Australian Education Minister Dan Tehan recently announced changes to tertiary education funding intended to incentivise study for ‘jobs of the future’. As reported by the ABC‘s Conor Duffy, ‘job relevant’ Australian University course fees are to be slashed:
Subjects in nursing, psychology, English, languages, teaching, agriculture, maths, science, health, environmental science and architecture will be cheaper… However, students enrolling to study law and commerce will have fees raised by 28 per cent. For humanities courses, fees will more than double, putting them alongside law and commerce in the highest price band of $14,500 a year.”
Catherine Friday, education lead at global accounting firm Ernst and Young, is quoted as saying the change would be good for the economy and jobs:
As public education delivers both public and private good, there is a strong nudge here towards maximising both, and discouraging ongoing high enrolments in courses like law, where demand for lawyers isn’t growing at anywhere near the pace of the numbers of new law graduates every year."
In contrast, a tweet by Paul Barratt, Former Secretary of Australian Departments of Defence and Primary Industries & Energy, is quoted challenging what is ‘relevant’:
Did a part time Arts degree at ANU after starting work in Commonwealth Public Service on basis of BSc(Hons). Did the Arts degree purely for interest; constantly drew on what I learned throughout my career and to this day. You can never tell what’s ‘relevant’.”
He could have added: “except in hindsight”.
Gabrielle Reid, reader, writer, former teacher and occasional blogger, goes even further, suggesting 8 Things Wrong with the Government's University Funding Proposal.
At issue is public funding of education.
On one side, some argue that education is solely a ‘private good’ as it enables a person to earn more in the future than they may have done without the education. In this view, everyone should pay for their own education – if necessary, borrowing against future earnings to fund it.
However, this extreme view ignores the collective value of education. A person educated as a ‘physicist’ (or lawyer or accountant or logistics expert or programmer) is a valuable member of society only to the extent that other people have complementary skills and knowledge. Put them into, say, a hunter-gatherer society and their knowledge and skills would be useless, both as a private good (valuable to themselves) and as a public good (valuable to the community). On this basis, the public should fund the entire cost of education that supports community needs.
Most people take a position somewhere in the middle of these two poles. The community should invest some money in meeting the cost of education that is ‘socially valuable’, with the individual paying the balance (so they have some ‘skin in the game’).
This leaves us in the unfortunate situation where our politicians are forced to make value judgments about which courses are ‘job relevant’ and the extent to which all tertiary education should be supported.
It is unfortunate not because politicians are incompetent, but simply because no small group of people can possibly know what education is best suited to future jobs – much less in a world where data, information and knowledge are changing and expanding at super-exponential rates.
Ideally, these decisions should be made within the market itself, as it is the market that determines the jobs. This includes jobs in sport, the arts and entertainment, as well as trades, and even research and other public service jobs.
The solution is in understanding that the mismatch between jobs and education is a ‘system problem’.
In designing the current system, we have ignored the process of creating ‘educated people’.
In our modern economy, we require many different resources to create an educated person: teachers, professors and tutors, as well as all the support staff that work in and for education institutions (lab assistants, accountants, security staff, facility managers, ground staff, etc), together with buildings and equipment. However, all they provide are the facilities, information, and tools – the raw inputs. They cannot transform data and information into skills and knowledge in the body and mind of the student.
Only the student can do the work – which is some of the hardest work we do – involved in acquiring new skills and knowledge. And yet ironically, with very few exceptions (apprentices and on-the-job training, for instance) we pay every person involved in the process of producing educated people… except the student.
Study allowances and scholarships rarely pay the student for their time and effort. In the main, they simply subsidise the costs.
Despite talk about the move to the ‘knowledge economy’, our education system is stuck in a 20th Century paradigm of ‘set qualifications’, using course material that quickly ages over fixed time frames. Once qualified and on the job, we are paid only for applying our skills and knowledge to create and deliver goods and services. We are not paid for the work we did to acquire our skills and knowledge.
In designing the economy for the 21st Century, we need to recognise that the student is both the worker and the product (the educated person), as well as a beneficiary (along with society) of the application of their skills and knowledge in the process of creating and delivering new goods and services.
To design an efficient system that meets our individual and collective needs, we need to treat these roles (worker, end-product, and beneficiary) as separate.
If we pay everyone else who works to create educated people, why don’t we pay the student too?
