A Sputnik Moment?

The 1957 launching of the Sputnik satellite by the Russians shocked an American public whose citizens assumed that their technological superiority was unassailable. Billions of dollars flowed to education in a policy that was portrayed as an integral part of our national defense. President Obama recently suggested that we needed another "Sputnik moment" to increase the number of college degrees awarded and enhance America's ability to compete in global markets.

Comparing the economic rise of China and other emerging countries to the nuclear threat posed by the former Soviet Union is a stretch. More importantly, competitiveness in global markets depends on worker productivity not the number of college degrees awarded. In a 1985 article appearing in the Atlantic James Fallows coined the word "credentialism" to describe a system that rewards workers based on credentials rather than job performance.

The U.S. may run a chronic trade deficit with the rest of the world but we are a prolific manufacturer of credentials. A National Bureau of Economic Research study on occupation licensing found that in 2008 about 23% of U.S. workers were required to obtain a state license compared to only 5% in 1950. Over the past 25 years the number of jobs requiring a license in at least one state has increased from 800 to over 1,100. In some states you need a license to be a florist, tree trimmer, locksmith or "shampoo specialist" which can involve 150 hours of classroom instruction with 100 of them devoted to the "theory and practice" of shampooing. Politicians like occupational licensing because it creates political patronage jobs in the regulatory bureaucracy and can even earn a profit after paying administrators and inspectors. In fiscal year 2008-2009 the state of California's general fund borrowed $96.5 million from the states licensing reserve fund. In a tough economy trade groups lobby politicians to license their occupation as a means of blocking entry and raising prices. It was estimated that state licensing increased the cost of services in 2008 by at least $160 billion. From 2007 to 2010, healthcare and education were the only two industries in which consumer spending grew faster than income and both are dominated by "credential cartels."

A college degree is one of the most expensive credentials. In Academically Adrift: Limited Learning on College Campuses researchers found that after two years of college, 45% of students showed no significant gains in learning; after four years, 36% showed little change. Despite an average GPA of 3.2, students spent 50% less time studying compared with a few decades earlier. The authors conclude that, "colleges do not make academics a priority," instead, they are selling a "college experience" that has spurred enrollment in less challenging majors. Many of the low enrollment degree programs most likely to be cut because of budget shortfalls are in academically rigorous fields that David Russell, Missouri Higher Education Commissioner, worries are "most crucial to the state's economic growth and global competitiveness." Meanwhile student debt has steadily increased and unemployment among college graduates 22-29 years old is at a historic high.

Economists have been unable to establish a clear link between expenditures on education and economic growth. Certainly literacy, numeracy and other skills are essential to success in life but credentialism can cause us to exaggerate the benefits of formal instruction. Some of the most important lifetime learning, such as the acquisition of speech, occurs in a non-classroom environment that places responsibility on the learner rather than the teacher. In response to curiosity, frustration or economic need self-motivated natural learners teach themselves foreign languages, computer programs, basic auto repair and a variety of other skills throughout their life. When learning is motivated by credentialism, students transfer more responsibility to the teacher.

The riots in Tunisia started when a young street vendor who supported his widowed mother and siblings set himself on fire because the police confiscated his scales and fined him more than a month's earnings for selling vegetables without a license. Egypt spent heavily on higher education but it did not boost economic growth or reduce unemployment. Mourad Essine of the World Bank believes credentialism failed because "the education system delivered quantity not quality and economic reforms did not go far enough, fast enough."

The pace of economic change in the global economy has accelerated. At current growth rates, China is projected to surpass the U.S. as the world's largest economy around 2022. The status of the dollar as an international "reserve currency" will continue to erode imposing greater fiscal constraint on government. Since 2005, the market capitalization of the U.S. share of common stock in global markets has shrunk from 48% to 24%. Instead of credentials, the global economy rewards productivity. A real Sputnik moment would eliminate unnecessary labor market regulations, licensing and credential requirements while enforcing quality standards in public schools and universities. Despite Mr. Obama's good intentions, simply producing more credentials will not create job opportunities for young people or render us more competitive in the global market place.