Universities and Economic Growth

If you read the OECD/World Bank playbook on higher education, it’s all very simple.  If you raise investments into higher education and research, growth will follow.

At the big-picture national level, this is probably true.  But it’s maddeningly inspecific.  What is the actual mechanism by which higher spending on a set of institutions translates into growth?  Is it the number of trained graduates produced?  Is it the quality or type of education they receive?  Does concentrating research in certain areas mean greater growth?  What about the balance between “pure” and “applied” research (insofar as those are useful distinctions)? What about technology transfer strategies?

Most importantly for a country like Canada: what about geography?  Is a strategy of widely distributing funds better than a strategy of concentration for spurring economic growth?  Should urban universities – nearer the centres of economic production – get more than universities in smaller conurbations?

Anyone telling you they have the definitive answer to these questions is lying.  Fact is, the literature on most of these topics is embarrassingly thin and provides little to no guidance to governments.  And the literature as it pertains to individual universities is even thinner.  Say you want an institution to “do better” at helping deliver regional economic growth: what do you ask it to do, exactly?  Here, the literature mainly consists of anecdotes of success parading as universally-applicable rules for university conduct (this European Union document is an example).  Which of course is tosh.

One solution you often see to the problem of decreased regional economic growth in smaller cities is for PSE institutions to “work more with industry”.  But if your local industry is in decline, there are limits to this strategy.  You can educate more people in a given field in order to lower the price of skilled labour.  You can get profs to work on upstream blue-sky research that will revolutionize the field, but the spillovers are enormous and the likelihood they will be captured by local business is small.  You can get your profs to work on downstream innovation with local business, but that’s not foolproof. Many companies won’t have the receptor capacity to work with you, either because they are too small or because they are too big and rely on a centralized R&D system, which more often than not is located outside the country (usually the US).

From a PSE point-of-view there’s two ways you can go from here.  There’s the route of “give us more money and we’ll give the local workforce a broader set of skills”.  But the fact that a local population has high levels of relatively generic skills does not necessarily make a region a particularly attractive place for investment.  I’m not an economic geographer, but it seems to me that one of the driving forces of the modern era is that the most profitable companies and industries are those that effectively capitalize on agglomerations of very specific types of talent.  And by and large, to get agglomerations of very specific types of talent you tend to need a large population to begin with, which is why big cities keep getting bigger.

The other option is a “place your bets” approach.  For emerging industries to find the right kinds of skills in a particular region, you have to place bets.  You have to say: “we’re going to invest in training and facilities to produce workers for X, Y, and Z industries, which at the moment do not exist in our region, and indeed may never do so.  Cape Breton University’s emphasis on renewable energy is a good example of this strategy.  It’s a bet: if they get good at this and produce enough graduates, maybe within a few years there will be enough of a talent agglomeration that business will go there and invest.

Maybe.  And maybe not.  Problem is, public universities and their government paymasters get nervous about “maybes”.  Higher education is a risk-averse industry.