Free Higher Education?

The idea of free higher education, at least in public universities, is being promoted by certain circles. Is that a good idea? Education undoubtedly brings a lot of personal benefit to the life of the person receiving it, and, to some degree, also brings benefit to the community. Because of higher education, a person personally benefits by earning a higher income and leading a better standard of living. Society too benefits from having a better educated workforce, higher tax collection, less petty crime and better health.

If society gets more benefit than the individual receiving education, then it might make sense to subsidize education of that individual. However, this may not be true for all individuals. In many cases, the individual benefit from education can exceed the societal benefit. In that case, it may not be beneficial for society to fully subsidize the education of such individuals.

Lets look at an example to make it clearer. Suppose a poor state, in the hopes of having an educated workforce, makes higher education free for all the residents of that state. Now, every individual has an incentive to go for higher education. However, once they are educated, there is no bar that prevents them from moving to another state or country in search of higher pay. So, the poor state spent all its resources to educate the youth, but may not have enough sway to keep them in the state once they graduate.

What if the whole country instituted free higher education, at least in public universities. A much clichéd term in economics is "there is no such thing as a free lunch." If higher education is made free to students, someone needs to pay for it. The only way of doing it is by raising taxes, which may not be popular among the people. Besides, if something is given out for free, people may start perceiving that the quality is low (which may not be true). So, to signal that one is of higher caliber in terms of skills, students who believe they have the ability will go to private schools and pay the fee. If students believe that they have the potential to earn more if they attend a private university, they will continue to take loans and go to private schools, instead of attending the free public universities. 

Therefore, in theory, free higher education sounds good. But if implemented, there might be some negative consequence. 

A Successful Economic Zone - the Research Triangle Park of North Carolina

The success of economic zones may not be guaranteed, but there are certain instances where such zones thrived against all odds. One such example is the Research Triangle Park, located in the state of North Carolina, USA. The Research Triangle Park, or RTP, is one of the best examples where government, academia and industry collaborated together to create a research center that soon turned into a center of excellence.

The RTP is surrounded by 3 world-renowned research universities - Duke University, University of North Carolina at Chapel Hill and North Carolina State University. It is built on 7000 acres of land and has around forty thousand individuals working in more than 200 research centers. It has also become a great place to live, according to this Forbes article, which attracts more people to move to the region. The RTP has been so successful that the government of the state of North Carolina is creating some more research parks following the RTP model. One such center is near Charlotte and is called the North Carolina Research Campus.

One of the prime reasons why the RTP has flourished is that academia, industry and the public sector worked together in unison to make the Park successful. The universities taught courses and majors that the industrial sector demanded and employed, and the public sector provided the land and the necessary infrastructure for the research centers to set up. As more industries were attracted to the region because of the availability of skilled workforce and business-friendly environment, the youth in that area were also encouraged to pursue higher education.

Another important aspect about RTP is that is houses hi-tech research centers that requires skilled workforce. Labor-intensive manufacturing industries are not present in the area. To remain competitive, the region needs to continue to produce a skilled workforce. With a large number of renowned universities all round North Carolina, that may not be a problem in the foreseeable future. Another reason why the Park is flourishing is because it focuses on hi-tech research, something that we need now and in the future.

The success of such an economic zone shows the importance to have educational centers that produce skilled workforce.Simply providing tax incentives and subsidized land is not enough. Actually, North Carolina is an example where the prevalence of high state income taxes do not deter companies from moving to RTP, or encourage them to exit. This is because the benefits of the availability of skilled workforce outweighs the cost of tax. Therefore, if governments want to create successful economic zones, they should consider setting up universities/technical colleges/training institutes near those zones, that produce workforce the zone needs. This can increase the changes of success of an economic zones.  

The lure of creating Special Economic Zones (SEZ)

Special Economic Zones (SEZs), in a nutshell, are pockets of investors' paradise in a region or a country. Governments try to provide as much facilities - such as tax breaks, subsidies in buying land or constructing factories, or a commitment to train the required manpower - to attract investors to a particular area. With increased investment, politicians, policymakers and economists believe that it will create enough economic spillovers to spur economic development in the region. Eventually, the whole region can get industrialized, creating much wealth for the citizens of the region.

