Remarks by Chairman Alan Greenspan
The interaction of education and economic change
At the 81st Annual Meeting of the American Council on Education, Washington,
D.C.
February 16, 1999
When Neil Rudenstine first invited me to join you today, he suggested that
it might be valuable to
discuss the roots of the changes that our economy has been experiencing in
recent years. As
leaders in higher education, you have all been dealing with the practical
effects of these shifts.
But, in more theoretical terms, what do these historic changes teach us
about the way we learn
and innovate? What is their impact on the workforce and on your graduates?
How has technology
transformed our ability to understand the natural and social world?
Our faculty for rational thought has carried the human race one arduous step
at a time into a
deeper understanding of how the world works. Decade by decade, scholars have
recorded their
insights, building knowledge from one generation to the next. We have
learned to use that
knowledge to alter our physical environment for the betterment of mankind.
That process has become increasingly conceptual in nature and ever less
reliant on physical
materials. Indeed, the endeavor to economize on physical resources has led
to widespread
downsizing of the elements of the nation's output. We have dramatically
reduced the size of our
radios, for example, by substituting transistors for vacuum tubes. Thin
fiber-optic cable has
replaced huge tonnages of copper wire. New architectural, engineering, and
materials technologies
have enabled the construction of buildings enclosing the same space, but
with far less physical
material than was required, say, 50 or 100 years ago. Most recently, mobile
phones have been
markedly downsized as they have been improved.
Over the last century, for example, the rate of increase of the gross
domestic product in the United
States, adjusted for price change--our measure of gains in the real value of
output--has averaged
around three percent per year. Only a small fraction of that represents
growth in the tonnage of
physical materials--oil, coal, ores, wood, raw chemicals, for example. The
remainder represents
new insights into how to rearrange those physical materials to better serve
human needs.
This process has enabled valued goods to be transported more easily and to
be produced with
ever fewer workers, allowing the more efficient division of labor to propel
overall output and
standards of living progressively higher.
The share of the nation's output that is conceptual appears to have
accelerated following World
War II with the insights that led to the development of the transistor and
microprocessor. They
have spawned remarkable alterations in how we, and other developed
societies, live.
Computers, telecommunications, and satellite technologies have enabled data
and ideas, the ever
more important elements of output, to be speedily transferred geographically
to where they can be
put to best use. Thus, these advanced means of communication have added much
the same type
of value that the railroads added in transporting the more physical goods of
an earlier century.
Here in the United States, we have developed an exceptionally sophisticated
stock of capital
assets--plant and equipment--fostered most recently by what has to be the
most conceptual and
impalpable of all new major products--software.
The breakthroughs in information technology have facilitated an elevated
rate of "creative
destruction," as noted Harvard economist Joseph Schumpeter put it earlier
this century. Our
capital stock is undergoing an increasing pace of renewal through investment
of cash flow from
older-technology capital facilities into new, more efficient vintages. Some
Silicon Valley firms claim
that they completely reconstitute themselves every year or two. This renewal
process is driven by
an increasing ability to more finely calibrate the value preferences of
consumers. In turn, those
preferences are converted, through market transactions, into prices of
products and assets. They,
in turn, signal entrepreneurs which capital facilities to build to meet
those shifting consumer needs.
But as human intelligence appears without limit to engage our physical
environment, human
psychology remains, in some more primordial sense, invariant to time. The
rapidity of change in
our capital assets, the infrastructure with which all workers must interface
day-by-day, has clearly
raised the level of anxiety and insecurity in the workforce. As recently as
1981, in the depths of a
recession, International Survey Research found twelve percent of workers
fearful of losing their
jobs. In today's tightest labor market in two generations, the same
organization has recently found
thirty-seven percent concerned about job loss.
The fear of job obsolescence when confronted with a rapidly changing work
environment is
arguably one reason for a massive increase in the demand for educational
services--the rise in
on-the-job training, the proliferation of community colleges enhancing work
skills, so-called
corporate universities that combine jobs-oriented curricula with some
broader excursions into the
liberal arts, and, of course, the traditional university curricula.
The heyday when a high school or college education would serve a graduate
for a lifetime is gone.
Today's recipients of diplomas expect to have many jobs and to use a wide
range of skills over
their working lives. Their parents and grandparents looked to a more stable
future--even if in
reality it often turned out otherwise.
However one views the uncertainty that so many in our workforce are
experiencing in their
endeavor to advance, an economist can scarcely fail to notice a marketplace
working efficiently to
guide our educational system, defined in its widest sense, toward the
broader needs of our
economy.
