Education losing its income advantage in the UK

A recent study of income and education in the UK shows a disturbing, but understandable, trend (as reported in the Financial Times): “Degree no longer passport to well-paid job”

A university degree is no longer a passport to a well-paid job, and the effect on lifetime earnings has fallen, research into the graduate labour market has found.
Graduates can now expect to earn an average £140,000 more over their lifetimes compared with those who choose not to go to university; down from the previous estimate of £400,000.

Still a premium, but a declining one. Why the decline?

The huge rise in the number of students in the 1990s has eroded the wage premium, with the supply of graduates expanding faster than demand for their skills.

But the decline apparently is not across the board:

Signs are that the decline in relative graduate earnings is most pronounced in more popular subjects such as the arts and humanities. The [University of] Swansea researchers estimate that the rate of return on an arts degree for a man is now negative.

According to a companion FT report “Career no longer a matter of course”:

research also showed that the highest ability graduates seemed to be doing as well as the previous generation of high achievers. The declining wage premium was occurring because those lower down did not get as much financial benefit from higher education.

I suspect that the same dynamic is occurring the US. Much of our higher education policy is geared toward getting a degree — any degree — without differentiating the skill set acquired with that degree. In all fairness, looking at the demand side is very difficult. And the personal value of the college experience is high.
But if we are to make good economic policy for future prosperity, we need to move beyond the simplistic formulation that a college education will automatically lead to higher incomes. This leads to a situation where our policy for increasing incomes is to increase the number of those getting degrees. Even a rudimentary understanding of supply and demand should make it clear that if everyone has a college degree, then the labor market value of that degree is less than if only a few have a degree. We need to focus more on the skill set required for those graduates to flourish in the information-innovation-intangible economy — and focus less on the piece of paper.

Samuelson is wrong . . . and right

Robert Samuelson’s column today in the Washington Post (Sputnik Scare, Updated) pooh-poohs the latest alarms over the decline in US economic competitiveness. Unfortunately, he is just dead wrong (see my earlier postings Innovation summit announced and Falling behind in S&T). He cites the fact that the competitiveness challenge of the 1980’s didn’t result in an economic decline.

Let’s see. In 2004, Americans’ per capita incomes averaged $38,324, reports the Conference Board. The figures for Germany and Japan were $26,937 and $29,193.

Well, the reason why both the Sputnik alarm ended with an American on the moon and the Japanese challenge ended with a higher US income is that we stepped up to the challenges — not dismissed them.
Is the case overstated? Maybe. Samuelson gives some reasonable argument for that point of view. However, after all his years as a reporter he should have enough of an understanding of both the political process and human nature to know that unless someone screams “fire” the house will burn down before anything happens.
At least Samuelson is consistent. In the 1980’s he regularly wrote about how the competitiveness challenge was overstated. Had we followed his “don’t worry” advice back then, I hate to think about where we would be today.
Having said that, there are two points I agree with Samuelson on — one point he makes explicitly and one that is implied in his comments, even though I don’t think he meant to say it.
The first point I agree with is his comment:

On being overtaken, history teaches another lesson. America’s economic strengths lie in qualities that are hard to distill into simple statistics or trends. We’ve maintained beliefs and practices that compensate for our weaknesses, including ambitiousness; openness to change (even unpleasant change); competition; hard work; and a willingness to take and reward risks. If we lose this magic combination, it won’t be China’s fault.

We have a Pogo Problem (“we have met the enemy and they are us”). It is not China’s fault that we have let our R&D budgets decline and our national technology policy wither away to almost oblivion. It is not China’s fault that we are closing the door to people and ideas from other nations. It is not China’s fault that we are pursuing a foreign policy that seems calculated to diminish the value of the US brand. It is not China’s fault that we let corporate malfeasance and the fleecing of investors flourish and are now trying to roll-back the reforms. It is not China’s fault that we continue to make excuses for a broken health care system that is driving companies (and the country) to bankruptcy while failing to provide adequate care to all. It is not China’s fault that we continue to rack up huge budget deficits so that those with the highest incomes can pay lower taxes.
No, these are not China’s fault. As Shakespeare has Caesar saying “the fault, dear Brutus, is not in our stars, but in ourselves.”
The other point that Samuelson makes in his argument — unwittingly, I believe — is that a Sputnik-like reaction is not the right answer. Unlike with Sputnik, the answer is not to simply throw engineers at the problem. Our response need to be more general and needs to understand the new nature of economic prosperity and growth. Samuelson outlines some of the elements need in our response: openness, competition, entrepreneurship. Why, for example, are we pressing for more funds to train scientists and engineers – but not for entrepreneurship and design courses? Why are we calling for more money for elementary and secondary school math and science courses but not for information literacy and creativity?
As I have said over and over, we are treating this as a technology problem, when it is an innovation problem. Like a failed General, we need to stop fighting the last war. Unfortunately, Samuelson’s column simply contributes to our viewing of today’s problems through the lens of the last war.

