The challenges related to economic security are, in part, the result of broad forces and developments that have largely reshaped the economic realm. That process is continuing.
A few decades ago, the economic realm was more static. Limitations in flows of trade, capital, and information served as “speed bumps” that tended to dampen the rate at which societies and economies changed. Today, that is no longer the case. Trade liberalization grants access to world-class products in most of the world’s economies. Technological advances and reduction in illiberal capital regimes have made it possible for capital to flow rapidly across national boundaries throughout most of the world where the safety-returns balance is most attractive. Technology has decimated barriers that once impeded the flow of ideas, now allowing societies in much of the world to leverage those ideas in myriad fields in building competitive firms, industries, and economies.
That landscape now requires emphasis on knowledge, flexibility, and continual improvement and innovation. In a growing level of occupations, the need for competence has been replaced by the need for excellence. What one knows today is less important than whether one will know what is needed for tomorrow. Firms increasingly look to their employees not as inputs for production, but as sources of human capital that could allow them to develop difficult- or costly-to-imitate processes that are essential to building sustainable competitive advantages. To gain security, employees increasingly need to adapt and re-adapt their skills and expand their knowledge. Otherwise, their value in the human capital framework can only depreciate relative that of their international counterparts in a dynamic world where the education/skills disparities have been closing fast.
The transition from yesterday’s economy to today’s economy and that of the foreseeable future is not easy. That transition has been made more difficult from a lack of a “big picture” approach in which investment has often been viewed by policy makers as just another discretionary expense. The difference is that a dollar invested yields future returns while a dollar spent on an expense does not.
In 2009, a National Bureau of Economic Research (NBER) Working Paper asked whether the U.S. is losing its preeminence in higher education. The paper noted that scientific research in Europe and East Asia has been expanding rapidly since the 1980s (not a bad thing). At the same time, it observed that U.S. publication rates since the 1990s had been slowing and that slowdown could not simply be attributed to trends in Europe and East Asia. Instead, the paper revealed that the slowdown resulted from underinvestment in public institutions. The slowdown of funding for research translated into falling research output in public universities, with many of those institutions seeing their research output tumble into the middle- and bottom-40% of their disciplines.
A 2012 NBER Working Paper observed a slowdown in U.S. innovation. The paper attributed that development to demography (aging U.S. population), education (stagnant outcomes), inequality, among other factors. Based on its findings, the paper warned that “future growth in consumption per capita for the bottom 99 percent of the income distribution could fall below 0.5 percent per year for an extended period of decades.” The results of the AP survey offer a hint of that outcome.
There are no quick fixes. Moreover, the President’s planned address on a new "grand bargain" seeks, in part, to emphasize increased funding for community colleges to reduce barriers to opportunity. Unfortunately, the plan as it has been reported, appears poised to fall far short of what is needed.
First, even as community colleges have a role to play, one must look beyond technical training. Their most productive role in a long-term investment strategy might well entail preparing their students for 4-year and advanced degrees. BLS employment data and Census incomes data show that technical training is not where the greatest job and income security lie. The real value added depends more and more on advanced knowledge far more than it does technical training. Second, without an aggressive approach to increase the value added from elementary and secondary educations (knowledge, progress, timely graduation), students will not be academically-ready for college curricula, which also needs to grow more demanding. Third, a national program would need to be sustained with progress informed by critical indicators and be accompanied by an objective process to make adjustments as needed.
If news reports are accurate, what is being proposed is largely yet another minimalist “plan du jour.” The description suggests that it is largely tactical and reactive. Instead, the nation needs an economic and investment strategy that is coherent, proactive, and strategic. The strategy needs to address how the nation will dramatically expand its pool of knowledge workers in particular, and broaden its pool of human capital in general.
To be sure, government can’t do everything, nor should it. Much of what is required will depend on the private sector. Indeed, the private sector should largely handle technical training. Government should focus its investments on developing high-skilled labor where overall returns would be maximized.
In that context, government needs to give much greater attention to the future value its investments can yield. All expenditures are not created equal. A coherent, proactive, and strategic framework can help it do so. A tactical and reactive approach will likely continue to yield low returns at high cost with little tangible contribution toward addressing the nation’s big challenges.