But this is not new. The history of education in the United States traces a
path heavily influenced
by the need for a workforce with the skills required to interact
productively with the evolving
economic infrastructure. Historically, technological advance has brought
with it improvements not
only in the capital inputs used in production, but also new demands on
workers who must interact
with that increasingly more complex stock of capital. Early this century,
these advances required
workers with a higher level of cognitive skills, for instance the ability to
read manuals, to interpret
blueprints, or to understand formulae.
Our educational system responded: In the 1920s and 1930s, high school
enrollment in this country
expanded rapidly, pulling youth from rural areas, where opportunities were
limited, into more
productive occupations in business and broadening the skills of students to
meet the needs of an
advancing manufacturing sector. It became the job of these institutions to
prepare students for
work life, not just for a transition to college. In the context of the
demands of the economy at that
time, a high school diploma represented the training needed to be successful
in most aspects of
American enterprise. The economic returns for having a high school diploma
rose and, as a result,
high school enrollment rates climbed.
At the same time, our system of higher education was also responding to the
advances in
economic processes. Although many states had established land grant schools
earlier, their
support accelerated in the late nineteenth century as those whose economies
specialized in
agriculture and mining sought to take advantage of new scientific methods of
production. Early in
the twentieth century, the content of education at an American college--as
you all are aware--had
evolved from a classically based curriculum to one combining the sciences,
empirical studies, and
modern liberal arts. Universities responded to the need for the application
of science--particularly
chemistry and physics--to the manufacture of steel, rubber, chemicals,
petroleum, and other goods
requiring the newer production technologies. Communities looked to their
institutions of higher
learning for leadership in scientific knowledge and for training of
professionals such as teachers
and engineers. The scale and scope of higher education in America was being
shaped by the
recognition that research--the creation of knowledge--complemented teaching
and training--the
diffusion of knowledge. In broad terms, the basic structure of higher
education remains much the
same today. That structure has proven sufficiently flexible to respond to
the needs of a changing
economy.
Market economies have succeeded over the centuries by granting rewards to
those who could
anticipate changes in the value preferences of society. America's system of
higher education has
evolved into a highly diverse and complex range of institutions--large
research universities that
combine undergraduate and graduate offerings, small liberal arts colleges,
and vocation-oriented
community colleges--all seeking their competitive advantage. What makes that
system work
effectively is that it has been influenced importantly by the values of a
strong market
economy--competition, risk-taking, and innovation.
America's reputation as the world's leader in higher education is grounded
in the ability of these
versatile institutions, taken together, to serve the practical needs of the
economy and, more
significantly, to unleash the creative thinking that moves our society
forward.
In a global environment in which prospects for economic growth now depend
importantly on a
country's capacity to develop and apply new technologies, the research
facilities of our universities
are envied throughout the world. The payoffs--in terms of the flow of
expertise, new products,
and startup companies, for example--have been impressive. Here, perhaps the
most frequently
cited measures of our success have been the emergence of significant centers
of commercial
innovation and entrepreneurship--Silicon Valley, the Research Triangle, and
the clustering of
biotech enterprises in the Northeast corridor--where creative ideas flow
freely between local
academic scholars and those in industry.
Beyond these highly visible achievements, what has made our research
universities so
extraordinarily productive is their promotion of peer-reviewed scholarship
and the value they place
on creativity and risk-taking. Although some innovations move quickly from
the development stage
to applications, more often, we cannot accurately predict which particular
scientific advance, or
synergy of advances, will ultimately prove valuable. One has only to recall
our experience with the
laser, which had to wait for improvements in fiber optics to yield important
applications. Indeed,
according to Nobel Laureate Charles Townes, in the late 1960s the attorneys
for Bell Labs initially
refused to patent the laser because they believed it had no applications in
the field of
telecommunications. Our universities have shown the patience and the
flexibility to accept that
uncertainty, confident that the rigorous effort to explore ideas would
eventually lead to discovery.
If we are to remain preeminent in transforming knowledge into economic
value, America's system
of higher education must remain the world's leader in generating scientific
and technological
breakthroughs and in meeting the challenge to educate workers. With
two-thirds of our high
school graduates now enrolling in college and a growing proportion of adult
workers seeking
opportunities for retooling, our institutions of higher learning now bear
the overwhelming
responsibility for ensuring that our society is prepared for the demands of
rapid economic change.
