Disruption awaits the education bubbleView(s):
By Kajanga Kulatunga
This year is shaping up better than anticipated. It’s only September and I have annoyed twice as many groups of people as I did all of last year. That’s a good start. My job as I told an audience of Private Equity managers recently in a keynote address is to worry about thinking. To worry about thinking means asking questions from people, some of which makes them extremely uncomfortable. I have only two masters; my own ethics and the millions of investors on whose behalf I act as a fiduciary. That last “f”word is something that can’t be taken lightly.
It was another remark at the conference which has raised the ire of an otherwise unperturbed group of individuals – Presidents of large universities. Investors have long had a keen eye on the education sector. As Asia and Africa go through a demographic dividend, the demand for higher education has grown exponentially. At the same time high fixed costs of some grand old institutions have made survival nigh impossible. Instead of looking towards fixing structural cost bases, some institutions have followed the money trail to Asia by either lowering academic standards or ridiculously raising the cost of tuition to international students. In the worst cases, it has been a combination of both.
The rising prices have put a strain on many marginal families around the world who have had to mortgage not only their assets, but also discount nearly a decade’s worth of income from their children who will become students. The scheme worked fine till 2008, when the debt-driven binge in global consumption came to a sudden stop. As consumption has dried up, artificially low interest rates have made it more attractive for companies to invest in capital than in jobs. Companies have been searching for capital intensive solutions (with Information Technology at the core) rather than hire people. This has led to stubbornly high unemployment in countries which house the best universities and have traditionally absorbed international students, who then paid off their local debts within about three years. For many international students, the return to their country of origin has been disappointing as wages remain inadequate to service high foreign currency denominated debt.
Unashamedly the global education movement have continued to advocate still higher enrolments in to questionable degree programmes. Note the xenophobic reaction of the British government and the consequences to students at London Metropolitan University. Some of the most perverse offerings are in graduate schools. The once exclusive and highly competitive Master of Business Administration has been completely debased and proliferated without a systemic reduction in price to the student.
The MBA has become a byword for a useless pursuit with recruiters in most good firms sticking to relationships with a handful of Ivy League schools as their only recruitment ground. Yet the cost differentials at various institutions are minuscule. It is perverse logic that international students from some of the poorest countries end up subsidising budget gaps created by incompetent university management on top of their great service in helping close gaping trade deficits in those countries.
This ironic debt-fuelled binge is about to come to an end. And so it should. The end is in sight due in part to efforts by some “real educators” to act in the best interest of students and parents irrespective of their nationality. Both Stanford and the Massachusetts Institute of Technology have trialled and have already unveiled high quality on-line delivery. Content was never going to be the problem. The challenge for many educators has been the need to replicate the “classroom environment”. Neuroscientists though may take an exception to that. A growing body of research is pointing that the traditional setting is actually dilutive to the overall educational experience.
In reality what most educators and by extension recruiters are worried about is a further erosion of social skills which is already causing problems in an age of increasing narcissism due to social media. That gap may also be fixed more cheaply than many anticipate. The current solution has been popular executive education courses – which cost a bundle. Over the last five years a global team of researchers (of which this writer has been an integral part) have developed and delivered a low-cost high value designation mechanism to fill this gap. The software industry has pitched in too. Complex programmes are being tested in facial recognition software in order to increase the ability to communicate emotions.
These exciting developments spell an end to many traditional universities. While the elite supported by a string of Alumni networks will prevail, most parents should think twice before monetizing 20 years of wealth to pay for a 4-year education. We should see an explosion of graduates through non-traditional sources, complemented by skills recruiters actually want acquired by designations over the next few years. Parents and students should embrace this model. The monetary savings can be spent on getting the most invaluable education of all – discovering the world and people that live in it.
(Kajanga is an Investment Specialist based in Sydney, Australia. You can write to him at email@example.com).
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