Creative Capital
posted by Shruti Rana
Many of the Chinese government’s recent attempts to address the financial crisis involve what has now become familiar territory for many countries. For example, the government recently announced that it would implement a four trillion renminbi ($585 billion) stimulus package, and the state has also repeatedly cut interest rates and sought to prop up consumer spending. But with reports suggesting that China’s unemployment rate could soon approach 12%, rumor has it that the Chinese government is beginning to pursue a slightly more unusual stimulus plan: nudging students to stay in school, or pursue advanced degrees, in lieu of entering a rough job market.
In China, the government can wield a fair amount of power in this area – government ministries can issue, and apparently have been issuing, directives to universities asking them to increase their student populations. Increasing access to higher education, especially for rural students, is also a key part of the government’s development strategy; in fact, according to a recent Vox column, the number of undergraduate and graduate students in China has been increasing by approximately 30% per year since 1999. The column notes that the government’s emphasis on higher education does not appear to be motivated by labor market demand, but rather seems to stem from the government’s desire to increase the sophistication and global competitiveness of China’s products and people.
It will be interesting to see how the financial crisis affects these trends, particularly in legal field. Anecdotally, I can report that my students in China seem just as apprehensive and concerned about their job prospects as my students in the U.S. Many of my Chinese students—both graduate and undergraduate students—are indeed seriously considering pursuing additional degrees or other educational options for at least the next year or two.
In the U.S., the financial crisis seems to be intensifying the debate over whether the opportunity costs of law school outweigh the benefits, especially as loans or other funding sources dry up. The crisis is also fanning the larger debate about the soaring costs of higher education in the U.S.; last week, for example, the National Center for Higher Education and Public Policy released a report stating that college education costs in the U.S. have increased by 439% over the last 25 years, and warned that American global competitiveness could be affected if U.S. education rates continue to fall behind those of other nations.
As Obama considers expanding his stimulus plan, I’d like to see more of an emphasis on investing in educational opportunities and reducing the financial burdens and opportunity costs of higher education. (I’m obviously biased—I loved school so much that I decided to go to grad school twice during the hiring boom of the dot-com era and chose the next significant uptick in the job market to return to academia. And I’ve often thought about where I’d be now if my grandparents and parents had not received extraordinary educational opportunities that led them out of their rural farming villages).
Ultimately, law school is not for everyone, and the U.S. is not a developing country trying to transform a largely rural population into participants in the global marketplace. But we obviously do need to prepare our population for global competition that will likely only intensify in the wake of the current financial crisis, and to look for creative ways to do so.
December 15, 2008 at 2:54 pm
Posted in: Blogging
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Responses (5)
Viren Rana - December 16, 2008 at 1:44 am
It is a good wakeup call to our government to increase the educational opportunities and the quality of education in the US if we are to stay competitive in the global market place. Also, the article provides a first hand look at the education scene in China and the effect of the current financial crisis. It will be interesting to see if the Chinese authoritarian system fares better with the stimulus vs. the free (?) American enterprise.
A.J. Sutter - December 16, 2008 at 8:06 am
A difficulty is that even before the current financial crisis, students at top Chinese univerisities had cause to worry about jobs. I’ve guest lectured for the past few years to finance grad students at Renmin University, and they were already plenty anxious about what awaited them, even in the relative bubble years leading up to the Olympics. Not all of them got jobs on graduation. The same was also true at Qinghua, which has a huge undergraduate graduating class.
Keeping people in school longer won’t necessarily guarantee the presence of jobs, especially of jobs commensurate with the enhanced education levels. The result might just be to create a kind of inflation in the credentials needed to land a particular job.
Are your Chinese students law students? What kinds of careers had they envisioned? Mainly something allied to securities/M&A/financial services? Intellectual property? A government position, say in environmental enforcement? Defending the rights of rural or urban poor? I’m curious to know. And is economic analysis of the law (à la Coase et al.) taught in Chinese universities?
I agree that the US needs to beef up access to higher education, though I hope that the sciences and engineering will get first dibs — to say nothing of improving K-12 education. I’m not sure what you mean by the “opportunity costs” of going to law school, though: do you mean something different from the direct costs?
Shruti Rana - December 16, 2008 at 12:10 pm
I find the disconnect between the government’s educational push and the actual availability of jobs for students coming out of the Chinese education system really interesting. The educational push could easily backfire, as you suggest, and simply result in credential inflation or create a large class of underemployed lawyers or other professionals.
On the other hand, increasing the quality and breadth of education could play a transformative role and stimulate innovation and the growth of new fields, products, and markets, and thereby eventually recalibrate labor market demand with the number of highly educated students entering the workforce. The potential impact of such an expansion of “creative capital” is very intriguing, and could be what the Chinese government is ultimately aiming (or merely hoping) for.
The authors of the Vox article I cited above view China’s strategy of promoting university-level education, as opposed to primary or secondary education, as an unconventional and as yet unproven development strategy. I just don’t think we can afford to wait and see whether this strategy is successful before trying something similar, especially during a time of crisis when traditional methods for fostering job growth may not work, or work well enough. And I also believe that times of crisis require resilience and resourcefulness, and expanding educational opportunities is one way to help develop those skills. (My students—all law students at various levels—are primarily aiming for careers in financial or commercial areas, though I could see them successfully pursuing a wide range of future careers).
Nate Oman - December 16, 2008 at 1:38 pm
Shruti: I think that it would make good economic sense for the government to put more money into education. On the other hand, that kind of spending is probably not a great economic stimulus plan. Any economic benefit from better education will be felt over the long term, long after the current business cycle has played itself out. In the short term, what you want the goverment to do is spend money in ways that will increase aggregate demand. Perhaps education spending is a good way of doing this in the short term. On the other hand, it seems to me that the thing you want to do is get cash into the hands of those who are most likely to spend it, rather than those who are likely to save it or use it to retire debt. Hence, I think in the short term upping unemployment benefits and funding infastructure projects where people are already ready to put shovel to earth are probably a better bet.
Shruti Rana - December 16, 2008 at 2:19 pm
I agree with your point about long-term investments vs. short-term stimulus plans. Interestingly, the Chinese government apparently also hopes to increase consumer spending in the near term by encouraging students to stay in school. The idea is that parents will have to spend money (and perhaps be motivated to spend more) to pay for their children’s educational and related expenses. Consumers in China often save 50% or more of their salaries, often with the goal of providing for their children’s educations (according to the New York Times article referenced above). So in China, promoting higher education might turn out to be an effective way to boost short-term consumer spending if it does in fact encourage parents to reach deeper into their savings on behalf of their children.
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