Wednesday, March 25, 2009

How we can make globalization work for us

It's no secret to regular readers of this blog that I have concerns about the hidden costs of globalization. I do not, cannot, deny the positive effects of all the policies that fall within this term, but I think the standard economic model, the place where a great deal of the discussion begins and ends, is too limited to capture reality. We can draw all the graphs we want that demonstrate that two countries that engage in free trade both end up better off; the flaws come when we ignore all the constituent groups that make up a nation, and when we accept GDP as a proxy for the health of that nation.

For the average American, the picture of the "benefits" is a lot blurrier; in many cases, they've seen careers (not just "jobs") disappear, and, with them, large sections of whole cities and towns. The offshorers are doing a lot better than the offshored, as they've taken huge percentages of the gains out of the stream. Neither customers nor shareholders seem to have realized the huge benefits that have been promised; saving a buck on a sweater doesn't seem like much next to a loss of livelihood.

We have not done a good job at all of assessing these costs, as the discussions generally devolve into tiresome rants about "America First" vs. economic orthodoxy. In reality, we have no idea the extent to which American students are shying away from technology because they don't expect to find jobs in those fields. Instead, we urge them to enter those fields anyway because "that's the future."

In economics terms, we focus on expanding the supply on the questionable proposition that an increase will somehow create its own demand; we pay no attention to the reality that demand for Americans has been dropping, and we never touch on the certainty that differing wage scales may have something to do with that. Furthermore, to forestall the possibility that someone may raise such an argument, our leading offshorers and their apologists have decided to adopt the strategy of calling out American workers as stupid and incompetent, and the press has happily gone along with that.

But why should an American youngster, looking at the job market of the future, take on the challenge of a curriculum in science or technology? Your education is substandard, your work habits are terrible, you're more concerned with updating your Facebook page than doing any hard work. And the genetically-endowed, 100 hours a week young people from China and India are going to eat your lunch anyway.

Even if you are good, and hard-working, you run into another obstacle: college tuition rates seem impervious to economic reality. The Indian who attends one of the Indian Institutes of Technology (IIT) pays about $750 a year. You will pay $45,000 for a year at MIT. If the IIT Indian gets a job at $10,000, he can pay his whole tuition in under four months. The MIT grad will need a job at $600,000 to do the same. Obviously, that's unlikely, so the American will tend to start with a huge burden of debt, in fields that have uncertain prospects.

But there is an answer, and the only question I have is why it hasn't happened yet. What we need is for IIT to create a degree-granting distance learning program. Offer a B.Tech. over the Internet, and I guarantee Americans will flock to it, especially when it only costs, say, $2000 a year. (It can't be too hard for those brilliant students to set up, not if you listen to Tom Friedman or Bill Gates; it's probably no more than a weekend project for these bright-eyed geniuses.)

I'm not being sarcastic here; I honestly want to see this happen. You see, it's pretty obvious that higher education in the U.S. has turned into a scam. The economics makes no sense, with high tuition rates propped up by every expert who tells us that the key to our future is to get those degrees, and go back for more and more training, and that will make us globally competitive (despite the massive wage disparities). Let's run some numbers.

Visualize an Intro to Econ course in one of our larger universities. We see a giant amphitheater with students filling every one of the 1000 seats. At the front is an ABD (all but dissertation) lecturer who is, for all intents and purposes, a university contractor. Let's say each student pays $1000 per course they take (that's conservative). So we have a million dollars in revenue. The lecturer gets $5000 for teaching the course (that's generous), and let's multiply that by four to capture overhead, foregone tuition for the TA, and other expenses. Thus, the course costs about $20,000 to present. $1,000,000 vs. $20,000: that's pretty good profit for the school. Each student in that class is subsidizing something else (landscaping for the president's residence, the lacrosse team, and so forth).

The apologists for our university system will argue that I'm being simplistic here, that the value of a degree from the University of Podunk is far greater than simple dollars and cents. The experience, the exposure to alternative points of view, the friends that will last a lifetime.

If that's true, then existing on-line courses should be cheaper than on-campus instruction. One example: the University of Illinois Graduate School of Library and Information Science charges in-state students $5363 per semester. Their on-line students pay $1952 for 4 graduate hours. A typical load is 12 hours per semester. So on-line students actually pay about $500 more (maybe the U of I servers eat a lot).

