THE financial bubble that built up between 1997 and 2007 eventually turned to bust, causing massive financial dislocation and personal pain. The Oireachtas banking inquiry is now considering the fundamental question of how Ireland failed to spot the build-up of a colossal economic bubble. But are there other bubbles out there today that we should be worrying about?
Never before have so many Irish students completed third-level education. We have the highest proportion of 25- to 34-year-olds to have done so in the EU. Almost half, 47%, of young adults in Ireland have gone through the system, compared with 39% across the developed world of OECD members.
Has third-level education grown too large? Consider the numbers of our recent graduates who, having been the recipients of considerable state spending on their education, promptly emigrate and take the benefits of their learning with them. In addition, the Economic and Social Research Institute researchers Adele Bergin, Seamus McGuinness and Adele Whelan claim a third of Irish workers are overeducated for their jobs — the highest proportion in Europe.
That so many are overeducated is not a surprise. In recent decades the number of third-level institutions has proliferated. When David Lodge wrote his 1984 novel Small World, he referred to a fictitious Limerick University. By 1989, a real Limerick University had been set up. The Higher Education Authority lists seven universities, 14 institutes of technology and seven other colleges in Ireland. That’s a lot of institutions for a population of less than 5m. And there is constant pressure to establish more. There is an active campaign to make Waterford Institute of Technology a university. No doubt plenty of towns would love to host an institute of technology. Which brings us to a core driver of the third-level education industry: local self-interest.
Hosting a university can make a big difference to the prosperity of an area. The poorest parts of Ireland, in terms of economic value added per head, are the midlands and Donegal, places conspicuously lacking universities. The southeast, also lacking a university, is also relatively poor. Meanwhile, Galway, Limerick and Cork benefit from the direct effects of hosting students and their teachers. And they benefit from the indirect effect of being more attractive locations for businesses that seek graduates. But nobody would seriously argue that we should set up a new third-level institute merely to quell local lobbying.
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The second, and biggest, driver of the third-level education industry is the personal interests of students. There is no doubt that, in a competitive workplace, graduates earn more on average than non-graduates. And holders of advanced degrees earn more, on average, than holders of basic degrees. When it studied the question using 2010 data, the OECD found that having a degree conferred a considerable earnings boost on graduates. Those benefits come on top of the more immediate attractions of university education: developing your brain; spending time studying something you like; meeting and befriending like-minded people; and having an active social life.
The OECD reported: “People with higher (tertiary) education can expect to earn 55% more on average in OECD countries than a person without tertiary education. Those who have not completed secondary education earn 23% less than those who have.” In the case of Ireland, the OECD revealed that graduates earn 75% more on average than a person without third-level education.
Yet there is a danger in treating a degree as a meal ticket to higher earnings. Just because that strategy worked for people who graduated when degrees were relatively scarce does not necessarily mean that it will work when they are relatively plentiful. In the hyper-competitive educational arms race, has a master’s degree today become the equivalent of a bachelor’s degree a few decades ago? And is a doctorate today the equivalent of a master’s back then?
Higher-level education may take on some of the features of a pyramid scheme, where early entrants see the value of their investment increased by new entrants, but where those new entrants end up being short-changed. Whether this proves to be the case depends on the intrinsic value of what students learn.
A considerable investment is made in third-level education: the state bears heavy costs; students pay fees, invest time and energy and also forego earnings opportunities. Do students acquire something of intrinsic value in return? If they do, third-level education is unlikely to be a bubble. If they don’t, it might be.
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The earnings advantage that a degree appears to confer may just be a consequence of the fact that the better and brighter students go on from school to further study. They would be the best and brightest anyway, even if we had no universities. But, largely because they converge on our colleges, we risk conflating the earnings advantage they would have secured anyway with an advantage conferred by a university education. Anyway, in a world that moves at an ever faster pace, why should third-level education be expected to produce such an enduring advantage?
Considerably fewer young Swiss people go to university than in Ireland, yet Swiss incomes don’t seem to suffer. Maybe the Swiss appreciate the distinction made between two forms of knowledge by the philosopher Friedrich Nietzsche. He differentiated erfahrung (experience, or primary information derived from experience) from wissen (knowledge, or secondary information derived from hearing, watching or reading).
Nietzsche was worried that the growing availability of secondary information would produce more “truths” based on secondary information and that educated people would eventually begin to treat secondary information as equal, or even superior to, experience-based knowledge. Third-level education is built on conveying wissen or secondary knowledge — and in Ireland it happens on an industrial scale.
The proliferation of third-level education risks infantilising our youth well into what should be their most productive years. Instead of being encouraged to strike out on their own, they are encouraged to follow preschool, primary education and secondary education with yet more education, where the focus is less on the acquisition of experience than the regurgitation of what teacher says. The third-level sector — which has essentially been allowed to manage itself in recent times — needs serious reform in Ireland.
There is a case for it to be smaller and of higher quality — so top students are encouraged to remain here rather than get undergraduate degrees in the UK or US. Some institutions could be closed without any appreciable reduction in national welfare. To the extent that it still exists, we should consider making free third-level education available only to those who either win scholarships — which should be considerably expanded — or who have spent two years at work. And we need a heavy push for better vocational education instead of technical colleges that risk being consumed by university–envy.
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PS: One consistent political theme of the eurozone crisis has been whether weary Germans must once more reach into their pockets to bail out Greece. In the most recent Bundestag vote on the latest Greek bailout, 60 MPs from Angela Merkel’s party either abstained or voted against the package. Having already spent trillions since 1989 on their cousins in eastern Germany, how long will Germans’ patience last as they are required to pick up the tab for their friends in the Mediterranean?
Yet what if Germany were profiting from these bailouts rather than having to pay for them? This is the controversial thesis advanced by the Leibniz-Institut für Wirtschaftsforschung Halle. In its report Germany’s Benefit from the Greek Crisis, authors Geraldine Dany, Reint E Gropp, Helge Littke and Gregor von Schweinitz argue that “the German public sector balance benefited significantly from the European/Greek debt crisis, because of lower interest payments on public sector debt”.
This interest-rate benefit was due to two effects. First, in times of crisis, investors seek out safe investments, bidding down the returns on safe-haven assets. Second, while the European Central Bank’s monetary policy stance was quite close to an “optimal” monetary policy stance for Germany from 1999 to 2007, that policy has been too accommodating from a German perspective since the crisis. As a result, the German state saved more than €100bn in interest between 2010 and mid-2015, exceeding the €90bn it has lent to Greece.