“Education is the most powerful weapon which you can use to change the world.” - Nelson Mandela
In recent decades, universities have experienced significant growth worldwide. The number of researchers employed by higher-education institutions have increased from 4 million in 1980 to approximately 13,1 in 2018. Government spending on the education sector has also risen. Theoretically, universities should be a valuable source of productivity, potentially enhancing economic growth within nations. Universities are expected to generate intellectuals and scientific advancements that can be utilized by the general public and eventually “change the world”, according to the quote from Nelson Mandela.
The Paradoxical Circumstance
In an article from The Economist, the facts show that the significant growth in higher education has coincided with a slowdown in productivity growth. Despite the surge in artificial intelligence (AI) innovation, productivity remains low, arising concerns for overall economic growth. A study suggests a connection between the rapid expansion of universities and the stagnation of productivity. If we look back to the era post-World War II, businesses were primarily responsible for innovation, spending far more on research than universities.
Examples from the US, corporate research labs, like those at AT&T, were as scholarly as they were profitable. However, this model declined when competition policies became more lenient in the 1970s and 1980s, and businesses began relying more on university research.
A study from Ashish Arora (et al., 2023) suggests that the old model of corporate-led science may have been more effective at driving productivity gains than the current university-led model. Despite universities' scientific breakthroughs, corporations often do not respond by increasing their own research efforts, except in life sciences. This lack of response may be due to the loss of interdisciplinary teams in corporate labs and universities' focus on research for its own sake rather than practical breakthroughs.
According to that analysis, this productivity decline can be attributed to factors such as insufficient coordination among economic agents and a perceived lack of practical utility in university research which caused the economy to slow down. However, is the sole objective of universities to foster economic growth?
Productivity, Does it Matter?
The significance of productivity growth in an economy is widely acknowledged because the ability to enhance living standards over time hinges largely on increasing the output of workers. In various industries and businesses, productivity gains are crucial for balancing rising input costs, such as wages. Similarly, in higher education, boosting productivity is viewed as a key strategy to manage costs and ensure college education remains affordable (Sinha, 2012).
Production Function Graph. Source: Policonomics