Understanding the education bubble – in China (and here)

The mainstream press has jumped on the story that recent college graduates in the United States often find themselves un- or under-employed and swimming in a debt from student loans that they cannot discharge even if they go bankrupt.

Across the journalistic spectrum, from the relentlessly free-market Forbes to the conventionally bland CBS to the apocalyptic ZeroHedge, the media landscape is rife with articles filled with statistics showing how hard it is for today’s young people to launch a career that offers them the chance to pay back their loans without suffering long-term financial strain.

Last March I wrote an article for Lansing Online News called The GOP Education Agenda: Why earning a diploma will no longer buy you a job or a middle-class life. It argued that the No Child Left Debt-Free approach to higher education not only enriches the crony capitalists who run private schools and overpriced for-profit colleges, but it also robs recent grads of their personal freedom.

Faced with tens of thousands of dollars of school debt that can balloon with interest and fees, most students today cannot risk taking a year off to bum around the country and find themselves. Instead they must elbow their peers aside in the hope of landing one of the remaining few well-paying jobs. And if they are lucky enough to land a toehold in the corporate world, they cannot afford to complain about the hours or demand a fat raise for fear that their bosses will quickly replace them with one of their more pliant, equally debt-riddled peers.

Which brings me to China. It turns out that I was operating under an illusion in thinking that the United States was pretty much alone in pricing education out of the hands of many of our best and the brightest students. I recently learned that even China, land of economic miracles, is suffering some of the same problems.

I happened across this information by accident. ‘Florence’ Fu Zhibin, the deputy editor-in-chief of China Today, visited Michigan State last spring and gifted me with a free subscription to her magazine. The September issue was devoted to “All Facets of China’s Higher Education.” An article called “Approach to Higher Education Reform” by Lu Rucai included a wealth of historical statistics on the escalating costs of higher education in China:

• From 1949 when the People’s Republic of China was founded to 1988, higher education in China was free.
• In 1989, tuition rose to RMB 200, then one-seventh of a typical urban resident’s annual salary.
• By 2000, tuition rose to RMB 5,000, which was almost as much as most Chinese people make in a year.
• In 2011, tuition averages RMB 15,000, effectively placing college out of reach for the children of rural families. While there are programs that try to even the playing field, few families in rural areas ever hear of them.

Sound familiar? In the words of uber-American Ron Popeil, “But wait, there’s more.” In addition to rising costs, Chinese college enrollment has exploded so more graduates are competing for the good jobs available:

• Until 1994, each college grad in China was placed into a suitable job, ensuring that acquiring the degree paid off.
• In 1994, graduates were told they would have to fend for themselves, yet the vast majority of that year’s 800,000 college graduates (who comprised 5.7% of the total population) had no trouble finding a job because college graduates remained relatively scarce.
• Since then, the Chinese government has expanded college enrollment quotas, to 1.08 million in 1998, then 1.50 million the following year. College enrollment in 2011 now totals 6.75 million, eight times as many as 1994.

The problem, in China as elsewhere, is that contemporary capitalism is failing to produce enough high-income jobs that require a degree to absorb the number of young people who want and need them. An article in Business Week revealed that one in four of the 6.3 million students who graduated from college in China in 2010 remained unemployed.

The story also noted escalating concerns about underemployment. A growing number of Chinese college grads with jobs now find themselves going home to live with mom and dad because they cannot afford to live on their own, especially those who must pay off increasingly burdensome student loans.

Again, sound familiar?

These issues matter because we are seeing educated young people around the world struggling to find jobs worthy of their investment in their education. From the rioting students in London and Rome and to the Arab spring protesters in Cairo to the young people involved in the Occupy movement in cities across the United States, college students around the world are taking to the streets demanding a voice at the government table when decisions are made that will affect their chance to live a middle-class life.

While news is tightly controlled in China, some reports suggest that the country now spends more money putting down riots within its borders than it spends on national defense. The picture above shows students protesting the university’s decision to deny them a chance at a bachelor’s instead of an associate’s degree.

The conventional wisdom is that a college degree will eventually pay off. But many students I talked with fear that the past may not be a good predictor of the future. They worry that this is not just another cyclical economic downtown but a sea change that could leave them financially adrift.

