate unemployment in Malaysia stands today at 25%; many think it’s higher. A recent study on recruitment by professional services firms concluded that big US employers took-in graduates from the top elite universities only because of their tough selection processes, and not so much because of what they might have learned. This says a lot; and that’s alarming.
Research vs teaching
Universities pay based on their research, not on educational output. Tenured faculty’s concentration on research excellence has transformed tertiary education into “university.com” enterprises from “university.edu,” so to speak. The upshot: less time is spent on teaching. That’s the trade-off as a consequence. After all, there are (i) no key performance indicators (KPIs) for effective teaching and, helping students become wiser and more productive adults; (ii) no incentives to build responsible citizenship; and (iii) no credits assigned to help students live meaningful, ethical, useful lives.
Essentially, few bother with the student’s “big picture.” This crucial balance between excellence in research and good teaching is missing. Even so, there is no reliable means to assess how well universities are doing on the teaching side of their job: research impact is easier to gauge, not their educational outcome. Let’s face it. Students are ultimately buying degrees, not education really. The fact remains that Harvard degrees are valuable because there are so few of them. Sure, Harvard strives to nurture talents for the greater good of society; but it also fights competitively to satisfy status-hungry parents. Similarly, top employers’ main evaluation filter rests intensely on the highly vigorous selection processes of top-rated universities, in order to fill-up their ranks.
The Economist’s recent special report on universities rightly observed: “So higher education has a divided soul” The US congressional report in 2012 concluded that for-profit private universities had a “64% drop-out rate and spent 22% of revenue on marketing, advertising, recruiting and admissions, against 18% on teaching.” That’s why outcomes are fuzzy.
Excellence vs equity
No doubt the US model has proved beneficial also to the world. But it is expensive; also inequitable. It has done well at creating excellence in research, but at the expense of excellent teaching. Also, the disadvantaged is often crowded out. Still, costs are hard to control and value for money, hard to gauge. In essence, the US hybrid system is supposed to give its cleverest a chance to study at the best universities regardless of race and income, and to offer those who qualify a chance to earn a degree at reasonable cost. But it’s struggling with access and cost control. Finance has made it easier to access higher education – government provides loans for all (and grants for the poor). But the combination of rising costs and budget constraints (so that “Baumol’s disease” crowds out tertiary education) and an unforgiving loan system acted to squeeze out the poor and rising middle-class.
On the whole, students do get what they want (improved economic prospects) but at the high cost of unaffordable debt. The government wants three things: research (which US continues to dominate); human capital upgrade (outcomes don’t look so good – US test results are poor); and equity (results look bleak with graduation rates between rich and poor diverging; loan default is rising).
New aristocracy: Intellectual capital drives the knowledge economy. Unlike previous generations, “assortative mating” (clever successful men marrying clever, successful women) is on the rise globally. In US, such marriages doubled in 1960-2005 to account for a 48% share of unions. By one estimate, these couples raise US inequality by 25% (two-degree households enjoy two large pay-checks). They bring forth clever children in stable homes. I am told each of these children hear millions more words by the age of four than those on welfare. And, they go to top-notch universities. This is most prevalent in US and Asia where the education system favours the well-off much more.
So, the American elite will move ahead, producing a new aristocracy who meets the standards of meritocracy as good as (if not better than) their peers. They will serve to perpetuate the advantage of the elite.
MBA still relevant? Despite the rise of Asian business schools in the face of falling US demand for 2-year MBAs (down 20% from 2000), the question arises whether young executives need an MBA at all. As the MBA space gets more competitive, demand now shifts to Greater China and India where executives opt to stay closer to home to hone their skills, preferring short and more focused quality business programmes, and demanding more global cases (60% of Harvard Business School (HBS) cases are today international – 10%, 15 years ago).
Corporations today recruit more PhDs and prefer to train executives themselves (4,000 of them run “corporate universities”). For executives wanting a business education, their choice is either the one they want to pay, or the one their firm gives them. Still, demand by Asians for high quality, top US business schools like HBS, remains strong and exclusive.
Technology and MOOCs
To contain costs, universities are turning to technology. Hence, the rush to provide stand-alone teaching online through Massive Open Online Courses (MOOCs). Bear in mind two big forces underpin costs: (i) high marginal cost to add new students because they demand proximity infrastructure and teachers; and (ii) productivity gains are hard to come-by because of labour intensity. However, MOOCs work differently: while the fixed cost in creating new online courses is high, marginal cost in teaching additional students is really low. Indeed, each additional unit sold is pure profit.
But, in the end, MOOCs compete on quality. Online education closely resembles film-making where real success really flies, instead of as a service industry like massaging. Recent Harvard and Princeton experience indicates that students can learn as much as with conventional teaching in three-quarters of the time, but at 19%-57% lower cost. It is becoming clear that technology can make education more effective, more convenient and more cost-competitive.
It is already causing some professors to re-examine the way they teach to help realise their promise to revolutionalise education. But resistance by faculty is slowing-down the wholesale adoption of technology. Change comes slowly even among those who preach it.
What then, are we to do
Higher education has to prove its worth. It has become just too expensive and is also inequitable. Value for money is difficult to measure. As I see it, there is no reliable benchmark to assess what students really learn by the time they graduate. Nor consistent data on what they actually earn in real life. So, it’s hard to tell how much education raises the worth of their human capital. There is a sense, however, that individuals do benefit with a positive outcome. Does society benefit? Hard to tell. Signals from employers relate simply that those they pick are smart enough to pass the rigors of tough selection processes. Nothing really about their real worth – so, many countries are working to find out. OECD, the rich nations’ club, has been trying to ascertain students’ value-add on graduation, along the lines of the PISA (Program for International Student Assessment) at secondary school. OECD’s AHELO (Assessment of Higher Education Learning Outcomes) Feasibility Study still hopes to start with measuring the worth of economics & engineering graduates. The project has been grounded for 8 years because of politics – victim of governments “kicking-the-can-down-the-road.” That’s inexcusable.
Universities must lead change – the global market needs proper performance metrics and elite institutions must buy-in, while governments need to stand behind efforts to get this done. It’s not fair for graduates to find out later from the market that their degree is not worth what they had thought! They deserve better to know in advance which institution actually provides value for money.
Former banker, Harvard educated economist and British Chartered Scientist Tan Sri Lin See-Yan is the author of The Global Economy in Turbulent Times (Wiley, 2015). Feedback is most welcome; email: starbiz@thestar.com.my.

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