by
Athanase Papandropoulos*
I am an economic journalist for many years –a newspaperman, not a specialist on education or a historian of economic thought. My mathematics is rudimentary, my English imperfect, my skepticism fluent and my background knowledge of Economics fairly extensive from having followed the field for many years. During the same period, also working as correspondent in Brussels between 1966 and 1977, I learned first-hand the advantages of the European integration and, as former vice-president of the Students Association of the University Centre of Mons, in Belgium, I participated to the biggest educational reform in this country.
During this turbulent period I had the opportunity to read the monumental book of Ludwig von Mises “Human Action” and I remember a quote of the author: Give a man a fish and you feed him for one day. Teach a man how to fish and you feed him for a lifetime. To this quote we can now add: Invent a better method of fishing or of farmer-fishing and you feed a great many people, because these methods can be copied virtually without cost and spread around the world. Of course, depending on the circumstances, your intention can make you rich as well.
New ideas and education, more than savings or investment, are the keys to prosperity, both to large and small private fortunes and the wealth of nations. In other words, knowledge as producer of wealth is an important raw material.
According to Peter Drucker, the great philosopher of management and doing business, knowledge is the business fully as much as the customer is the business. Physical goods or services are only the vehicle for the exchange of customer purchasing power against business knowledge.
Business is a human organization, made or broken by the quality of its people. Labor might one day be done by machines to the point where it is fully automated. But knowledge is a specifically human resource. It is not found in books. Books contain information, whereas knowledge is the ability to apply information to specific work and performance. And that only comes with a human being, his brain or the skill of his hands. For business success, knowledge must first be meaningful to the customer in terms of satisfaction and value. Knowledge per se is useless in business –and not only in business. It is only effective through the contribution it makes outside of the business (to customers, markets, and end-uses).
To be able to do something as well as others is not enough, either. It does not give the leadership position without which a business is doomed. Only excellence earns a profit; the only genuine profit is that of the innovator. Economic results are the results of the differentiation. The source of this specific differentiation, and with it of business survival and growth, is a specific, distinct knowledge possessed by a group of people in the business.
But while there is always at least one such knowledge area in every successful business, no two businesses are alike in their distinct knowledge. “Knowledge itself is power”, said Bakon, more than 250 years ago. And this is the main reason why every country in our world is trying to improve what I call “educational quality”. In sum, educational quality has powerful effects on individual earnings at the distribution of income and on economic growth.
Economists have long believed that investments in education, or “human capital”, are an important source of economic growth. Over the last 40 years of output in the EU has risen about 1,8% a year. Growth in labor productivity, the major driver of increases in wages and standards of living, has measured about 2,4% per year. The contribution of education to labor productivity growth is estimated in different studies to be between 13% and 30% of the total increase. Whatever the contribution of education to growth in the past, investments in human capital may rise in importance relative to investments in other forms of capital as we transition to a post-industrial, knowledge-based economy.
Why might a more highly-educated work force increase economic growth? A more educated labor force is more mobile and adaptable, can learn new tasks and new skills more easily, can use a wider range of technologies and sophisticated equipment (including newly emerging ones), and is more creative in thinking about how to improve the management of work. All of these attributes not only make a more highly skilled worker more productive than a less skilled one, but also enable employers to organize their work places differently and adjust better to changes necessitated by competition, by technical advances or by changes in consumer demand.
Just as a firm with better educated workers can perform better in these dimensions, so too can an economy with a better educated workforce. Skills beget more skills and new ways of doing business, workers learn from one another, and firms adapt their technology and their use of capital to the skills of the available work force. The benefits of having a more educated work force accrue to everyone, not just to the organization where these individuals happen to work. Further, these kinds of indirect (or spillover) effects for the firm or the economy as a whole may be especially important in an increasingly competitive global marketplace. Imagine an economy lacking in people able to read directions, use a sophisticated copier or a computer, or understand prevailing norms of behavior –especially now, in the era of complexity and the Fourth Industrial Revolution.
As professor Klauss Schwab pointed out during the annual Davos Conference, organized by the World Economic Forum, we stand at the brink of a technological revolution that will alter fundamentally the way we live, work and relate to one another. In its scale, scope and complexity, the transformation will be unlike anything humankind has experienced before. We do not yet know just how it will unfold, but one thing is clear: the response to it must be integrated and comprehensive, involving all stakeholders of the global polity, from the public and private sectors to academia and civil society.
The First Industrial Revolution used water and steam power to mechanize production. The Second used electric power to create mass production. The Third used electronics and information technology to automate production. Now a Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital and biological spheres.
There are three reasons why today’s transformations represent not merely a prolongation of the Third Industrial Revolution but rather the arrival of a Fourth and distinct one: velocity, scope and systems impact. The speed of current breakthroughs has no historical precedent. When compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every industry in every country. And the breadth and depth of these changes herald the transformation of entire systems of production, management and governance.