Because of this belief, many countries are rushing into creating SEZs. For example, just India is creating around 200 SEZs. Politicians promise large influx of future employment opportunities to locals, which makes the locals happy. There is large-scale investment in infrastructure that shows economic activity in the region. However, the long-run impact is mixed at best. This Economist article shows that most SEZs fail, and there are only a few successful SEZs. Politically, they may sound great, but economically, they may not be the right way to go.

This is mainly because SEZs do not exist in a bubble. Yes, they get special privileges from the government, but these privileges can create distortions within the economy. If I am a local investor, and region A has an SEZ and region B in the same country does not, then I would be more willing to invest in region A. Subsequently, there is more movement of migrant workers to region A. So, the rest of the country can become economically stagnant, while the SEZ region grows.

However, the above scenario can only happen if the SEZ is successful. If the SEZ fails to attract investment from locals and abroad, then all the capital used to set up the SEZ will go to waste. Besides, with the ease at which factories nowadays can locate from one country to another, if an SEZ loses its competitive advantage, it will makes investors flee, creating a lot of unemployment as a consequence.

So what is the best direction for industrialization? Instead of creating pockets of special zones, governments can take a more holistic approach and try to improve the investment climate of the whole country. If governments work to reduce bureaucracy, simplify registration, and invest in creating a resourceful workforce, investors will be willing to invest in the country. If the government wants to give a 'carrot' to foreign investors, it can do so by promoting that workers in the country are educated and efficient, the government is efficient and property rights are strictly enforced. These factors can encourage more investment that actually adds value to the local economy, rather than attract investment that is quick to leave the minute any facilities diminish.

Competency-Based Education System and MOOCs

Education has normally been delivered through lectures, where an instructor lectures pupils on a specific subjects. This model is prevalent from Kindergarten till most of undergraduate/graduate school. Only when a student is writing a thesis or dissertation is when a student works closely with a mentor or advisor. Individualized attention, where a teacher just has one or two students, is rare, unless a student or a parent specifically hires a tutor or instructor to teach a student. Nonetheless, education is a very labor-intensive industry, and it requires more human than capital for it to be effecive. However, there is a lot of discussion about changing this model of delivering education, especially in the undergraduate level.

There are two, somewhat divergent models being promoted to educate students at the undergraduate level. One is termed as MOOC (Massive Open Online Course). A number of universities like Stanford University and MIT are providing MOOC courses. Seeing the potential of growth, some commercial enterprises like Coursera, Udemy and Udacity have started to provide online courses for free. In these websites, a number of courses are offered for free. Students can view the lectures and then take and exam to get a certificate of competency in that course.

The other is called competency-based education, spearheaded by Western Governors University. In this model, the student tries to complete a major in his or her own pace, and there are mentors to guide the student to complete the degree. It is more of a mentor-student model where the mentor makes sure that the student does not fall behind; however, the student is expected to finish all the coursework, and take the required competency exam in order to pass the course. However, a big question here is whether this mentor-student model can be scaled up while keeping costs low.

These models of education are emerging because of the belief that the current higher education system is either too expensive for a large number of students, or is inflexible for working students. Although online education is trying to reach out to the largest number of students at a minimum cost, it doesn't provide some of the benefits that a traditional university offers. As an instructor in a traditional university, I know that much of the learning takes place outside of classroom. Traditional universities provide students huge opportunities to network, build resumes, take part in extra-curricular activities and be aware of the world around them. Variants of the traditional university model tend to teach students one-on-one without much emphasis of building other characteristics required for succeeding in one's professional life. For MOOC and competency-based education to succeed, attempts need to be made so that they complement the traditional universities, rather than substitute them. This way, students can get a true education, rather than a checklist of ideas that they memorized/mastered.  

Inclusive Economic Development

Rising incomes of the average citizen always seems like a great achievement for any government. Policymakers and economists are all in arms about trying to raise and/or sustain economic growth of a country or a region. Economic growth, put simply, is the increase in the average income of a region or a country. The belief is that with rising incomes, families become wealthier, and can afford more and better-quality good and services, which then can lead to economic development.

However, one flaw in this belief is that it puts too much emphasis on the notion that rising incomes is necessary for prosperity. Other important things need to be put in place to ensure that economic development, not just economic growth, is taking place. It is economic development that leads to prosperity, not just rising incomes due to economic growth. Besides rising incomes, other components of that promotes economic development are (the list is not exhaustive):

1. better access to healthcare that makes life expectancy longer and improves the quality of life.

2. improvements in the educational attainment of individuals, with easy access for all

3. better access to fresh, unadulterated food

4. ability of the citizens to life in a unpolluted or minimally-polluted environment. Ensure that environmental damage is kept to a minimum. 