For much of the 20th century, it was expected that young people from their early-mid teens would start supporting themselves, or at least contribute to the family income, mostly in the form of paid employment where they learned ‘on-the-job’.
However, as society has become more complex, so too have our young been required to spend more and more time doing ‘learning work’, often well into their twenties – mostly without pay, leaving them dependent on others. At the same time, they have been required to meet more and more of the cost of their education, pushing many into debt.
The arguments in favour of paying people to do tertiary ‘learning work’ are:
- The work to acquire skills and knowledge adds great value within an ‘educated community’.
- The student is the only worker who can turn data and information into skills and knowledge.
- The rate of change in data and information requires life-long learning.
- Everyone requires money to support themselves while learning and to pay for their education.
This approach does not have to be limited to vocational learning. Imagine if our young were paid to learn to become not only better workers, but also better citizens, and even better parents!
Once we accept the need for life-long learning and the validity of paying people to do learning-work, it is feasible to look at developing part-time civics courses that follow on from secondary schooling. These could be offered at the minimum wage, allowing our young to take on other part-time work in the traditional labour economy.
By combining paid learning with other paid work, our young could support themselves as they prepare to become ‘full citizens’ between 18-20, or beyond if other jobs are limited.
These civic courses could cover social norms, government, history, geography and ‘clear thinking’ (in part to counter anti-science conspiracy theories and propaganda), and perhaps some broad understanding of economics. Knowledge-based learning could be complemented by skills training – covering things like negotiation, problem solving, creativity, communication, even budgeting and money management. What about learning how to grow your own food, or repair your own home and appliances? Or learning about good healthcare for yourself and your family?
Extending this thinking, we may even consider paying one parent to stay at home (say, full-time during the first five years of a child’s life and then part-time until the child finishes secondary school), with courses in parenting offered at each stage.[1]
Another facet of the problem is impending ‘technological unemployment’ where advances in computing, artificial intelligence and robotics threaten to replace many traditional jobs across mining, farming, manufacturing, transport and service industries.
Historically, technological advances have created more jobs than they have destroyed, but the transition has been highly disruptive as the people displaced have struggled to adapt. As Jim Chalmers and Mike Quigley have made plain in their recent book ‘Changing Jobs: The Fair Go in the New Machine Age’ (Black Inc, 2017), this problem heralds the need for ‘life-long’ learning.
Regardless, there should be no concern about the lack of work. Anyone who has had to maintain a home and garden and look after children, the elderly and disabled knows that these tasks require human ingenuity and empathy, as well as physical presence. Outside the personal domain, maintaining, re-building and beautifying our cities, infrastructure and public spaces is a never-ending job that cannot be easily automated.
Following their paid civics education, our young would be free to choose paid vocational study (full-time or part-time) based on demand for learning jobs within each sector of the economy, including the public sector.
After gaining their initial qualification, everyone could continue to learn in short bursts throughout their lives, enabling them to acquire the skills and knowledge needed to be applied to the next project – moving back and forth between the ‘learning economy’ and the ‘applied economy’ as circumstances required without losing their income in the process. Alternatively, a person could work part-time in the applied economy and part-time in the learning economy. This should extend to trades, as well as personal care and other socially beneficial work – not just Science, Technology and Maths-based professions.
How could it work?
Whilst it is difficult to sketch a comprehensive picture of what a ‘learning economy’ would look like in practice, it is possible to carve out a high level framework and identify some new institutions and infrastructures required to realise this vision.
Industry and public sector associations could employ organizations to continually assess skill shortages and specify course content to meet upcoming needs at different organizational levels within their sectors. A specific number of ‘learning jobs’ could then be advertised in each sector, with rates of pay negotiated to attract the required number of people with the right aptitude.
Everyone would be free to apply for any learning job based on their own abilities and interests, as well as the wage offered and future job prospects in the applied economy. This would include people already in paid work.
All ‘learning jobs’ would be subject to individual assessment to determine the most suitable candidates based on the requirements of the roles available on completion of the course.
Rates of pay would have to reflect the experience of a person. Though the content is the same, someone just out of school may not earn the same amount while they learn as a person with 20 years’ experience. This is to reflect the fact that more industry experience opens more opportunities for the student to apply new knowledge to different contexts at a higher level.
While the Government could partly fund the service providers (as now), there may be some advantage in asking the student to pay the full cost out of their wages, based on which service provider offers the best value for money. This only works if there are good ‘reporting’ services (paid for by the industry) that honestly evaluate different providers. As it is in the industry’s interests to have good quality providers, this ought to create a competitive market between students and providers. Providers want the best students (to boost their reputation for high quality graduates) and students want the best providers (to give them the best learning experience, at a competitive price).