Movie piracy – China, Russia . . . and Sweden

A couple of weeks ago, Pat Choate published a blistering attack on product piracy in China – The Pirate Kingdom – New York Times, based on his new book, Hot Property: The Stealing of Ideas in an Age of Globalization:

China is the global epicenter of pirating and counterfeiting. By its government’s own estimate, China’s domestic trade in bogus goods accounts for $19 billion to $24 billion annually. That is undoubtedly a significant understatement, and it doesn’t even include the stolen technologies and phony brands China exports to the rest of the world. Since welcoming China into the World Trade Organization in 2001, the United States has had a historic opportunity to stop the Chinese piracy trade. So far, the Bush administration has failed to seize it.

Turns out that China, while a current problem, may be a simple problem compared to what is coming in the future with Russia. As the Wall Street Journal (In Russia, Politicians Protect Movie and Music Pirates) pointed out:

Russia has emerged as the front line in Hollywood’s global war against piracy. China may still be the world’s top producer of illegal computer software, CDs and DVDs, but authorities there are getting serious about cracking down. In Russia, the Kremlin has been promising to deal with the problem for years, but industry officials say under President Vladimir Putin it’s gotten worse, not better.
A key reason is that Russia’s pirates, who cost U.S. businesses an estimated $1.7 billion in losses last year, have cultivated increasingly cozy links to the government that’s supposed to police them. Counterfeiters are lining up political patrons and locating factories inside secret military facilities where law-enforcement agencies can’t touch them.

Last week, the House Judiciary Committee held two days of hearings on the protection of Intellectual Property Rights in China and Russia.
But the problem isn’t just with “lawless” China and Russia. According to the International Herald Tribune, law-abiding Sweden is a major movie pirate (In Sweden, paradise for the movie pirates):

In a nondescript computer hall on the outskirts of Gothenburg, Sweden, stands the movie industry’s latest, and worst, nightmare.
Not only is this particular stack of servers, known as the Pirate Bay, the home of the world’s busiest BitTorrent tracker – the most popular file-sharing protocol for movies and other large files – but it is also the most telltale sign of how otherwise law-abiding citizens in only a couple of years can turn into some of the biggest infringers, at least, on a per capita basis, of copyright laws in the world.

If Sweden is leading the world in movie pirating, the issue is a lot different from product counterfeiting that is at the heart of the concern over Russia and China.
Once again, the movie and music business need to look at new business models to stem the perception that digital entertainment should be free. I am highly skeptical that tighter and tighter restrictions are the answer. As I noted in an earlier posting, we may be coming to the point where “intellectual property rights” are stifling innovation rather than promoting it (see an earlier posting from a paper by Adam Jaffe of Brandeis University and Josh Lerner of Harvard University, “Innovation and its Discontents“:

In the last two decades, however, the role of patents in the U.S. innovation system has changed from fuel for the engine to sand in the gears).

As Glenn Pudelka writes in his review of Choate’s book in the Christian Science Monitor (‘Gentlemen do not steal the ideas of others.’ Oh yeah?)

Ultimately, he [Choate] warns, piracy will discourage inventors and ideamakers from innovating. Yet he offers no support for such conclusions.

Product counterfeiting is an important problem. But in crafting a solution we need to keep in mind that “intellectual property rights” are a social construction. Patents are not a “natural right” but are a state-granted monopoly right. More on this later.

Bosses who can’t learn

Carol Hymowtz’s Wall Street Journal column on leadership (In the Lead) today highlights an important problem facing companies and workers in the information age:

Executives talk a blue streak about the importance of developing talent. But many quickly form rigid opinions of staffers, and then resist changing those views despite evidence that employees have matured, become more seasoned or possess talents that weren’t apparent when they were first hired. Conversely, some bosses continue to insist that an employee is a star even though he or she was just never that talented.

Companies that can not develop talent are wasting resources. It is an easy but deceptive practice. As Hymowtz notes:

Pigeonholing persists in part because it is efficient, at least in the short term. Top executives depend on certain tasks getting done, day in and day out. The easiest way to accomplish that is to assign employees to jobs and functions in which they have experience.
But rigid typecasting also discourages initiative and innovation, not only among lower-level employees but also among middle managers.