I have to admit I'm at a loss as to why IIT hasn't set something up in the U.S. This is a huge arbitrage opportunity; they could charge three (four, five) times their normal tuition, American students would save 90-95%, and American companies would get more of these highly-coveted graduates, young people who, because they would be free of crippling student loan debt, could work for less than they possibly can now. Seems like a win-win to me.

Oh, there would be one big loser in this: the current American higher education system. One wonders how supportive our economics departments would be of free trade when their doors close because, say, Cambridge is offering degrees over the Internet ("Get your degree at the place that taught Keynes everything he knew"). They'd fight back, of course; we'd see and hear learned PhDs arguing why Internet learning is inferior, how it leads to a lack of quality, how we can't equate the on-campus experience to that on a computer screen, how we need to have an American presence in the field. You know, all the arguments they blithely ignore when confronted with them with respect to people's jobs.

One has to expect that the resistance would be keen. The supposedly-independent accreditation bodies might refuse to approve an IIT engineering curriculum. If they did that, they would be the ones called into question. After all, award-winning journalist Tom Friedman has claimed that IIT is "more selective than Harvard," so no one could argue that their program isn't up to snuff.

I'm not one to look for conspiracies everywhere. I can't seriously argue that there's some kind of collusion going on between foreign schools and our schools that prevents on-line learning from taking place. But you have to wonder when you see what would be a huge opportunity for, say, IIT to pull in some serious bucks and extend their brand, and they don't take advantage of it.

If this ever does happen, the entire field of American higher education will be rocked to the core. A system that depends on massive cross-subsidization will collapse under competitive pressures. To see a model for this, we need only look at American manufacturing, at our auto companies.

But Americans should, just once, have the chance to take advantage of offshoring in the same way that CEOs have. If that means a few free-market economists lose their jobs, well, hey, that's just the inexorable workings of the great market, and none of them, surely, could object to that.


Red Oak said...

Good discussion, A. I'm surprised that we haven't seen more organization of middle-class parents and young against the immense, yes, scam that tertiary education has become. (It's perfectly reasonable to ask a student to go massively into debt for careers whose offshoring our professors will enthusiastically promote!) As a parent with kids about to hit college-age, I have seen no evidence that the "academic-industrial complex" is looking for ways to adjust itself to reduced middle-class circumstances and keep college within their reach. (So what am I waiting for, you rightly ask?) Instead, I see plenty of signs that even third- and fourth-tier American colleges, even the state universities, are, like American companies, simply looking for ways to shut out citizens in favor of stepping up their recruitment among the more lucrative global student population. Of course it is outrageous that the flayed middle-class will still be expected to heavily subsidize these institutions while being denied access, but count on being hit with the same barrage of insulting propaganda about "xenophobia", etc. I'll keep my eye out for the Friedman column telling us how filling the universities with foreigners while pricing out citizens is actually really really to our children's benefit. That, and our children are too stupid and lazy for college, anyway. (I'm not joking. You'll see it, mark my words.)

So yeah, we need to find another path. The tertiary education system in general is less and less fit for purpose when it comes to the needs of American students.

Btw, thanks for discussing my comment about outsourcing - I've been traveling for the last couple of weeks and not engaging in my usual goofin' off on blogs. Your "neutron bomb" analogy was inspired. Mind if I appropriate it (with credit, of course)?

Androcass said...

No, there's no hope that the system will adjust itself to the reduced circumstances of its customers as long as everyone from the President on down tells us that the future comes from a sheepskin. What we'll end up with, of course, is over-educated, indebted, frustrated home health care workers and store clerks (two of the jobs expected to add big numbers in the coming years).

When I have people, such as one recent commenter on my blog, insisting that it is good to educate and employ people here because they'll take their appreciation of Microsoft software back to the home country, I despair of our ever figuring out what's going on. Sometimes I feel like an adult stuck at the children's table when I see the gullible swallowing the ritual cant that spews forth from the great "statesmen" who always seem to find a way to conflate the common good with their own financial holdings.

As for your last question, of course you may appropriate any of my ramblings, should one of these random arrows happen to hit a target.

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