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The rise of higher education abroad

The American economy has long relied on a well-educated workforce to fuel innovation, the lifeblood of any modern economy. Yet America's edge in education is eroding by many measures, including school test scores and high-school dropout rates. Even more worrying is that both the federal government and state legislatures have been reducing their support of colleges and universities, the crown jewels of America's human-capital economy. This is a big mistake in an increasingly competitive global economy.

Indeed, in much of the discussion about globalization an underappreciated force has been universities. A linchpin of the evolving integrated world economy is a common university structure. Certainly, the numbers are striking. About 20% of the world's relevant age group -- well over 100 million young adults -- are participating in higher education. That's up from a fraction of 1% of this age group in 1900, or about 500,000 students, calculate John Meyer and Evan Schofer, sociologists at Stanford University and the University of Minnesota, respectively.

To put that figure in perspective, the scholars note that Algeria, Kazakhstan, and Myanmar each now has as many students enrolled in higher education as the entire world did at the start of the 20th century.

Harvard University economist Richard Freeman looks into the trend with an important new paper, What Does the Global Expansion of Higher Education Mean for the U.S.? (NBER Working paper 14962, May 2009). The questions he pursues include whay have so many countries expanded their higher education systems over the past three decades; what are the implications for the U.S; and how might the U.S. best respond to the rest of the world closing the education gap?

Here are the concluding paragraphs of the paper.

This paper has documented the spread of higher education around the world. It has
shown that the rising proportion of young persons going to college in advanced countries, which have risen above those in the US in some countries, and in the huge populous developing countries has greatly diminished the US's share of the world's university students and graduates. Because international students make up roughly half of university graduate immigrants, the ability of US universities to attract the world's best and brightest international students has important consequences for its success in attracting immigrant talent.

The growing number of foreign-born persons getting PhDs outside the US as well as in US universities will undoubtedly diminish the gap between US universities and those in other countries. The world ranking of top universities in 2020 is likely to include many more from other countries. Increasingly, new knowledge will come from workers outside the country, but there is much the US can gain from this. We do not know whether the US will do better through immigration or through off shoring of some university graduate-level work overseas. My guess is that by educating some of the best students in the world, attracting some to stay in the country and positioning the US as an open hub of ideas and connections for university graduates worldwide, the country will be able to maintain excellence and leadership in the "empire of the mind" and in the economic world more so than if it views the rapid increase in graduates overseas as a competitive threat.

My bottom line is that the U.S. needs to boost its investment in education, research and development, fundamental scientific knowledge, and other building blocks of economic and technological activity. The Obama Administration gets it. But both Congress and state governments must stop denying institutions of higher learning the funds they need to grow. To do otherwise is policy insanity.

When it comes to economic growth and living standards, what matters is knowledge and innovation. Other countries have learned that lesson -- from us. It's time we took a refresher course.

About the author

Chris Farrell is the economics editor of Marketplace Money.

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