Universities Feel the Gales of Creative Destruction

Fri, Oct 17, 2014 - 8:53am

Technological, social, geopolitical, and economic forces are driving radical changes in higher education. These changes will affect universities, as some prosper and strengthen, others fall by the wayside, and new, experimental structures for the delivery of education arise.

These changes will also affect students, as old models are discarded — models in which students expected to remain in their home country for training, and in which young people imagined that a single period of formal training would be followed by a lifetime in a single career.

These changes will also affect businesses, the ultimate beneficiaries of an efficient and effective system for training workers — or the ultimate victims of a system that can’t provide workers with the skills they need.

[Read: Employers Aren’t Just Whining: The “Skills Gap” Is Real]

In short, a university system under strain is actually bullish for global productivity growth — if it is experiencing growing pains that will allow it to adapt better to rapid change.

Increasingly Mobile Students

The rise of the global middle class — especially in Asia — has created a shortage of university spots in emerging market countries. That middle class has grown much faster than the capacity of EM educational institutions. Consequently, universities in the developed world have found themselves with a welcome stream of paying students from China, India, and elsewhere — a market worth some $30 billion a year. It has been a shot in the arm for many institutions whose funding and endowments have been hurt by the financial crisis and its aftermath.

In the EM countries, where state funding for universities is generally not as robust as in the developed world, much of what new capacity is being created is for-profit, rather than state-sponsored and subsidized. That creates the potential for flows of students going in the other direction. Developed-world students may already be starting to look at the best EM universities and seeing significant bargains. That trend could accelerate as EM universities partner more with western institutions, and as they expand their offerings of English-language instruction. Top-flight institutions in India or China could prove increasingly attractive to western students looking for quality at the right price.

Together, these two trends add up to a continued acceleration in the creation of a globally-trained, cosmopolitan middle class.

Changing Patterns of Education

The traditional ideal of higher education that held sway for most of the 20th century was that students would spend their early 20s in the classroom, get the foundations for their career, and then spend that career working for a single firm.

Accelerating technological change is the fundamental force at work to break that model. Skills learned once in a worker’s youth are increasingly likely to be rendered irrelevant by technical developments. Increasingly volatile labor markets mean that many workers are likely to have lives with several careers in succession, rather than a single career. Workers have to be nimble and adaptable — and they need a flexible and adaptable system to get the training they need.

Massive, open online courses (MOOCs) are providing that system.

MOOCs to the Rescue

We’ve written about MOOCs a few times in this letter, and they have only continued to make headway.

The structure of MOOCs — modular and short-term — makes them effective vehicles for ongoing training, especially in technical fields. Initial skepticism about their effectiveness is gradually dissipating, for several reasons.

First, they have been embraced by elite institutions, such as Stanford, Yale, Berkeley, and MIT — and these elite institutions have found that making some of their courses available as free MOOCs is only helping to strengthen and secure their brand.

[Hear: Alex Daley: Technology Will Change the Face of Education]

Second, they are increasingly adopting elements of formal evaluation. For a small fee, students can get a certificate of completion from many MOOCs — and those certificates are increasingly being accepted for formal credit (on an ad hoc basis) at degree-granting institutions. The students who are just trying to acquire a new skill may not care — but it continues to give strength to MOOCs and will draw students to them. Perhaps more significantly, every step towards a recognition of MOOCs makes such coursework more attractive to an employer when he sees it on a prospective employee’s resume.

Even Sebastian Thrun, founder of MOOC provider Udacity, famously said last year that most MOOCs were actually “pretty lousy.” But more recently, he noted that someone wanting to become a programmer could get the necessary skills through Udacity in six months.

MOOCs are continuing to come of age — and as they do, they will help create a global workforce with the skills needed for continuing improvement in productivity.

Coding Bootcamps Provide the Developers That Industry Needs

Besides MOOCs, the old model of vocational training is experiencing a rebirth. We read recently in The New York Times about the rise of “coding bootcamps” — basically vocational schools aimed at turning recent graduates or career changers into programmers and developers. Typically, these programs are intensive, involving 100+ hours of work and study each week over a several-week period. They’re outside the traditional education system, providing training for cash or for a portion of the graduate’s first year salary when they find a position. And with some in the field reporting anecdotally that there are five coding positions for each job seeker, the effectiveness of these bootcamps has been high — San Francisco Bay area tech companies, for example, are often willing to hire previously inexperienced programmers straight out of a bootcamp program.

Investment implications: An economy’s capacity to improve productivity by creating a flexible and welltrained workforce is a key element in long-term thinking about its economic prospects. Current transformative trends in higher education — both the rise of MOOCs and the ability of students to move globally in search of the cheapest and most effective education — will be positive long-term indicators for the economies that embrace them.

For more commentary or information on Guild Investment Management, please go to guildinvestment.com.

About the Authors

Chief Investment Officer
guild [at] guildinvestment [dot] com ()

tdanaher [at] guildinvestment [dot] com ()