Talent and skills are the key resourse in the intangible economy. Skills and talent are not a set attribute but a dynamic phenomona. That dymanics is called “learning.” There is a lot of talk in management-studies circles about the learning organization. Well, learning starts at the top. And if the boss can’t learn (especially about developing talent), how do they expect the rest of the organization to learn?

Intangible assets lead to tangible wealth

The Corporation for Enterprise Development (CFED) has released its latest scorecard report on how well states are doing to help build financial security. The Assets and Opportunity Scorecard

measures how easy or hard it is for families across the United States to achieve the American Dream.
The Dream is about opportunity. It is about the simple idea that no matter who you are, if you work hard and play by the rules, you can help your family get ahead… that you can do this in ways that add to your community, to your society, to your economy… that you have opportunity and security, and that your children do as well.
The foundation for that opportunity rests on two pillars: first, a family’s ability to build assets that can be used to invest for the future, send children to college, and weather unexpected financial storms; and second, safety nets and safeguards that provide financial security in the event of a job loss, medical emergency, or other life events that could otherwise put a family in a tailspin.
The Assets and Opportunity Scorecard measures key parts of that foundation, compares them state-by-state, and looks at state policies that can help or hinder citizens’ abilities to get ahead. The story it tells is compelling: many American families are living with practically no safety net, some groups and states are doing much better than others, and every state has room for improvement in helping its citizens achieve the Dream.

Importantly, CFED recognizes that intangible assets are key to building tangible wealth. They specifically describe education and business development as two of three building blocks (the third being homeownership):

Education is the first step toward achieving security, acquiring assets, and building wealth. Working Americans who are well-educated and well-trained provide future returns for society by creating a workforce that is productive, agile, and responsive to economic changes. The Scorecard shows promising trends in education.
* The percentage of children living at the poverty level who are served by a Head Start program increased in 46 states between 2001 and 2003.
* College attainment rates increased in 43 states since the late 1990s. The attainment gap by income has closed slightly, yet the wealthiest 20% of Americans complete college at a rate more than six times that of the poorest 20%.
. . .
Small business creation has been the route into the middle class for many Americans. There has been increasing entrepreneurial activity in recent years, and some states have found effective ways to foster entrepreneurship.

Yet, all is not sweetness and light. As David Frances comments in the Christian Science Monitor (“The American Dream gains a harder edge”):

The American dream, at least on the economic side, is fading. Most people see the United States as a special place where there is plenty of opportunity for someone to work hard, play by the rules, and get ahead – maybe even become wealthy.
Today, though, nearly 1 in 5 American households has zero net worth or actually owes more than it owns. And the odds of a son or daughter rising above their parents in such a financial predicament have shrunk.
“Income mobility has declined in the last 20 years,” says Bhashkar Mazumder, an economist at the Federal Reserve Bank of Chicago.
What that means is that the US is becoming less of a meritocracy, where skill and intelligence determine success, and becoming more of a class-bound society, where economic background, including the better education money can provide, matters more. There are still many rags-to-riches stories. But there’s stagnation in the underclass.
. . .
A broader look at the overall financial security of American families isn’t encouraging either. It measures ownership (homes, financial assets, and so on) and protections against financial setbacks, such as health insurance to cover large medical bills that cause almost half of individual bankruptcies.
“There are lots of people who have found it difficult to meet their basic needs,” says Lillian Woo, an economist in Durham, N.C., with CFED, a national nonprofit research group that conducted the study. “The ratio of indebtedness seems to be growing.”
That’s not because these Americans have engaged in shopping sprees, though that sometimes happens. It is often because of medical bills or high housing costs. Many households are “hovering on the brink of financial disaster,” Ms. Woo maintains. “The cushion is very thin.”
For example: 1 in 4 households does not own enough to support itself – even at the poverty line – for three months.

There are bipartisan efforts being made to help increase the financial security of folk at the bottom income levels through innovative asset building concepts such as KIDS Accounts.
We need to increase our investments in the types of intangibles that generate wealth as well.

Information or power

This from today’s Washington Post “A Likely Script for The ‘Nuclear Option'”:

a senior Republican Senate aide confirmed that [Senate Majority Leader] Frist does not plan to consult [Senate parliamentarian, Alan S.] Frumin at the time the nuclear option is deployed. “He has nothing to do with this,” the aide said. “He’s a staffer, and we don’t have to ask his opinion.”

