Hugh Lauder - University of BathSin Yi Cheung –Cardiff UniversityPhillip Brown –Cardiff University

SRHE Conference-7 December, 2011

Celtic Manor

On the Returns to Higher EducationHigher Education Policy Institute

Canary Wharf 20.06.2012

The Global Auction Thesis: The Knowledge Economy Versus Knowledge Capitalism

Situating the Global Auction in National Contexts.

The Problems with Human Capital Theory.

Technological Evolution Knowledge Economy;

The Age of Human Capital - Education, Jobs and Rewards;

Comparative Advantage:◦ Developed Economies = Quality (Brain)◦ Developing Economies = Price (Body)

• ‘In the past, material forces were dominant in national growth, prestige, and power; now products of the mind take precedence. Nations can transfer most of their material production thousands of miles away, centring their attention on research and development and product design at home. The result is a new and productive partnership between “head” nations, which design products, and “body” nations, which manufacture them’

• R.Rosecrance, The Rise of the Virtual State, 1999.

High Skilled ‘Magnet’ Economy

• Higher Skills• Raising Quality Standards• Innovation and R&D• Foreign Talent

Efficiency & Justice ‘Learning = Earning’

For many but not all graduates the Global Auction is a Dutch Auction. There are four elements to this:

The globalization of high skills. The quality=cost revolution. Digital Taylorism. The War for Talent.

Examine Views of Transnational Companies;

Examine Views of Senior Policy-Makers, including China & India.

Seven Countries - Britain, China, Germany, India, Singapore, South Korea, and the United States;

Core Sectors – Automotive, Financial

Services and ITC/Telecoms;

Company Interviews: 125 company interviews = 105 outside of

UK;

Policy Interviews: 65 policy interviews = 43 outside UK.

• HE enrolments doubled within a decade from 33.4 to 62.9 million (1995-2005);

• China overtaken US with over 20 million in HE (2006). Now 27 million enrolled in HE;

• Over 60 percent of engineering doctorates were awarded to foreign students in both American and Britain.

‘We have an “inside out”, not outside in model which is very clever. It gives us more flexibility over what to do where’

Senior Indian Manager, EU Electronics, Mumbai

‘What is really different here is research, we

generate ideas for the frontline to use…These are the areas that we find that talent is delivering to an even higher standard than expected. We’re not doing those menial call centre type jobs. It’s global work and that’s where we think we’ve been able to add a lot more value than what was initially expected and that will continue.’

Senior Indian manager, US Bank, Mumbai

• Knowledge Work Working Knowledge

• Simplify Codify Standardise Digitalise

‘Standardisation in terms of IT has become huge…not only standards for a single customer but across countries…technology is the ultimate equaliser…it will drive globalisation, drive change…I hope that people don’t get reduced to the state of drones…but I think increasingly employment will shrink.’

Chief Information Office, Financial Services.

Developers (creators)

Demonstrators (executioners)

Drones (digital routine)

Segmentation of High Skilled Labour;

Performance Not Simply Skills;

‘It’s more important to get great talent, since the differential value created by the most talented knowledge workers is enormous.’ McKinsey Consultants.

The effects of the fundamental changes in the creation of a global labour market on the national demand for high skills will depend on each economy’s industrial structure.

For example, Germany has a shortage of 8,000 Ph.D graduates per annum.

For the USA and the UK the situation is radically different.

In both countries there is a continued commitment to the ideology of the knowledge economy and skill bias theory–despite highly equivocal data trends.

Most studies which seek to demonstrate the worth of a graduate degree and that it is evidence of the knowledge economy focus on the graduate premium. But that is quite clearly misleading. The premium varies between national economies because of their structure (compare the UK and Germany), while telling us very little about the work many graduates do. Given these data it is most likely that many will be ‘bumped down’.

The previous point suggests that for some countries there are not skill shortages but a deficiency of demand.

When we look at the demand for graduates in the UK we see less evidence of a knowledge economy led by the private sector:

In 1994 10.5% of graduates were in the private sector 22.8% in the public sector. In 2008 The private sector percentage had risen to 20% per cent and the public 37%. There has clearly been an increase in the demand for highly educated labour but the trends do not conform to the imaginary of the knowledge economy.

See also the dispersion of earnings for educated labour as a consequence of changes in the structure of labour markets.

The talk of skill shortages is directly related to human capital theory and its assumption that employers will respond to more skilled graduates by upgrading jobs because it will raise productivity.

It is a comfortable story to tell because it avoids addressing the fundamental problems of demand for skills posed by the global auction and routinisation.

In some economies the tenets of human capital still hold, in others it does not. Human Capital is not a universal theory but time and context bound.

Once we understand that human capital theory is flawed: that we do not live in national labour markets characterised by new equilibria driven by the increased supply of educated and skilled workers, then the policy settings need to change to construct the demand for skilled workers.

It follows that some form of industrial policy is necessary. Indeed it can be argued that the countries with the smartest industrial policies will be the most globally competitive.

Countries that are neo-liberal path dependent (the UK and to a lesser extent the USA) face the toughest challenges.

We do not live in an knowledge economy but rather within global knowledge capitalism.

Education and skills alone will not protect individual workers or the competitiveness of economies –watch Nokia and Finland!

The majority of graduates in many countries will not earn the same income as their parents nor will they have the same lifestyles.

Unless there is a fundamental change in economic policy.