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The Knowledge Economy: The bankrupting of the clever country

Blog: The Knowledge Economy

Australia may well be on the brink of catastrophically failing in its responsibilities to both its current and future population.

In 1974 the Australian Federal Labor Government abolished university fees, the reform designed to open tertiary campuses to people previously excluded from costly university education. Student assistance grants were also established.

In 1979, with the Liberals in government, there was an unsuccessful move to reverse this decision. Part of the rationale for doing so being “it was unfair that ordinary taxpayers had to subsidise students who would go on to command good incomes”. This was ignoring the fact that those good incomes would also generate healthy taxation revenue.

In 1989 the Hawke Labor Government massively expanded university education and re-introduced fees in the form of the Higher Education Contribution Scheme. It had been suggested from studies of the scheme that fees had not discouraged students from disadvantaged backgrounds and that money was less of a barrier to equity in education than had been believed in the Whitlam era.

With the recent plans of the Federal Liberal Government to overhaul the tertiary education sector and an expected consequent spike in both the fees being charged and the increased debt students would have to bear, there are now concerns that a real barrier to obtaining a tertiary education may be being erected. It is ironic that this policy shift has been made by politicians who themselves were also beneficiaries of 1970’s university education.

In the 1950s it was generally accepted that Australia ‘rode on the sheep’s back’; those who grew wool had come to symbolise and epitomise what it was to be Australian. More recently, minerals, coal and iron ore replaced wool as the basis of Australia’s economic revenue and wool farmers struggled to sell their product on world markets. The current economic situation indicates that the resources boom is slowing and that both the industrial and manufacturing sectors are in deep decline resulting in rising unemployment figures. Australia needs to respond appropriately.

In 1990 Bob Hawke delivered a speech clearly stating:

“No longer content to be just the lucky country, Australia must become the clever country.

To realise that vision I am announcing bold new initiatives today to build on our substantial achievements in and scientific research – to unleash the skills and talents of our people.”

There was then an obvious realisation of the value than an educated populace would bring to the Australian economy and that the country should not be solely reliant on what it earned through exploiting its natural resources.

Research undertaken in 2000 (Returns to Investment in Higher Education by J. Borland, P. Dawkins, D. Johnson and R. Williams – Melbourne Institute of Applied Economic and Social Research) calculated rates of return using 1997 data.

Its conclusions were as follows:

  • On average, the total gain in earnings over a working lifetime that a graduate can expect is estimated to be $300 000.
  • However, allowing for the cost of the education and applying a four per cent real rate of interest, as the rate of discount, the present value of the net monetary benefit of the higher education over a lifetime is estimated to be about $90 000.
  • Earlier studies using 1976 data indicated that the private rate of return was 21.1 per cent and the social rate was 16.3 per cent (i.e. individuals were gaining more from the investment than society).
  • Using 1997 data, the private rate was 15.0 per cent and the social rate 16.5 per cent. This suggests that the introduction of HECS had reduced the private rate of return so that it is now similar to the social rate.
  • A balance sheet approach to government expenditure on higher education (i.e. comparing how much the government spends with how much it gets back in the form of higher taxes from the higher earnings of graduates) indicated that $5.3 billion spent on university teaching in 1997/98 (excluding research) would ultimately generate about $8 billion in additional receipts from the taxes of graduates.
  • The average rate of return to government from their investment in higher education is estimated at 11 per cent.

It is a reasonable conclusion that investment in education, rather than being an impost on government funds, reaps a long term benefit. Since 1997 average weekly salaries have increased by in excess of 250%. It is again reasonable to assume that the individual and the government have enjoyed a corresponding increase of benefit.

Although this research was undertaken 14 years ago its finding are well supported with organisations such as the OECD and referenced in Review of Australia Higher Education by D. Bradley, P. Noonan, H. Nugent and B. Scales in 2008 who state that:

“The widespread recognition that tertiary education is a major driver of economic competitiveness in an increasingly knowledge-driven global economy has made high quality tertiary education more important than ever before. The imperative for countries is to raise higher-level employment skills, to sustain a globally competitive research base and to improve knowledge dissemination to the benefit of society.”

Unfortunately there appears to be a real threat to the realisation of the clever country that Bob Hawke envisaged.

Governments wish to slash expenditure in order to manage their finances. An easy target is the education sector. By significantly reducing funds to education institutions, allowing massive fee increases through deregulation and increasing the debt load on students with proposed changes to HECS there is a high probability that prospective students may abandon their pursuit of higher education.

The slowing of the Australian economy, due to the probable end of the resources boom together with the contraction of major manufacturing capabilities, places a large question mark over the direction of Australia’s economic future.

The current preoccupation with spending on infrastructure projects is not the solution, being insufficient to drive long-term economic growth. The jobs ‘created’ are restricted to some in the construction industry for the duration of the projects – but what then? Jobs lost from waning resources, manufacturing, industrial and retail sectors do not transfer to contracts for construction industry workers. Sustainable economic prosperity cannot be built through insular and inward focused activity. The consequential outcome is the consumption of irreplaceable resources and funds that could have been better directed elsewhere.

The pursuit of the short-term gain at the expense of longer-term sustainable benefit is a myopic failure of strategists and decision makers in both government and businesses alike, the short-term gain inflicting long-term pain.

By neither establishing long-term visions nor putting in place appropriate strategies, there has been a systemic failure of the responsibilities of the government and businesses to both the Australian population and to employees of individual businesses.

There needs to be both acknowledgement and acceptance that Australia can no longer rely on income generated through exploiting natural resources. Countries such as China, who have been large importers of raw materials cannot be expected to maintain their current growth patterns. Any downturn that they experience has significant ramifications.

A genuine attempt to re-establish the ‘Clever Country’ should be made. A true Knowledge Economy in which all individuals have the opportunity to obtain a valuable education plus a business environment that recognises the value of innovation and fosters growth in intellectual capital and its conversion into globally marketable products and services could invigorate a country that seems doomed to slide into mediocrity.

As things stand, there is a danger that mediocrity will be achieved at an ever increasing rate. A recent report ( reveals that with the current dearth of opportunities in Australia, a genuine risk of an ever increasing brain drain occurring with significant numbers of jobs being searched from overseas rather than locally. Statistics suggest that within the scientific community that around one in four job seekers in Australia is searching for work abroad.

Rather than bankrupting the ‘Clever Country”, Governments and businesses alike should should adopt a long-term view and act together to drive Australia’s future prosperity. A positive atmosphere needs to be established that encourages businesses and individuals to realise their full potential both locally and on the world stage.

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