Education and markets in the context of globalization

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Education and markets (in the context of globalization) Hanoi, Vietnam, 20 March 2009 Simon Marginson Centre for the Study of Higher Education University of Melbourne, Australia

Coverage • Public and private goods in education • Markets and competition in education • How education connects to other industries and sectors • In the context of globalization and its implications for education and for markets in education

Public and private goods in education and research • The original distinction was developed by Samuelson (1954) • Public goods are non-rivalrous and non-excludable. • ‘Non-rivalrous’ means consumption by one person does not impair the interests of others • ‘Non-excludable’ means persons other than the direct user cannot be excluded from the benefits of the good • Private goods have neither of these characteristics • Public goods are spillovers - consumption by one person spills over into benefits for at least one other person - or common, collective goods that are jointly consumed, e. g. clean air or national defence. Collective goods are more than ‘the sum of the private goods’.

Distinguish between: 1 public and private goods, 2 public and private modes of delivery (state or non-state) • Elite state institutions with free tuition extensively produce private goods (selective and valuable degrees) and also commercial IP, though they do not use economic market forms to do so. • All private institutions produce at least some public goods - even narrowly vocational programs produced in commercial markets make some general education contribution. They advance economic literacy and productivity without all of the enhanced economic value coming back to the graduate (= spillovers, public goods)

Public and private goods in education and research 2 • Public goods are under-produced in economic markets and depend on provision by the state or private philanthropy, or donated labour • When provided in competitive markets, private goods can be financed by those who benefit from them • Education is a part-public good. It is non-rivalrous at lower levels, and some of its benefits are non-excludable, e. g. spillovers from the education of one person to others through advances in literacy and workplace productivity. • Elite ‘positional goods’, student places in elite universities that lead to superior salaries and careers • Knowledge is almost a pure public good (Stiglitz)

Knowledge as a global public good and open source of innovation Joseph Stiglitz, Nobel Prize 2001

Knowledge as a public good Stiglitz argues that in economic terms knowledge is primarily a ‘spill -over’ and a public good. It can sustain a property regime only between the point of creation and initial dissemination, the period in which there is first mover advantage. Once disseminated, knowledge remains useful but it is non-excludable and non rivalrous and its market price is zero. While higher education is the ultimate starting point for much commercializable intellectual property (IP), only a minority is initiated directly by companies which directly use universities as incubators. Sometimes university companies or partnerships capture the value of IP, but this is the exception rather than the rule, and largely confined to sectors such as biotechnology and electronics. The data show that despite 20 years of strenuous efforts to reorient university research to commercial IP production, even in the USA, private income for research purposes covers little more than 5 per cent of the costs of university research.

Open Source global knowledge • Since the advent of the Internet in the early/mid 1990 s there has been an explosive growth in freely disseminated open source knowledge sourced through research publication or papers posted directly by the creators. Global knowledge feeds into the innovation programs of business and industry everywhere, often being used for purposes never envisaged by the original creators • A key issue is to make sure business has free access to knowledge for innovation and has research-trained personnel who understand it and can apply it • The OECD has shifted the policy focus in university research, from creation of IP (which should be left to the market) to the production and dissemination of ‘open science ‘ • While knowledge in the dominant global language, English, is a common global public good in the economic sense, under some circumstances it crowds out knowledge in national cultural and language frameworks, i. e. particular national public goods. But the collective interest lies in maximum diversity of strands of knowledge - providing all are accessible to each other

Implications for the economics of student teaching programs • • Potentially, unlike research (always a public good once the initial discovery has occurred and been disseminated), student programs in upper secondary and tertiary education produce a mixture of public and private goods The point to grasp is that the economics of learning are different to the economics of certification. Thus a mix of public and private goods. At basic education stage when everyone graduates the certificate does not confer private benefits. University and vocational (and in many countries senior school) qualifications confer private benefits through the certificate, which can be exchanged for additional earnings in the labour market Because knowledge is a public good, the content of what students learn, the content of teaching/learning at every level, and in both general education and vocational education, is a public good. General education (as distinct from vocational education) is never fully rewarded in the labour market because its private good component is less. But the public goods such as advanced literacy and communications, knowledge of languages, etc, produced in both general (especially) and vocational programs, have significant spillovers in all workplaces - general education has a direct benefit for profitability in business. Such public goods also contribute collective benefits to society, nation, world

Economics of student teaching programs 2 • • • In all nations school education and first degree higher education are either wholly publicly funded, or part-publicly funded reflecting the mix of (1) public knowledge goods acquired by students , and the collective benefits of universal access to citizens, and (2) the private goods component based on selectivity of entry, and certification Fully commercial programs are generally in the marginal areas One is lower tier low quality education in Brazil and the Philippines - this is not a very good model Fully commercial market education is used foreign students in the English speaking countries and part of Asia (it is a $40 billion USD industry worldwide) Fully commercial education also plays a role in vocational tertiary programs in many countries, and in a handful of high value business education programs as in India

Growth in international student fee revenue, higher education, Australia, 1995 -2006 (AUD $s million) Kevin Rudd, Australia’s Prime Minister

