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Belmont Club

The Miseducation of the First World

September 8th, 2011 - 3:19 pm

The Economist has an interesting article which suggests that the human capital provided by a tertiary education may soon be devalued by globalization. The basic argument is that a university degree isn’t worth what it used to be because the jobs it prepares the graduate for can be done more cheaply in places like India.

David Autor, of the Massachusetts Institute of Technology (MIT), points out that the main effect of automation in the computer era is not that it destroys blue-collar jobs but that it destroys any job that can be reduced to a routine. Alan Blinder, of Princeton University, argues that the jobs graduates have traditionally performed are if anything more “offshorable” than low-wage ones. A plumber or lorry-driver’s job cannot be outsourced to India. A computer programmer’s can.

If only it were true.

If it were true then fewer people would be out of a job. But it’s only partly true  that the factors of production are free to move — they are not where it counts — and so we wind up with all the disadvantages of globalization without the advantages it should provide.  Factors are not even free to move within a single country. For example, Boeing cannot build 787s outside of a union state.  The US Postal Service can’t redeploy resources because it has a legal mandate. In such a situation it can make more sense to move entire industries outside of country rather than tangle with the gatekeepers inside of one.

Once the barriers within a system are greater than those between systems, then activity will offshore.

Gatekeeping and not just price play a role. Consider David Autor’s argument that automation has destroyed the reason for existence of a large number of university degree endpoints because it trains people for jobs with no future.  It may be asked why these courses are offered at all if the price system works.  But the universities were only incidentally designed to create human capital. Mostly they were intended to regulate access.

The Economist article points out that education was for years an access control system aimed at controlling entry to guilds, no different in principle from the function performed by a bouncer in front of a nightclub. When the club was an exclusive joint tipping the bouncer to get past made sense. But the advent of mass tertiary education of indifferent quality now means the ticket holder now passes a door only to find himself in the next alley, thronged with as many bums as the one he left. The credential game used to be a good setup. But it’s fallen on hard times lately.

A university education is still a prerequisite for entering some of the great guilds, such as medicine, law and academia, that provide secure and well-paying jobs. Over the 20th century these guilds did a wonderful job of raising barriers to entry—sometimes for good reasons (nobody wants to be operated on by a barber) and sometimes for self-interested ones. But these guilds are beginning to buckle. Newspapers are fighting a losing battle with the blogosphere. Universities are replacing tenure-track professors with non-tenured staff. Law firms are contracting out routine work such as “discovery” (digging up documents relevant to a lawsuit) to computerised-search specialists such as Blackstone Discovery. Even doctors are threatened, as patients find advice online and treatment in Walmart’s new health centers.

What would be wrong with abolishing the gatekeeping function of education and returning its purpose to teaching? Why, everything.  It would turn the academic world upside down, mean the end of thousands of pointless careers and reintegrate the ivory tower into the world, which it has done its darndest to escape.  But is there a choice?

A world in which money and skill could find a match and produce goods would be one in which an unemployed person could  find a job if he were willing to work for a low enough wage.  In such a world whole sections of the First World with long term unemployables should not exist. There are Southern European countries like Spain, where large numbers of people would be better employed doing almost anything remotely productive than simply remaining on a meager dole. Those people should be willing to work for any incremental income at all, no matter how low the rate.

He should be able to plant a garden, open a lemonade stand, become a flea circus impresario — anything. But bureaucratic regulations which penalize him for earning anything additional will prevent this. So those enclaves of despair continue to exist and their inhabitants  remain unemployed in order to avoid upsetting the apple cart. The gatekeepers are everywhere: union shop stewards, health and safety regulations, legal requirements, certification requirements, educational requirements and requirements requirements, all working to keep the status quo “just so”.

Much of the decline in Western economies has been blamed on wage competition. Doubtless it plays a large part, but perhaps not so large a part as we suppose. Are jobs are moving to China and India simply because it’s cheaper or because its easier to do business there? In terms of time and opportunity “easier” is often indistinguishable from cheaper.

To return to the question, are university graduates losing their edge because their jobs have been outsourced or because they aren’t trained to do anything worth the money? At least part of the answer is that they aren’t trained to do anything worth the money and that things were designed that way to keep “educators” employed.  The wage differential tells part of the story, but not all of it.

Long term unemployment represents a vast destruction of human capital, which alongside the nonproduction of human capital by the educational system, strongly suggests an amazing indifference about this most precious of commodities. The Economist asks why the credential is worth less? The answer is because credentials only have value when you are the only game in town.  Once the town was opened to competition, credentials become devalued.

What globalization implied, once embarked upon, was the destruction of whole series of gates which defined the privileges of established Western society. Once down that road you either destroy all the gates and accept both the costs and benefits of globalization or you keep all the walls of the city up. But embarking on “globalization” while maintaining the guilds and social contracts of a welfare state does not seem to work. You get the worst of everything.  And once globalization takes hold, credentials become progressively worthless. The only thing that retains its value is real skill, real human capital.

In that regard future generations may wonder at how careless the current leadership were of that precious resource. Keeping people in a prolonged welfare performs a “pickling” function which ultimately destroys human minds. The inner city ghetto residents, the growing British chav population and the hapless students who’ve gone $50,000 into debt for 5 year course in media studies alike share one thing.  They’ve consumed an enormous amount of good money to destroy their perfectly good minds. They’ve bought themselves a one-way ticket to nowhere and the trains going in that direction are still many and full.

This process of wholesale destruction isn’t going to change until the gatekeepers are either swept away or we go back to being a world of walled cities. “A Mind is a Terrible Thing to Waste” is the slogan which was once the public face of education. But maybe the real and cruel translation is of that phrase is “what you don’t know won’t hurt you.”

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