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Matthew Bruenig

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Who Really Gains From Educational Investment?

Posted: 02/13/11 09:35 PM ET

This might seem like an outrageous question to ask. The idea that educational investment is a panacea of all problems so pervades the public discourse that even slight criticism of the notion almost always elicits strange stares in response. Nonetheless, I think it is important to consider who benefits from educational investment given the structure of the current U.S. economy.

The rough picture that people give about educational investment goes like this: spending more money on primary and college education will increase the number of those attaining higher degrees, and increase the quality of those degrees. As a result, we will have a more educated population with higher skills. This helps the economy in general (measured in GDP terms) through increased innovation, and helps everyone in general by creating jobs and increasing wages through increased productivity.

While this is a very neat description, it is a heavily idealized one to say the least. Since 1970, real wages in the country have not increased, but have actually slightly decreased. In this same period, the number of people attaining college degrees nearly tripled from just under 10% in 1970, to just under 30% in 2008. While it is true that productivity in the country has gone up enormously since 1970, due to the aforementioned flat wages, all of that growth has gone to the top 10% of income earners.

Many reasons have been given for this phenomenon, but one dominant one passed around is outsourcing. Manufacturing jobs, formerly the engine of the middle class, have been sent overseas where countries can keep their workers obedient while paying them slave wages.

In such a world, the financial sector (where the top 10% dominantly resides) has a lot to gain, and it has. Since the 1980s, the financial sector has doubled the percent of GDP it accounts for. Perhaps more telling, the percent of corporate profits now pulled down by the financial sector has risen from less than 16% in the early 1980s to 41% more recently.

So despite nearly tripling the percentage of college educated people (and increasing the percentage of high school educated people as well), the innovation and productivity gains that occurred in the period have gone exclusively to financiers and other wealthy barons.

There is no reason to think that such a trend would not continue, if not accelerate, were educational achievement further spurred by public investment. Even if we generate a handful of great innovations out of the process, the gains of these innovations will likely all continue funneling to the top 10% of income earners, and any manufacturing that results from such innovation will not happen here.

Take the example of a recent solar power innovation that was the result of educational research. Evergreen Solar developed a new string ribbon technology for producing solar panels while working in the education hub of Boston. They briefly manufactured products of this technology in the United States (with government help and incentives even), but have predictably closed down and moved to China. Who reaps the rewards of this government investment then? Not most Americans.

This structural reality has caused some to somewhat sarcastically remark that the American people are now obsolete to the enormously wealthy individuals who stand to gain from all of this educational investment and the innovation which follows. Financiers and other wealthy members of society can simply take their capital overseas (with their innovations in tow), take advantage of the labor force there, and increasingly sell the product to a global market. Once again, who reaps the rewards of a government investment in education then? Not most Americans.

Of course, I am not saying that educational investment is bad in itself. My personal view is quite opposite of that. Innovation is a great thing and we should do everything we can to spur it on. But the notion that it is a job-creator for Americans, and better for all is the same bad reasoning found in "trickle-down" economics. If we cannot fix structural elements of our economy which do not actually allow anyone but the very top few percent of Americans to gain from innovation and increased productivity, these investments are -- in effect -- giveaways to the super-rich.