The possibilities of millions of people connected by mobile devices, with unprecedented processing power, storage capacity, and access to knowledge, are unlimited. And these possibilities will be multiplied by emerging technology breakthroughs in fields such as artificial intelligence, robotics, the Internet of Things, autonomous vehicles, 3D printing, nanotechnology, biotechnology, material science, energy storage, and quantum computing.
Already, artificial intelligence (AI) is all around us, from self-driving cars and drones to virtual assistants and software that translate or invest. Impressive progress has been made in AI in recent years, driven by exponential increases in computing power and by the availability of vast amounts of data, from software used to discover new drugs to algorithms used to predict our cultural interests. Digital fabrication technologies, meanwhile, are interacting with the biological world on a daily basis. Engineers, designers, and architects are combining computational design, additive manufacturing, materials engineering, and synthetic biology to pioneer a symbiosis between microorganisms, our bodies, the products we consume, and even the buildings we inhabit.
Like the revolutions that preceded it, the Fourth Industrial Revolution has the potential to raise global income levels and improve the quality of life for populations around the world. To date, those who have gained the most from it have been consumers able to afford and access the digital world. Technology has made possible new products and services that increase the efficiency and pleasure of our personal lives. Ordering a cab, booking a flight, buying a product, making a payment, listening to music, watching a film, or playing a game –any of these can now be done remotely.
In the future, technological innovation will also lead to a supply-side miracle, with long-term gains in efficiency and productivity. Transportation and communication costs will drop, logistics and global supply chains will become more effective, and the cost of trade will diminish, all of which will open new markets and drive economic growth.
At the same time, as the economists Erik Brynjolfsson and Andrew McAfee have pointed out, the revolution could yield greater inequality, particularly in its potential to disrupt labor markets. As automation substitutes for labor across the entire economy, the net displacement of workers by machines might exacerbate the gap between returns to capital and returns to labor. On the other hand, it is also possible that the displacement of workers by technology will, in aggregate, result in a net increase in safe and rewarding jobs.
We cannot foresee at this point which scenario is likely to emerge, and history suggests that the outcome is likely to be some combination of the two. However, I am convinced of one thing: that in the future, talent, more than capital, will represent the critical factor of production. This will give rise to a job market increasingly segregated into “low-skill/low-pay” and “high-skill/high-pay” segments, which in turn will lead to an increase in social tensions.
In addition to being a key economic concern, inequality represents the greatest societal concern associated with the Fourth Industrial Revolution. The largest beneficiaries of innovation tend to be the providers of intellectual and physical capital –the innovators, shareholders and investors– which explains the rising gap in wealth between those dependent on capital versus labor. Technology is therefore one of the main reasons why incomes have stagnated, or even decreased, for a majority of the population in high-income countries: the demand for highly skilled workers has increased while the demand for workers with less education and lower skills has decreased.
The result is a job market with a strong demand at the high and low ends, but a hollowing out of the middle. This helps explain why so many workers are disillusioned and fearful that their own real incomes and those of their children will continue to stagnate. It also helps explain why middle classes around the world are increasingly experiencing a pervasive sense of dissatisfaction and unfairness. A winner-takes-all economy that offers only limited access to the middle class is a recipe for democratic malaise and dereliction.
Discontent can also be fueled by the pervasiveness of digital technologies and the dynamics of information sharing typified by social media. More than 30% of the global population now uses social media platforms to connect, learn, and share information. In an ideal world, these interactions would provide an opportunity for cross-cultural understanding and cohesion. However, they can also create and propagate unrealistic expectations as to what constitutes success for an individual or a group, as well as offer opportunities for extreme ideas and ideologies to spread.
Under these circumstances, the role of education systems has changed and this process will continue, toward more freedom of the educational landscape. To thrive in a rapidly evolving technology-mediated world, students must not only possess strong skills in areas such as language arts, mathematics and science, but also to be adept at skills such as critical thinking, problem solving, persistence, collaboration, and curiosity. However, all too often students in many countries are not attaining such skills.
In this context, the WEF has taken on a multi-year initiative, “New Vision for Education”, to examine the pressing issue of skill-gaps and explore ways to address these gaps through technology.
Consequently, it is time to identify fundamental problems in education that are overled or neglected, and should be taught in the future. To improve the future we should examine the sort of education systems that have consistently produced the best results across countries and continents. From ancient times until the present, in nations both wealthy and developing, the most market-like education systems have been the most efficient, produced the highest academic achievement, created the least social conflict, and been the most responsive to the evolving needs of parents and students.
What Greece needs is more educational freedom. Parents must be free to choose the education that’s best for their children, no matter where they live or how much they earn. Educators must be free to determine their own curricula and methods and free to set their own prices and compensation. Schools must be free to innovate and compete to attract and retain students. And they must be both free to profit from their successes and compelled to suffer losses for their failures, because the profit-and-loss system spurs innovation, efficiency, and the dissemination of best practices.
Likewise, educators must be free to compete in the labor market for positions that give them the greatest professional freedom and compensation. Historically, the only way parents have retained control over their children’s education in the long run has been for them to assume, as much as possible, the direct financial responsibility for it.
*Honorary President of the Association of European Journalists (AEJ)
By: N. Peter Kramer