Another advantage of placing responsibility on students to pay their education provider directly is the ability of individuals to shift to new and cheaper modes of learning more easily than it is possible for government to shift funding. In time, the cost of learning is expected to fall as more and more world-class content goes online using virtual reality and apps designed to promote self-paced learning. Existing institutions locked into a ‘campus’ infrastructure may struggle to adapt while the flow of funds comes from government regardless.
Of course, many tertiary courses already require students to pay all or part of the fees.
With the amount of pay set using market mechanisms, the student ought to earn sufficient to provide a living while they work to learn, as well as to pay the full cost of their education, otherwise it would be difficult to attract people to learning jobs who were already employed. This assumption can only be tested ‘in the market’ by trialling the system. Perhaps in conjunction with the traditional approach using part government funding of education providers as a ‘control’ for a separate group of students.
As with any job, there ought to be a performance requirement, so if a person failed to progress and complete the learning within a set timeframe, they would be sacked from the learning job.
Rather than time-based assessments, each student should be free to nominate when they are ready to be assessed for accreditation.
If all this could be implemented, what we would have is:
- industries and the public sector competing to offer the highest learning salaries to attract the best people to fill upcoming employment needs.
- students competing to win the learning jobs.
- education providers paid by students, competing to provide the best learning experience for the least cost to enable the student to acquire the required knowledge in the shortest time.
- accreditation providers (paid by the industry) competing to verify course content, student aptitude, on-job performance, achievement of the required competencies, and service provider quality[2].
Where does the money come from?
Like any costly initiative, there are different means of acquiring the requisite finance. One option is to fund the learning wages out of tax or government borrowing. The disadvantage is that it would entail taking money from one section of the community and giving it to students to spend, limiting our ability to grow value in the economy.
An alternative, better idea would be for a small proportion of funding to come from levies on employers in each industry and the public sector.
The amount of the levies could be decided by the representative bodies of those in each sector who stand to benefit from the additional qualified labour – giving them skin in the game.
The greater the demand for higher-paid jobs within a sector, the more the employers within it should be prepared to pay to secure the educated workers that they need. The levies would also pay for the administrative costs of the scheme. This would alleviate the burden that individual employers now carry when they spend money training people only to see them go to a competitor after the person has qualified.
Centrally however, this paper suggests that most of the funding could come from money creation as a multiple of the money raised via the levies (say in the ratio 10:1).
Which raises the question: how is money created and for what purposes? If you are unfamiliar with the processes, an outline is provided in the box below:
1. Bank Lending
Traditionally, most money has been, and still is, created via bank-lending. This paper by the Bank of England explains the process.
In simple terms, when someone seeks to borrow money, the bank doesn’t use your (or any else’s) deposit. Instead, they make two entries in their books: a debit entry in the name of the borrower (to signify the amount of the loan that the borrower must repay) and a credit entry in their name (to create a new deposit that the borrower can draw down). The double entry creates the new money, while keeping the bank’s books in balance.
When the borrower withdraws the deposit and spends the new money in the economy, they create new demand, increasing the size of the economy in the process.
As the money gives the borrower additional purchasing power that they have not earned, they must work and/or invest to create value – earning income to repay the loan. Once the loan is repaid, they and society are square: they will have put back in the same value as they consumed when they first spent the proceeds of the loan.
As the loan is repaid, the entries in the books of the bank are reversed and the money is written back into the thin air from which it came.
For any economy to grow, new money must be continually created (in the form of bank loans) to replace the money repaid, and to facilitate additional transactions.
With the whole system built on debt, it’s hardly surprising that world debt has continued to increase throughout history!
2. Quantitative Easing
New money is also created via Quantitative Easing.
In this case, the Central Bank creates the money to buy the existing securities. This is done ostensibly to provide liquidity to the banking system to save it from collapse and in the hope the money will trickle down into the real economy. In practice, the sellers simply reinvest the proceeds of sale in other securities – driving up asset prices, with little trickling down.
3. Deficit Financing: Recognising the Value of Work Done
Central Banks can also create money to fund National Government deficits.
Essentially, the money recognises the value of ‘new work’ done by individuals employed by government or as government contractors, since the government spends the new money on wages and on goods and services provided by the private sector.