So, the Senate Parliamentarian (who was appointed by the Republican leadership and served previously as Parliamentarian in the 1990s) has nothing to do with the process of a ruling on the floor of the Senate changing the rules. Here is the description of the duties of the parliamentarian (from the People > Officers & Staff > Secretary of the Senate” href=””>U.S. Senate website)

The parliamentarian advises the presiding officer, senators and their staffs, committee staffs, representatives and their staffs, administration officials, the media, and members of the general public on all matters requiring an interpretation of the Standing Rules of the Senate, the precedents of the Senate, unanimous consent agreements, and provisions of public law affecting the proceedings of the Senate. In the name of the presiding officer, the parliamentarian refers to the appropriate Senate committees all legislation, messages, communications, reports from the executive branch, and petitions and memorials from state legislatures and private citizens.

Apparently, the senior Republican Senate aide quoted above must not think that changing the Senate rules has to do with “matters requiring an interpretation of the Standing Rules of the Senate, the precedents of the Senate”. Either that or they simply don’t want any advice on the interpretation of the rules from the one person who is the Senate’s expert on the subject. I guess when power is involved, information is not required.

Migration aids the flow of information

One of the issues left out of our so-called “trade negotiations” is migration. I say so-called because these deals long ago stopped being just about trade and have become mechanisms of economic harmonization and integration. That is a logical step — but we should face up to that face and quite characterizing them as only about trade. Migration is a key point. One of the reasons why the US economy is so powerful and adaptive is because of our huge and geographically integrated labor market. Workers move to where the jobs are; companies move to where the workers are. Imaging the situation if someone from New England had to get a work visa to move to California? (I know, some may argue that this would be a good thing.)
But on an international level, we deal with the movement of goods and services. We deal with the movement of capital. We even deal with the movement of codified knowledge (Intellectual Property Rights). We deliberately leave out the movement of tacit knowledge and skills.
The result has been a less than optimal outcome for poor countries, as a recent Wall Street Journal story “Trade Liberalization Earns Mixed Marks As Fighter of Poverty” points out:

A different policy would help: opening the borders of wealthy nations to more temporary workers. More work visas would equal more wealth for the world’s poor. If rich countries allowed in enough temporary workers to increase their overall work force by 3%, that would raise global income by $150 billion annually, with the bulk of the gain going to low-income workers, according to calculations by World Bank economist L. Alan Winters. “Even a relatively small change in labor mobility is worth at least as much as any reduction in quotas and tariffs,” he says.
. . .
Migration helps the poor in a number of ways. Even when migrant laborers take dead-end U.S. jobs, they earn far more than they did at home. The North American Free Trade Agreement helped lift average Mexican wages by about 10%, says Gordon Hanson, an economist at the University of California at San Diego. But a Mexican who finds work in the U.S. earns, on average, about 2.5 times as much as he did in Mexico.
Migrant workers wire some of their salaries to their families, increasing spending and consumption in poor nations. Overall, migrant workers remit about $100 billion a year, the International Monetary Fund estimates, a sum that dwarfs foreign aid.
Some migrants also use the skills and outlooks they learn in wealthy countries to start businesses back home. Romania’s strawberry-export business owes a lot to Romanians who once labored in Spanish fields, Harvard economist Devesh Kapur says.

But migration is a difficult issue:

The gains from migration come at a cost, of course. Many of those who leave poor nations never go back, draining talent from home nations. Families are separated for long periods of time when men migrate and their wives and children don’t. Some families get so used to receiving checks from abroad that it can breed a welfare mentality.
A migration surge would also further undermine wages for low-skilled native workers in the U.S. and Europe, who compete for low-end jobs. That’s one reason that political opposition to increased migration is fierce.

The story goes on to propose ways to solve this problem by making sure temporary workers don’t become permanent illegal residents.
These might make sense if one is focusing only on migration as the movement of low-skilled labor – a very Industrial Age viewpoint. But if one is thinking of migration of skills, creativity and tacit knowledge of those workers, then migration become a positive flow of information, not just a source of cheap labor. And out immigration policies need to find a way to harness that positive flow.
The American economy was built by immigrants. And immigrants have constantly enriched the flow of innovation and entrepreneurship in this country — a point Richard Florida stress in his new book, “Flight of the Creative Class.” As the economist Julian Simon (a conservative by the way – see Stephen Moore’s tribute) argued years ago in his book (The Ultimate Resource – a critique of the limits to growth thesis), people are the ultimate resource. Then, why do we want to block off the flow of people?
[By the way, while I respected Simon’s point about human ingenuity being able to solve environmental problems, I never agreed with what I saw as his over-optimistic view that “technology” (using that term broadly) would save us. I am less convinced of that thesis as I read Jarred Diamonds new book Collapse. But that is a different discussion.]