Technology has dramatically improved productivity so that modern economies no longer need as many workers as they once did. How many workers does it take to change a lightbulb? Today, none.

Complicating that reality is the concern that first-world countries seem eager to jettison or at least scale back their agricultural and manufacturing sections in favor of finance. However, the question is whether that model generate enough wealth to sustain high-paying jobs for all. Author Kevin Phillips writes that history suggests that societies that eschew farming and manufacturing in favor of finance inevitably trigger the downward spiral of decline.

In his 2008 book “ published just as the housing bubble burst, Phillips warned about the danger of thinking that we could sustain a healthy economy without growing or making much of anything. In his follow-up ebook Philllips explained that many of our problems stemmed from the fact that the U.S. financial sector doubled in roughly 20 years. It went from being 11% to 12% of the U.S. gross national product in the Eighties to 20% to 21% by 2004-2005, with much of the foundation for that growth built on the economic equivalent of quicksand – adjustable-rate mortgages with 0% down sold to unqualified buyers that were then sliced and diced into exotic financial instruments designed to hide their real risk.

The idea of making money just by moving money around is undeniably seductive. Jobs in finance allow you to use your brain, make good money, and wear nice clothes.

So why not let emerging economies deal with the labor unrest and pollution associated with the grubby work of farms and factories? Better to have teenagers in China stand on their feet for 12 hours a day making the iPads so that we can buy them for our kids to give them a digital edge.

Sure it’s sad that 14 of the Chinese youth in those factories committed suicide in 16 months, but that’s further proof that these are the jobs we want other people’s children to perform, Newt Gingrich to the contrary. We want our kids to go to earn degrees so that they can earn millions on Wall Street or become the doctors and lawyers who serve them.

The problem, of course, as Phillips reminds us, is that when the bubbles burst, the financial sector shrinks, erasing all the good jobs that depend on continuing growth. Even more disturbing is that the engine of our economy may literally be running out of gas, leaving us teetering on the edge of collapse.

In this book  Richard Heinberg of the Post-Carbon Institute argues that those ‘good old days’ of the Eighties are never coming back. Heinberg notes that the global economy was already headed off the cliff as rising oil prices spiked the cost of gasoline to the point where middle-class families in the United States faced ruinous increases in the cost of transportation and home heating. That squeeze no doubt helped trigger the wave of foreclosures that laid bare the real risks baked into the fragile financial instruments such as derivatives, collateralized debt obligations, and credit default swaps.

Heinberg makes a persuasive case that “resource depletion, environmental impacts, and crushing levels of debt” make any solution  to today’s economic woes that is based on growth untenable and unsustainable. Peak oil. Climate change. Economic instability. All will confound our attempts to goose the economy into a boom that can last long enough to bring the unemployment rate down far enough to give today and tomorrow’s college graduates a decent shot at that all-important first job.

As the data from China show, even their miracle economy is falling short in generating enough jobs to provide opportunities to all of their college graduates. Heinberg notes that people who think China will avoid the problems we face are ignoring how they are maintaining their competitive edge by offering older people “paltry pensions and poor-quality health care.”

“China’s youthful labor force attracts foreign investment. But as its work force ages, it competitive advantage may evaporate.”

The issue for young people around the globe now is to accept the challenge of the Occupy movement. How can we create a sustainable economy that provides good jobs sufficient to form families without destroying the planet in the process?

For a college education to continue to pay off, we need to recognize that you cannot take 40% of all the wealth and 20% of this country’s annual income off the table and hand it over to the 1%. Taxing back more of that money could provide good jobs at good wages in schools, museums, community centers, hospitals, police departments, and firehouses. Instead of allowing a few people to enjoy enormous privilege, that money could be used to pay stipends to artists and musicians who enrich us all.

If we are smart enough, maybe we can re-imagine colleges and universities as affordable incubators for innovation and experimentation instead of expensive high-level job-training facilities that leave students saddled with so much debt that they cannot afford to take the risks required to create new economic models that will allow us to live simply and sustainably. It will take all of us working together to find a new path to a society where  young people can enjoy opportunities to acquire a quality education they can afford without being forced into the constraints of the corporate model that is currently killing us.