At a time when nations around the world are confronting the worst global recession in 75 years, news that the return on investment in higher education is massive and can generate an astonishing economic rate of return far in excess of other investments will be welcomed by universities everywhere.
Authors of a report prepared by the multi-national accounting firm KPMG and released last week say that after examining a range of global research on the economic payoff of the education and research functions of universities, they conservatively estimate the real rates of return for university training at 15% or more and 20%-40% for public university research.
Of course, countries also benefit in indirect ways from the contributions of universities but this is much harder to estimate.
As the analysts note: "The evidence [we draw on] principally comprises private economic rates of return. Wider contributions of higher education to family and social affairs, including to social opportunity and health status, are harder to estimate, not specifically reflected in this model, and would be additional to the returns reported in this study. There are also university returns to culture, environment and international integration that go beyond the economically measurable."
Although commissioned by Universities Australia, the vice-chancellors' association, and intended to influence the federal government as it prepares its annual budget next month, the report's conclusions are clearly applicable elsewhere around the world.
"Putting all economic benefits and costs together delivers a 14-15% real rate of return, well above the benchmark rates used to judge good policy which are typically 6-7%," the report states.
"Unlike most expenditures under consideration by government, and in comparison with tax cuts, this means immediate economic stimulus plus increasing medium and long-term repayment to government and to the society. The net upfront burden is therefore unusually small and the downstream payoff unusually large."
The report says that when economic stimulus is needed without diversion into savings and imports, there is evidence that "value-added multipliers" are greater in higher education than other sectors. Likewise, when foreign capital is needed and the ability of traditional industries to generate export revenue is in doubt, "higher education can stand strong".
"When job markets are weakening but skills are needed for our future, higher education takes school-leavers and career changers and builds up their skill for recovery times. When productivity is declining and innovation is needed, universities deliver a major boost in these for the economy."
At a time when many competing pressures are on government budgets around the globe, the KPMG analysts show that investing in higher education "is hugely budget-friendly". As they note, that is because graduates pay higher taxes to government than non-graduates, the wider economy is stimulated by skills and innovation, and hence is more productive with greater tax revenue, while infrastructure spending can come from capital funds already in place.
The report refers to other studies of the economic effects of increased spending on higher education. One, based on a cross-section of OECD countries, found that an extra $1,000 invested in higher education paid back $1,416 or a premium of 40% on that investment on average across the countries. A taxpayer investment of $420 paid back $593 in taxes.
"Most recently, Access Economics found that 'value-added multipliers' for spending on education were greater than for all other industries calibrated. This means that such spending diverts less into savings and imports and helps exports more than for the other sectors examined."
In regard to Australia, the report suggests that the government, by committing an additional A$6.5 billion to universities over the next four years, would boost the real GDP in Australia by an average of $1.6 billion annually during the following decade, then accelerate to an average $38 billion more annually in the 2020s and a staggering $96 billion more in the 2030s as the full benefits flowed through.
The gains would accrue half from the high labour productivity of graduates, and half from a larger labour force and enhanced research and innovation coming from universities, the report says.
While the study used KPMG's Econtech models of the Australian economy, the results suggest that allocating more funds to higher education in any country would be highly advantageous. As the report says, "any net upfront burden is modest and the downstream payoff is unusually large" and this is confirmed by a range of complementary evidence.
"For a sector that represents 1.6% of the economy, to grow living standards by over 5% is no mean feat, and unlike most expenditures under consideration by overnment, including tax cuts, strong up-front stimulus can be accompanied by medium and long-term benefits to government and society, which fully meet the Golden Rules of fiscal responsibility," said Universities Australia Chief Executive Dr Glenn Withers.
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