HIGHER EDUCATION: THE PATH TO ECONOMIC DEVELOPMENT???

The message in the state is clear and it’s been repeated time and again by the governor, state officials, many policymakers, and academia:

GREATER INVESTMENT AND EMPHASIS ON HIGHER EDUCATION ARE NECESSARY TO FACILITATE ECONOMIC GROWTH AND DIVERSIFY THE STATE’S INDUSTRIAL BASE.

They theorize that a highly educated workforce will attract science and technology based industries to the state creating a knowledge-based economy. Michigan’s attractiveness for business retention, start-ups, and relocation will be enhanced because of its superior human capital resource. Consider the logic of the following progression.

- State investment in higher education results in the expected outcome of more Michigan college graduates.

- Michigan gains a competitive advantage in human capital because of its highly educated labor pool.

- Scientific and technology-based industries are drawn to the state to take advantage of its talented labor supply.

- Overall conditions in the state improve with renewed economic growth and a diversified economy.

OR

- State investment in higher education results in the expected outcome of more Michigan college graduates.

- College graduates relocate in states where their skills are in demand rather than amassing an unemployed highly educated labor resource within the state.

- Michigan partially finances the human capital needed in other parts of the country and world.

A recent “Wall Street Journal” article Stopping the Brain Drain (June 11, 2007) cites a study from the University of California that looked at Alabama, West Virginia, and Massachusetts over periods for which they received federal funds for higher education. The results showed that only Massachusetts kept the graduates because of the availability of high technology jobs in the Boston area. The obvious conclusion is that for a state to retain college graduates employment opportunities must exist.

A quantitative econometric study conducted by the “Mackinac Center for Public Policy” in June of 2007 did not show a positive statistical correlation between state and local expenditures on higher education and the rate of economic growth for five, ten, and fifteen year periods. In fact, they found the correlation to be typically negative.

An area’s industrial base dictates the local occupational composition or the types of workers that will be needed in a state or region. Because of the concentration of government and associated jobs located in the nation’s Capitol, the District of Columbia ranks first among the states in the proportion of the population aged 25+ with at least a bachelor’s degree and also first in the percent of workers in professional occupations. As noted earlier, with a significant concentration of technology-based industries, Massachusetts ranks 2nd in both proportion of bachelor’s degrees and professional jobs. New York as expected exhibits the largest proportion of professional workers in the finance industry and likely attracts the most talented MBA’s regardless of where they earned their degree. These are the economic realities that can not be changed by producing more college graduates in any given state.

With 24.7 percent of its 25+ population completing a bachelor’s degree, Michigan ranks 34th in the nation. Michigan continues to rank among the top three states in the proportion of manufacturing jobs to total employment despite huge auto-related losses over the last decade. The large manufacturing component and corresponding job opportunities for those without a college education are consistent with Michigan’s relatively low ranking in college degree attainment. On the positive side for the “knowledge-based” economy, the manufacturing and auto related sector is the state’s most important catalyst for research and technology jobs, as well as engineering, design, and financial services.

Given the mobility of today’s workforce, higher education is basically an import/export industry. With unemployment rates that continually lead the nation, Michigan is a “net importer” of college students, but a “net exporter” of college graduates. This scenario acknowledges the state’s excellent network of universities and colleges and its attractiveness to students. The higher education system is also a significant component of the state’s economic base providing employment and income, conducting and influencing research initiatives, and adding prestige to the state’s image.

However, the model for economic development is complex consisting of multiple variables to create an inviting business climate. Essentially, the model to attract and retain business should address factors affecting profit maximization and creating a pleasant physical environment. It does not appear that an existing highly educated labor pool is a significant variable for economic development, nor does it appear that this goal is obtainable given the export nature of higher education.

With the proposed policy that “higher education is the path to economic growth” receiving much hype and media attention, it seems to be the popular position that receives blind affirmation. Shouldn’t these statements in some way be substantiated? Shouldn’t the reasoning for this conclusion be clearly articulated? Could a supporting study or model be referenced?

Is anyone up to the challenge?