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May 28, 2013

Universities driving economic growth

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Image. Students in the Wolfson Research Exchange, University of Warwick

A blog post by Dirk Van Damme, Head of the Innovation and Measuring Progress division, OECD

In most OECD countries economic growth is now driven to a higher degree by intangible assets than by traditional capital such as machinery or equipment. Knowledge, data, patents, and human capital are the new sources of growth. And innovation in these intellectual assets will spur growth to take off again. The quantity and quality of intellectual innovation will not only determine when and how countries will find the way out of the recession, but also the post-recession new global economic order.

As key players in the knowledge chain, universities constitute the main institutional framework for the creation of intellectual capital. Either they can foster and accelerate knowledge-based growth or they can hamper it. Because they mainly are situated upstream in the knowledge creation process, compared to firms and businesses themselves, they act as gatekeepers: either economic growth is nurtured by a large flow of innovative knowledge and human capital, or the economy and society at large only reap a weak stream of mediocre knowledge and competences. Universities achieve this mission in basically two ways: by conducting cutting edge research – which is added to the knowledge base of the global scientific system and transformed into applicable knowledge with industry and by educating knowledge workers with the right skills sets which can drive innovation and productivity increases.

With regard to human capital development, the second function, over the past couple of decades universities in OECD countries have been able to cope with an increasing demand, driven by a social mobility aspiration in the population, and to deliver an ever increasing number of graduates to the labour market. Given the production time of high-level skills and all kinds of institutional hindrances or social expectations, it is of course impossible for universities to exactly follow the economic conjuncture and the specificities of the skills demand. Overall however, data on graduate employment, earnings premiums and returns on educational investment show that fears for exaggerated massification and over-schooling are not confirmed.

In delivering the human capital the knowledge economy needs, universities are massively contributing to the creation of wealth. Between 2000 and 2010 more than half of GDP growth in OECD countries was related to labour income growth among higher-educated individuals. The returns to society and the public purse over the lifetime of a graduate are many times greater than the upfront investment in educating that individual.

Still, the main challenge for universities regarding human capital development is whether they are educating for the kind of skills the innovation economy of the twenty-first century needs. Short-term skill mismatches – with graduate unemployment at a time where employers have unfilled vacancies – are symptomatic. But even more important is the question of whether universities are not conservatively following the old, conventional ways in which human knowledge is codified and professions are organised, rather than to radically choose for the skills which foster innovation in the twenty-first century.

With regard to the knowledge creation function through research, the first function, a lot of data underlines the critical importance of investing in high-level research in order to drive innovation in the economy. However, the challenge seems not to be to maintain high absolute levels of research investment, but to improve research efficiency, i.e. the relationship between research input and output. Many of the innovative economies in the OECD are not the absolute centres of academic excellence, but seem to have improved their research efficiency. World-class universities – those in the top 20 of the Times Higher Education World University Rankings – combine extremely high research investments with high outputs. But the dynamic sub-top of universities, often to be found in emerging countries in the global science system, combine much lower investments with equally high outputs. These countries are not (yet) the BRICs, but are to be found in the immediate neighbourhood: Switzerland, Benelux, France and Scandinavian countries.

This blog is part of a regular series on the Knowledge Centre looking at issues in higher education ahead of the Global University Summit (May 28-30 2013), hosted by the University of Warwick in Whitehall, London. As part of the Summit, a declaration of commitment and policy recommendations will be drawn up for the G8 summit of world leaders, taking place in Northern Ireland in June.

Image: Students in the Wolfson Research Exchange. Source: (University of Warwick)

Image. Dirk Van Damme, OECDDirk Van Damme currently is Head of the Innovation and Measuring Progress Division (IMEP) in the Directorate for Education at the OECD in Paris. He holds a PhD in educational sciences from Ghent University and is also professor of educational sciences in the same university (since 1995). He also was part-time professor in comparative education at the Free University of Brussels (1997-2000) and visiting professor of comparative education at Seton Hall University, NJ, USA (2001-2008). He was general director of the Flemish Rectors’ Conference, the main advisory body for higher education policy in the Flemish part of Belgium between 2000 and 2003. He has been professionally involved in educational policy development between 1992 and 2008, and served as chief of staff of Mr Frank Vandenbroucke, Flemish minister of education between 2004 and 2008. His current interests are evidence-based innovation in education, comparative analyses of educational systems, new developments in the learning sciences and knowledge management in education. At the OECD he is responsible for the Innovation and Measuring Progress Division, covering both the Centre for Educational Research and Innovation (CERI) and the Indicators of Educational Systems (INES) programme.

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