Sunday, May 15, 2011

52/100: Is Higher Ed Bubble About to Burst?

The Economist makes the point that Higher Education may be the latest bubble and may be it is about to burst.

The argument rests on three things.

The first, as observed by Peter Thiel, the legendary Paypal investor, is that the tuition fees are too high, debt burdens are too onerous, and rewards are too uncertain for people to keep investing in education. In his view, higher education is like housing, seen as an insurance against the uncertain future: Once the promise of the future disappears, the students may not be interested to pay the high fees that the top schools now demand.

The second is an economic argument made by, among others, Nobel Laureate Paul Krugman. Krugman observes that contrary to the popular belief that technology is making only low skill jobs redundant, it is also replacing the skilled jobs. This essentially means that the salaries for these jobs will come under pressure in the medium term, further reducing the pay-off for good education. Besides, it will undermine the key argument for college education - that this will elevate you in the skills ladder and thereby guarantee employability - and suddenly it will make the Higher Ed industry look a lot like Real Estate.

The third is a qualitative argument made by assorted academicians and commentators about the state of Higher Ed, whether the academia is connected enough and accountable enough, and the academic produces of big universities make the cut anymore. There is indeed a strong argument, particularly in the humanities, that what the university professors are producing does not represent 'value for money' for the taxpayers.

Of course, this is a very American argument, where Higher Education is a large industry, but most of it holds true for Britain as well. This is a time when For-Profit Higher Education industry in Britain is poised to expand, and possibly the trend will spread to other parts of Europe. Europe indeed has a very high proportion of publicly funded higher education [25% of the total number of HE institutions are privately funded in Europe, against 61% in the United States, 71% in Latin America, 59% in Africa and 57% in Asia] and if money is wasted on education, it is public funds being wasted here. The cutbacks in HE funding heralded by George Osborne may be informed by such perspective, though there is unanimous derision among the academic circles about such a view. The For-Profit industry is all set to attack the sloth in education, expand access and bring the force of competition in the sector, and will mostly be focused on value for money.

This will also look very alien to most Asians and Africans, where the only route to a better life open to emerging middle classes is through higher education. Peter Theil's argument about dropping out of university and starting businesses may not be as applicable to Asians, who has to live within a slowly changing social structure and the route to social mobility is a good degree. Krugman's argument in fact works in their favour - they are the beneficiaries of technology-led skilled job migration (and they are setting up businesses in LPO, Legal Process Outsourcing, and KPO, Knowledge Process Outsourcing, for half a decade now). And, higher education in Asia had the same quality issues, indeed, but the direction is reverse: The quality is improving rather than decreasing in these countries.

In the end, I would think that this bubble, if there is one, is very local to America. The bubble may indeed burst and that will affect the enthusiasm about and investments in higher education businesses elsewhere. However, that will be a tragedy: United States may be an overheated Higher Ed market reaching its peak, while the markets in Asia and Europe have barely began their journeys.

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