By Chris Farrell The American economy has long relied on a well-educated workforce to fuel innovation, the lifeblood of any modern economy. That's why the headline "The Advanced Economies Losing Lead in Education" from the Conference Board's recent report was so disturbing. The business think tank recently noted that emerging nations might achieve 100% literacy in another three decades.
Meanwhile, America's edge in education is eroding by many measures, including school test scores and high-school dropout rates. Even more worrying is that both the federal government and state legislatures have been reducing their support of colleges and universities, the crown jewels of America's human-capital economy. This is a mistake in an increasingly competitive global economy (see BW, 11/21/05, "America the Uneducated").
Still, I would like to set aside parochial public-policy concerns for the moment and celebrate the good news about rising education levels in developing nations. Assuming the projections are even close to being right, advances in educational attainment in many developing nations signal a surge in global knowledge, skill, and innovation -- and, yes, competition. The potent combination of the widespread embrace of capitalism and improvements in education suggests that the economic bounty that has been largely confined to a handful of nations will be shared by the entire world.
CENTENNIAL PROGRESS. In the vanguard of this global human-capital revolution lies a greatly underappreciated force: universities. Discussions of globalization typically revolve around major economic trends, such as trade, foreign direct investment, and labor market competition. Yet a linchpin of the evolving integrated world economy is a common university structure.
Certainly, the numbers are striking. About 20% of the world's relevant age group -- well over 100 million young adults -- are participating in higher education. That's up from a fraction of 1% of this age group in 1900, or about 500,000 students, calculate John Meyer and Evan Schofer, sociologists at Stanford University and the University of Minnesota, respectively.
To put that figure in perspective, the scholars note that Algeria, Kazakhstan, and Myanmar each now has as many students enrolled in higher education as the entire world did at the start of the 20th century.
THE AMERICAN MODEL. Too far back in time? How about this: The typical developing nation now has a college-enrollment rate that approximates those of a major Western nation only two to three decades ago. With the pace of economic growth picking up and multinational organizations putting down deeper roots into developing nations, the pressure is growing for emerging markets to invest even more in university education. For instance, a recent McKinsey & Co. analysis cited a looming talent shortage in fast-growing China. (You can download the fascinating paper by Meyer and Schofer, "The World-Wide Expansion of Higher Education in the Twentieth Century," by clicking here.)
Of course, America didn't invent universities (the first academic-degree-granting universities rose in Europe around the 1100s). Yet since the 1960s, when many developing nations went on a higher-education expansion spree, the American university has been the basic model to be emulated. One major reason is that the modern American university has proved enormously successful at generating the kind of scientific research and technological insight that powers an economy forward.
For another, American universities largely educated the foreign elite who returned to their developing-nation homelands and helped establish comparable institutions in their own countries. In response, more and more American universities in recent years have set up brick-and-mortar outposts in developing nations, such as Carnegie Mellon's in Qatar. A college student from Iowa would easily fit into a comparable higher-education institution in Kiev, Shanghai, or Sao Paulo -- or vice versa, of course.
ECONOMIC IRONY. One effect of an underlying university model is that it's far easier for business, government, and community leaders from around the world to carry on conversations with one another. Universities promote similar standards that prize reason, rationality, and the scientific method in an increasingly integrated global economy, according to Meyer of Stanford University. Meyer is a leading light of a group of scholars delving into the evolution of global culture and society. Everywhere in the world, a college education has become critical to getting an elite job.
Prospects for global prosperity are improving with the gains in global human capital. Still, it's somewhat ironic that the success of the American university model abroad threatens the vitality of the U.S. economy. The number of college students from developing nations is swelling in all fields, especially in such technologically prized subjects as math, science, and engineering. These students will mean increased competition for the kind of jobs concentrated among a college-educated workforce.
And when it comes to companies offshoring jobs that demand brainpower and creativity from high-wage, high-skill countries like the U.S. to low-wage high-skill competitors such as China, well, you ain't seen nothin' yet (see BW Online, 11/17/05, Silicon Valley's Call: Smarten Up, America!).
FUNDING GROWTH. Now, back to the parochial worries I temporarily put aside. The U.S. needs to boost its investment in education, research and development, fundamental scientific knowledge, and other building blocks of economic and technological activity (see my colleague Michael Mandel's blog for more on this topic).
Both Congress and state governments must stop denying institutions of higher learning the funds they need to grow. To do otherwise is policy insanity. When it comes to economic growth and living standards, what matters is knowledge and innovation. Other countries have learned that lesson -- from us. It's time we took a refresher course.
Farrell is contributing economics editor for BusinessWeek. You can also hear him on Minnesota Public Radio's nationally syndicated finance program, Sound Money, as well as on public radio's business program Marketplace. Follow his Sound Money column, only on BusinessWeek Online