5. excellent infrastructure facilities (roads, railways, air travel and internet)

6. ensure all citizens have equal rights

7. improvements in the governance, law enforcement and securing property rights. Reduction in corruption. Ensure transparency in government. 

Many other factors can be added to the list. Different indicators, published by different international and donor organizations, measure and rank countries based on each of these indicators. The UNDP's Human Development Index combines income, education and life expectancy together to create one single index that shows the development of the country. 

Instead of just focusing on raising income levels, developing countries should also focus on improving these seven indicators. The Millennium Development Goals tried to promote economic development in poor countries by promoting human development, but many countries failed to achieve the goals. Thus, international organizations and developing countries should make economic development their core mission to achieve prosperity, not just economic growth. This will enhance the quality of life of the average citizens, while making their incomes higher. This simple thought question shows the importance of overall development in a country - "What's the use of having a high income if most of it goes to health expenses because of the acute smog in the city where the person lives?" 

Governments should start to focus on economic development, not economic growth to make their country a better place. 

Social Business

The Nobel Prize winning economist from Bangladesh, Dr. Muhammad Yunus, has been promoting the concept of "Social Business" around the world. He has written a book explaining in details the concept behind social business and how it can operate and sustain. Briefly, a social business can be summarized by these points:

1. it is an enterprise that produces a good for the benefit of the society
2. the primary motive of the business is not profit maximization, but to benefit the society
3. the organization is run as a non-profit, and any profit that is earned is either invested to make the social good better, or spent for the benefit of the local community.
4. investors can invest in the firm, and they need to be paid back along with some interest.

Besides producing a product that benefits a society - like Danone producing nutritious yogurt in collaboration with Grameen Bank in Bangladesh - the social business provides employment to the locals, and improves the community by investing any profits earned by the firm. Investors will invest just as if they are giving money to a charity, except this time the investor will recover his/her investment, along with some profits. Dr. Yunus goes in depth in the book how a firm can raise capital from investors.  

In short, a social business is a concern that is not run by profit-motive, but for the benefit of the society. If this idea catches on, it can change the concept of charity. If charitable organizations were converted into social businesses, then they could invest charitable donations to produce a good that not only benefits the region, but also improves the local community. Thus this idea needs to grow. My one concern is the long term continuity of the idea of social business. If the idea becomes a worldwide phenomenon, then it can bring a huge improvement in all parts of the world.

The one important thing that will help the concept of social business to grow is to keep the idea of profit maximization away from social businesses. Even if the social business has the potential to become very profitable, the owners should refrain from changing the mission and vision of the firm.

Thoughts on Global Migration

Humans have always been on the move. One of the first professions adopted by humans was hunter-gatherers, which required them to move from place to place in search of food, water and shelter. Migration has populated different corners of the world, and have introduced ideas from one part of the world to another. This trend continues today - we see people moving to places where they have a comparative advantage. However, countries and regions have been trying to slow the pace of international migration. As legal migration, whether temporary or permanent, becomes more difficult, potential migrants have been taking dangerous routes to reach their destination countries. In recent years, we have read in the news about Rohingya boat people trying to escape persecution in Burma, Africans and Syrians trying to cross the Mediterranean to reach Europe, and a large number of children from Central America trying to escape to the US. The journey for a lot of these migrants is not easy - for example, Australia has been detaining asylum seekers in  Papua New Guinea before deporting them. Dangerous migration is not only undertaken by those who are persecuted, but also by economic migrants. These economic migrants just don't move from developing to developed countries, but also go the other way round.

Moving from place to place seems to be ingrained in us, so it would be futile to try to stop the flow of migration. Some countries are more willing to accept richer and/or skilled migrants. However, semi-skilled or unskilled workers can add some economic benefit to their destination countries. A new paper by Michael Clemens of Center for Global Development shows that existing barriers to migration cost the world trillions of dollars in terms of lost economic opportunities. Besides, those who are escaping persecution in their home countries need protection in a different country. Thus, there needs to be a more systematic policy that assists the inflow of economic migrants and asylum seekers from the developing to the developed world. The International Organization for Migration could take a more active role in facilitating the process of moving migrants, both economic and persecuted, from one country to another. Developed countries can issue more temporary work visas to facilitate migration. This would help to reduce people taking dangerous routes to move to the country of their choice.