Public and private goods in education and research 3 • The complicating factor in education is that while its economic character can to some extent be shaped by policy makers - e. g. the more the ‘vertical’ differences between schools in quality and resources, the more schooling will tend to produce scarce private goods - in terms of its intrinsic characteristics it ideally produces a mix of public and private goods. There is no one single template and policy design is complex, with different arrangements depending on the level of education and research and the functions it performs. • Education can advance the production of both public and private goods simultaneously. It is not zero sum. Some high value private goods bring high value public goods with them - e. g. some specialist medicine, or research projects that generate both particular commercial IP and widely distributed contributions to knowledge

The economic effects of tertiary education and research • • • Tertiary education directly creates economic value in its own right, e. g. augmentation of graduate earnings (the rates of return and lifetime earnings to degree credentials), full fee international markets, saleable intellectual property. These outcomes mostly take the form of private goods and are readily measured. But much and probably most of its contribution to economic and social development lies not in direct creation of economic revenues but in its contribution to conditions of production in other sectors, e. g. teaching enables productivity at work, research enables innovation in industry. This follows from the nature of knowledge which is principally a public good. The long term effects of research are the classic case but the point also applies to the general education aspect of tertiary and secondary programs. These contributions are indirect and mediated by other factors such as relations between education and industry, state policy, social and cultural changes, global developments, etc. These indirect outcomes mostly take the form of public goods in the economic sense. Generally they elude precise measurement, though proxies can be devised, such as measures of the quantity and quality of basic research.

Globalization and the NPM: Two distinct movements coming together in our time • • • The New Public Management. The NPM models public administration and higher education in business terms focusing on direct goals, product formats, efficiency, competition and performance management Globalization, i. e. global systems and convergence. Driven primarily by communicative technologies and the cheapening of air travel and more people movement. These have sustained the rapid growth of the worldwide system of scientific research and knowledge, the global doctoral ‘market’, and the cross-border student market in first degrees, and encouraged global referencing and comparisons by national systems. Hence the massive interest in global rankings. Globalization includes cross-border policy borrowing in higher education. Globalization has facilitated the more universal adoption of NPM reforms. But arguably NPM would have spread without global convergence and was already spreading prior to the internet which kicked off in 1990

Neo-liberal New Public Management Margaret Thatcher Support for the NPM is common to policy circles everywhere. Support for the neo-liberal version of the NPM developed by the Thatcher government in the UK is strong in the Anglo-Westminster polities but by no means universal throughout the world. Neo-liberal NPM imagines all teaching and research as private goods and higher education as a capitalist economic market of competing firms.

Two kinds of competition in education Commercial market (mainly in marginal areas like foreign student education) Form of goods New Public Management quasi market (more commonly used) Product/commodiy format, market defined Artificial outputs based on product format Inter-university relations Competition between producers Entry and exit Open contestable system State regulated. Mostly closed Tuition prices Unregulated producer-determined prices State regulated Student and system Free consumer choice of product and producer Mix of merit, student choice, state policy Student and institution Buyer-seller producer and consumer relations Little consumer power, less pastoral care Size of production Expansionary production State regulated Autonomy of production Producers free from constraint by states but shaped by markets Produces closely affected by state regulation

How close is the NPM quasi-market to the forms of economic markets? Aspect of markets NPM in tertiary education verdict Product format Favours product formats and underrecognizes outcomes that don’t fit formats YES Competition between producers Prefers competitive configuration of systems YES Open contestable system Mostly does not support open entry. Entry is by invitation. International entry very limited NO Unregulated producerdetermined prices Only in commercial enclaves e. g. in some countries international, vocational programs NOT MUCH Free consumer choice of product and producer Student choice is constrained by scarcity of places, merit, state determination of entry etc NO Buyer-seller producer and consumer relations Many first degree students pay tuition, but in most case states fund institutions only or also NO Expansionary production to meet demand Only happens in the commercial enclaves NOT MUCH Producers free from constraint by states NPM breaches this in many respects, e. g. audit and accountability systems. It is essentially a political control system not an economic market system. NO

The OECD is becoming concerned about the NPM There is a need for a better balance between control and strategic direction, and professional autonomy and judgment. e. g. in research ‘The shift to project-based research funding in TEIs raises a number of issues that need to be considered in relation to the long-term development of the research and innovation system. Competitive funding may promote more ad hoc and short-term research in cases where evaluation mechanisms and incentive structures focus on quantifiable and immediate outputs‘. As a result, researchers may be reluctant to engage in research that will not produce results that can be demonstrated over short time-spans. In addition, precisely because project-based funding is competitive, sustained funding is not guaranteed, which may impede the autonomy of researchers working in controversial fields. If project-based funding has a short duration, it may also mean that researchers need to spend time preparing applications to secure funding on a more frequent basis.

