As someone who grew up and is currently living and working in a developing country, one takes it for granted that investments in education is one of the most important and pound-for-pound valuable ways to spend public money. Indeed, Malaysia consistently spends a significant amount of its public expenditure on education.
So it astounds me to find that President Biden’s recent decision to announce student debt forgiveness has been seen as controversial. It’s one thing to have Republicans oppose the measure – the mid-term elections are around the corner, anyways – but to witness even steely-eyed economists cast doubt on the effectiveness of the policy measure has been surprising.
Amongst Malaysians, it is an article of faith that education is the primary key to upwards social mobility. Perhaps it is a reflection of the long-term rapid growth of the Malaysian economy, that as the economic pie grows rapidly, a larger share of the pie is captured by those with the right skills and competencies. The skills and capabilities gained through education enables workers to undertake higher value-added activities, making them more valuable in the job market, and unlocking greater opportunities for employment and income generation.
A large part of the criticism around student loan forgiveness in the US comes from the perceived moral hazard of potentially encouraging for-profit education institutions to raise the tuition fees even higher, in an environment where tuition fees are already rising much faster than inflation. (Let’s not get into the entire morass of how the US Congress has been captured by corporate lobby interests, resulting in weakened industry oversight and regulatory logjams.)
And as tuition fees continue to rise in runaway fashion, the return on investment for higher education continues to be eroded, so that many young Americans are increasingly dissuaded from taking the extra time, money and effort to undertake higher education.
This doom spiral in American higher education is one of the many reasons why the USA is becoming increasingly less competitive in the global economy. Conversely, multiple research has shown that economic development is, at its most fundamental level, driven by the accumulation of skills and know-how. Every country that has undergone periods of rapid economic development in their history, from postwar Japan to Malaysia in the 1980s and 1990s and China in the 2000s, can point to large investments in education as a key driver for rapid growth.
Despite the crisis in American higher education, it has still been able to maintain its competitiveness, especially in key sectors such as technology and healthcare, but the weakness in American higher education has been masked thus far, I believe, through America’s continued ability to recruit highly-skilled immigrants, especially in industry hubs such as Silicon Valley. (Although one wonders whether the US can still maintain this edge in coming decades, especially if Trumpism becomes a permanent fixture in American politics.)
As Malaysia’s competitiveness continues to be eroded by lower-cost competitors such as Vietnam and Indonesia, it is alarming to note that our rate of public investment into education is on a declining trend. If we are truly to escape the middle-income trap, we will need to reverse this recent decline, and continue to ensure that investments in skills and education continue to be the number one priority for Malaysia.