Unlike ‘borrowings’, the money does not have to be repaid by the workers providing labour and services to the government, as it is in recognition of ‘work done’ and ‘value added’.
Most economists agree that ‘money printing’ is acceptable if it is limited to covering a shortfall in tax receipts and/or a rise in outgoings due to a temporary fall in economic activity.
Creating money to spend on new government directed initiatives is frowned upon, as it leaves the community without a check on government spending and political ‘pork barrelling’.
By directing the new money to students via ‘market mechanisms’ (as proposed above), it takes the process out of government hands, avoiding the concerns around ‘central control’.
Creating money to pay learning wages may seem radical. Yet, for generations, we have been creating additional new money to pay people to do new forms of work that were previously unpaid.
To put it into context, for most of human history no one ‘earned a living’. They simply did what was necessary to provide the food, clothing, and shelter that they and their family needed.
With the invention of money, it became possible to outsource production, with people specialising in providing a limited range of goods or services for pay.
Over time, many new types of jobs have been created, paying incomes that in turn are spent on other goods and services, including food, clothing, transport and everything else. As the additional money created to fund the new jobs has fed into the economy, producers have increased their output to meet the growing demand – without the new money causing inflation or shortages.
It will be the same with creating new money for learning wages if we take our time – increasing the number of learning jobs gradually, say over the next ten years.
The entire amount required to fund the wages for post-secondary civic learning could also come from money creation – as could the money for stay-at-home carers – again, so long as we introduce the payments gradually to allow the economy to adapt without overheating.
Job Guarantees
Many people who support Modern Monetary Theory also support using the power of Government to create money to provide ‘Job Guarantees’. Providing money to support ‘Learning Work’ is consistent with this objective and has the advantage that the ‘job’ is set in the market, with each individual free to choose the type of ‘learning work’ they are most interested in.
Keeping the Money Circulating
There is no doubt that pumping money into the economy as ‘learning wages’ (or otherwise) without restriction will inevitably lead to inflation at some point.
This problem can be avoided by setting up a process to keep the money circulating. It is best done using a transaction tax such as Goods and Services Tax (GST). We can then pump new money in as learning wages in one cycle, collecting GST as the new money circulates through the economy, re-issuing the money collected as learning wages in a repeating cycle.
Creating the Learning-Knowledge Economy alongside the Applied Economy
By creating money in proportion to industry support, we can create a competitive environment across all sectors of the economy that recognises the value of specific learning work to society overall – without any single group of politicians having to decide what courses or content are ‘job relevant’.
Learning Wages are Not a Panacea
Of course, paying people to learn is not a panacea for technological unemployment, as many people will still struggle to adapt. However, it should enable us to move to an economy where life-long learning is recognised as a valuable social good with wages set in the market, allowing many more people to sustain themselves while meeting the community’s ongoing productive needs as the economy continually changes.
Reconfiguring the Economy to Become More Efficient, Fair & Effective at Meeting Community Goals
As this article in the June edition of the Journal explained, a Universal Basic Income (UBI) offers additional support for those people who struggle to adapt, as well as support for the 45% of the population who cannot work in the applied economy: the young, the old, the incapacitated and their unpaid carers.
By paying a UBI, as well as a wage for learning work and for work in the home, the marginal amount required to attract people into the traditional applied economy will fall as businesses will no longer have to pay a wage that covers the living expenses of an entire family, or even a single person. They will only have to pay a sufficient amount to attract people to give up some of their time to earn more money to spend on the goods, services and activities they want to enjoy during their remaining free time.
Overall, paying learning wages will make the economy more efficient, society fairer; and individuals more self-reliant, as well as more effective citizens, workers and parents.
Growing the Economy Sustainably
Of course, paying people to learn, even if introduced gradually, will mean boosting demand and hence production. To meet the growing demand sustainably, we also need to move to a circular economy, which is an issue beyond the scope of this paper
- [1] Long ago, we learned our parenting skills from (and with the support of) the whole tribe. Today, with family breakdown, the art of parenting is often lost to the detriment of us all. We require a licence to drive a car. How much more important to support parents with both money and help to develop the skills and knowledge necessary to allow our children to blossom? Though that is a whole other topic!
- [2] This company: https://www.trilogyed.com/ appears to be providing some of the suggested services; acting as a bridge between universities, students, employers and instructors to ensure there is a good match between them all. The difference is that they do not test and accredit. .
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