The OECD is becoming concerned about the NPM 2 Atkinson (2007: p. 19) remarks that young faculty in particular spend an excessive amount of time preparing project proposals. Liefner (2003) found that competitive or performance-based funding could have an impact on the type and field of research because some academics avoided research with riskier outcomes. Likewise, Geuna (2001: p. 623) notes that short-term research and less risky research may reduce the likelihood of scientific novelty‘. Furthermore, Geuna and Martin (2003: p. 296) argue that research may become homogenized‘ because safer‘ research is rewarded. Morris and Rip (2006) point out that the stage of a researcher‘s career needs to be considered in relation to the type of research undertaken. Some of the questions raised are: ―does the researcher need quick results to bolster his or her next job application? Is he or she senior enough to get a five-year rather than a three-year grant? (Morris and Rip, 2006: p. 256), and these questions are pertinent in the context of project-based funding’. - OECD 2008, p. 176

Globalization ‘The widening, deepening and speeding up of interconnectedness on a world-wide scale’ -- David Held, et al. , Global Transformations, 1999, p. 2

All three dimensions of life are now shaping the work of teaching, student learning and research: global, national and local GLOBAL NATIONAL THE SITE OF TEACHING AND LEARNING REGIONAL AND LOCAL

What is driving global convergence? • The Internet sustains a global system of communications and data transfer, a single worldwide ‘library’ of information and brings us into closer encounters with people from other cultures • The global networking of research and knowledge dissemination • The integration of world financial markets and the growth of trade and the mobility of economic production across national borders • The cheapening of travel and the greater mobility of people across borders in migration, business, work, education, tourism and family life • The growing similarities between countries in government policies, institutions such as schools, and community organizations • English: the one global language of knowledge, education and business (at the same time there is a danger that knowledge in languages other than English is being ignored because it falls outside the main global ‘conversation’)

Rise of Asia-Pacific: Shares of world output 2030

Economic production and education spending, Asia-Pacific nations, 2007 Population (millions) WB Gross National Income ($s billions) WB Gross National income per head ($s) PPP WB Public education spending (% GDP) WB 127. 8 4813. 3 34, 600 3. 7 1320. 0 3120. 9 5370 Korea 48. 5 955. 8 24, 750 4. 6 Thailand 63. 8 217. 3 7880 2. 6 Philippines 87. 9 142. 6 3730 3. 2 Indonesia 225. 6 373. 1 3580 0. 9 Vietnam 85. 1 67. 2 2550 data not available Cambodia 14. 4 7. 9 1690 1. 9 Japan China PRC 3. 5 ADB

Annual economic growth (%)1995 -2007 China, Vietnam and Korea [ADB]

Global knowledge economy power, Asia-Pacific nations, 2007 Personal computers per 1000 people Internet users per 1000 people Broadband subscribers per 1000 people Leading researchers 2008 Japan 542 668 175 258 Korea 545 684 252 3 41 85 29 China PRC 4 [Hong Kong 16] Thailand 58 110 1 0 Philippines 45 54 1 1 Indonesia 14 73 -- 0 Vietnam 13 129 3 0 3 3 0 0 Cambodia

What do nations need for their education and innovation systems to be effective in the global setting? • • A strong expression of national identity (embracing thje global strategy of the nation) as expressed in student learning and knowledge creation through research. The key is global openness and willingness to learn, together with a strong national identity. e. g. strong English language and effective maintenance of Vietnamese A vibrant system of education and training. Growing educational participation and increasing investment at all levels: elementary, secondary and tertiary Modern research and innovation. Universities that participate in the main global flows of knowledge. Education that trains students for innovation. Participation in global networks and alliances especially in the university sector Cooperation between education institutions, government and industry A wide spread of people with the capacity to communicate globally: to access global information; to conduct business, professional and governmental activity Universal good quality English is now a matter of priority in all nations. Good information and communications infrastructure and a high level of connectivity (e. g. computer and Internet use, mobile phones, broadband capacity) Strong flows of students moving in and out of the country, including doctoral students, frequent international training and exchange among education staff

Challenges for schools, vocational and higher education • • • Globalization means that education institutions prepare students for work in international as well as national and local settings Globalization increases the importance of learning the skills of global communication, including information and communications systems Globalization means learning about other cultures, and inter-cultural relations Globalization means linking to schools and colleges in other countries and might mean student exchange and periods of study abroad Above all globalization means good English language skills are essential Globalization means it is also important to sustain national identity and language

Globalization and education markets • • • Globalization does not change the economics of public and private goods. Education continues to produce a mix of goods, and policy has some capacity to steer the balance between them and the volume of each (both joint and separate). Markets continue to be used selectively and for policy purposes Most nations have responded to WTO/GATS by opening to foreign providers in Internet education, but doing so only selectively in mainstream schooling and tertiary education. States have maintained a ‘national treatment’ approach Increasingly upper secondary and tertiary education, as more so research, become affected by global standards. In some areas such as research universities the question arises of whether and how much to focus on the global ranking position Movement of personnel across borders increases and maintaining and recruiting good staff requires a global strategy

http: //www. cshe. unimelb. edu. au/people/staff_pages/Marginson. html Published by Peter Lang, New York, late 2009 Published by Peter Lang, New York, January 2009

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