What our colleges and universities produce is highly valued in today's
economy. The rise in that
value over the past several decades has been reflected in a widening spread
between
compensation paid to college-educated workers relative to those with less
schooling. Accordingly,
college enrollment rates among new U.S. high school graduates have been
rising. And despite
competitive pressures to improve university education abroad, almost
one-third of all students who
leave their home countries to study elsewhere choose to study in the United
States. In recent
years, the most popular fields of study for both groups have been business
and management, but,
as you are all aware, interest in life sciences, math, and computer sciences
has been growing
rapidly.
Another measure of the value placed on university education is the rising
propensity of older
workers to return to school. Today, more than one-fourth of all
undergraduates are over thirty
years old; one-fifth of these older students are enrolled in full-time
programs. These individuals are
already responding to the need to seek retooling during their careers. As a
result, education is
increasingly becoming a lifelong activity. Businesses are now looking for
employees who are
prepared to continue learning and who recognize that maintaining their human
capital will require
persistent hard work and flexibility.
The press for lifelong learning and the availability of technology have
spawned a variety of
education initiatives outside the traditional classroom. Courses now can be
taken "at a distance"
over the Internet. These are just the newest in a series of attempts to move
learning closer to
workers on the job and to make it more relevant to changing business needs.
Although many of
these new programs focus on specific, applied skill training, some
degree-granting programs
already exist, and companies that have successfully developed interactive
educational software for
the classroom are looking to move it online. Competition is the necessary
driving force toward
delivering a superior product or service. We should not shy away from it.
Colleges and universities
are being challenged to evaluate how new information technologies can best
be employed in their
curricula and their delivery systems.
Beyond these more practical issues, the most significant challenge facing
our universities is to
ensure that teaching and research continue to unleash the creative
intellectual energy that drives our
system forward. As the conceptual share of the value added in our economic
processes continues
to grow, the ability to think abstractly will be increasingly important
across a broad range of
professions. Critical awareness and the abilities to hypothesize, to
interpret, and to communicate
are essential elements of successful innovation in a conceptual-based
economy.
The roots and nature of how the human mind innovates have always been
subject to controversy.
Yet, even without hard indisputable evidence, there is a remarkable and
broad presumption that
the ability to think abstractly is fostered through exposure to philosophy,
literature, music, art, and
languages. Liberal education is presumed to spawn a greater understanding of
all aspects of
living--an essential ingredient to broaden one's world view by "vaulting
over disciplinary walls," as
my good friend Judith Rodin put it, and exploring other fields of study.
Most great conceptual
advances are interdisciplinary and involve synergies of different
specialities.
Yet there is more to the liberal arts than increasing technical intellectual
efficiency. They encourage
the appreciation of life experiences that reach beyond material well-being
and, indeed, are
comparable and mutually reinforcing. The intense pleasure many experience
from listening to
Mozart's great D Minor Piano Concerto has much in common with the deep
satisfaction of solving
a complex mathematical problem. The challenge for our institutions of higher
education is to
successfully blend the exposure to all aspects of human intellectual
activity, especially our artistic
propensities and our technical skills. What makes the challenge particularly
daunting is that
scientific knowledge expands and broadens the measurable rewards of its
curriculum at a pace
that liberal arts, by their nature, arguably have difficulty matching. The
depth of knowledge in
nuclear physics is today far greater than it was a century ago, creating an
enormous expansion in
economically useful teaching hours. But do the same economic opportunities
exist for courses in
English literature?
A related difference between science and the arts arises in the non-academic
world: Engineering
and metallurgical advances have reduced the number of hours required to
produce a ton of steel,
but the same number of musicians will be needed to perform a Beethoven
quartet this evening as
were needed a century ago. Many of you will recognize this application of
Baumol's Law. To
make the point even more graphically, Senator Daniel Patrick Moynihan has
noted that the Minute
Waltz could be played in 50 seconds, but he wondered if it would sound as
good.
Overwhelmed with the increasing scientific knowledge base, our universities
are going to have to
struggle to prevent the liberal arts curricula from being swamped by
technology and science. It is
crucial that that not happen.
The advent of the twenty-first century will certainly bring new challenges
for our society and for
our education system. We cannot know the precise directions in which
advances in technology
and the transmission of knowledge will take us. However, we can be certain
that our institutions of
higher education will remain at the center of the endeavor to comprehend
those profound changes
and to seize the opportunities to direct them toward ever-rising standards
of living and quality of
life.
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