STRUCTURE OF PRESENTATION

1. The Impact of The Knowledge Economy on Higher Education and Life Long Learning Carl DahlmanGeorgetown UniversityHD Week: Tertiary Education, Innovation and Competitiveness PannelWashington DCOctober 30, 2006

2. STRUCTURE OF PRESENTATION • An Increasingly Globalized and Competitive World • Education and Innovation as Key Elements for Increased Competitiveness and Growth • Key Trends in Higher Education • Key Policy Issues for Developing Countries • Key Implications for Role of Government • Key Implications for the Bank

3. An Increasingly Globalized and Competitive World Economy • Increasing Globalization • Rapid reduction of transportation and communications costs. • Increasing global information (political, cultural, socio economic) • Strong trends towards regional integration (NAFTA, EU, ASEAn+3) • Increasing Competition • Significant trade liberalization is creating global market and increased competition • Share of exports and imports to GDP has increased from 40% in 1990 to 55% in 2004 • Value added directly controlled by MNCs is 27% of global GDP in 2002 [Underestimate: doesn’t include backward supply linkages or forward linkages to marketing, distribution, service, etc.]

4. Innovation and Higher Education as Key Elements for Competitiveness and Growth • Innovation and higher educaion are becoming more important because of the increase in the rate of the creation and dissemination of new knowledge • Innovation is becoming a more important element of competitiveness and growth as there is greater mobility of factors, products, services and knowledge. • A larger percentage of a country’s economic growth can be attributed to more effective use of knowledge, even in developed countries • Countries behind the global frontier can dramatically increase their performance by improving their ability to innovate • Expenditures on R&D globally have been increasing, particularly the share contributed by the productive sector • Education is the fundamental enabler of the knowledge economy and a key to long term competitiveness and growth • Rising labor productivity accounted for half of GDP per capita growth in most OECD countries between 1990 and 2000 • What is critical no longer basic or even secondary education, but higher education and the constant upgrading of skills • This is a challenge for all countries of the world

5. Global Trends in Education and Training • Increasing educational attainment • Continued high returns to higher levels of education until very recently • Increasing globalization of education • Challenge of competition for high level human capital • Increasing tendency for adults to go back to school or to get new skills • Increasing private provision of education • Increased need to approach education and training as life long process from cradle to grave • Growing use of ICTs in education • Universities becoming critical players in Knowledge Economy

6. Higher Education Worldwide • In 2003 there were over 100 m students worldwide – approx 4 m of the 2000 – 2003 increase. was in China • 2005 est. is over 110 million students worldwide – China added another 7 million, • --China reached 23 million largest in world • Further 5% inc in 2006 lifted global to > 115 m • The Private higher education market is estimated to be worth around $400 billion worldwide (of a total of $2.5 trillion – and growing Sources: * Drawn from Merryl Lynch 2000 updated; IFC staff estimates 2005; China MoE, China Education & Human Resources Report, Higher Education Press, Beijing, 2003

7. Increasing Globalization of Education • Tertiary students studying outside their home country increased from 0.6 million in 1975 to 2.7 in 2004 • Education institutions are also going global through: • Physical presence in foreign countries • Associations with local universities • Internet based courses • GATS is pushing for increasing liberalization in trade in educational services • Therefore there is growing competition in educational services which will be putting increasing pressure on educational systems in developing countries

8. Distance Education • Tertiary distance education is 15% of all higher education students • Of the 10 largest distance education institutions in the world, 7 are located in developing countries • Asia has over 4 m students • 23% of India’s HE enrollments are distance • Over 30% of all tertiary courses in Russia are distance • LAC has over 1 million tertiary distance education students • E.A.D.T.U. – 18 members – 14 countries – > 1 million students • UK’s Open University has > 210,000 students, incl cross-border • Australia – over 50% of foreign students enrolled on Australian campuses from Singapore and Hong Kong, are distance Sources: ‘The Changing Enterprise’ – ACE 2002; World Bank & IFC; IDP Education Australia 2002; Philip G. Altbach– Tertiary Education & Management (No.1, 2004); UK Open University, 2005.

9. Some Growth in On-Line Education • US remains biggest adopter - 2.6 million students – 16% of over all enrolments – approx 40% of these are fully on-line – 83% of all public universities have one or more courses on-line • Estimate approaching 1m students on-line in China – Internet and Satellite – 68 universities approved by MoE in 2004 • Still few champions in developing countries – Tec de Monterrey, 83,000 students (Universidad Virtual), over 5000 in LAC – Frequently Faculty (not students) can be main obstacles • Use of on-line delivery in corporate training overtaking higher education usage in developed and developing countries – driven significantly by US companies – major growth predicted in developing countries Sources: IDC 2003; IFC 2005; China – Ministry of Education and IFC staff estimates; Sloan Consortium Report, 2004

10. Universities Becoming Critical Players in the Knowledge Economy • Role of Universities not just to train high level human manpower • In context of KE are now increasing critical as generators and disseminators of knowledge • R&D • Spin-off of high tech firms • Licensing of technology • Contract research with firms and public research • Consulting services • They are also becoming important players in helping develop national competitiveness and development strategies

11. Key Policy Issues for Higher Education • Trade-off between higher education and basic education • Financing needs are beyond public finance possibilities • Low productivity and high cost • Responding to increasing competition • Content • Delivery • Quality Assurance

12. Trade-offs between higher education and basic education • Gaps remain in basic education, but higher secondary and tertiary education is becoming increasingly critical for • effective use of knowledge • creation and adaptation of knowledge • global competition • But not just full degrees and PhDs, but also • shorter degrees from polytecniques and junior colleges • specialized high level technical training in multiple institutional settings and across disciplines • Developing countries are even further behind in enrollment ratios, flows, structure and quality of upper and tertiary education than in basic education

13. Funding Comparatives. . . the most populous examples Sources: UNESCO 1999 & 2000; World Bank 2001; US Department of Education 2001; Department of Education & Skills UK, 2002; China National Center for Education, 2002/3; OECD 2002 * All Sth & East Asian countries without China & India

14. Public Spending on Tertiary Ed, % Total Public Spending on Education Public Spending per Tertiary Student Tertiary Education in 40 Developing Countries OECD $7,712 2001 $618 Sources: World Bank Development Indicators; World Bank Edstats; UNESCO Global Education Digest; OECD Education at a Glance; IFC calculations *Developing 40 includes: Angola, Argentina, Bangladesh, Bolivia, Brazil, Bulgaria, Cambodia, Chile, China,Colombia, Dominican Republic, Ecuador, Egypt, Ghana, Guatemala, Hungary, India, Indonesia, Jamaica, Jordan, Kenya, Madagascar, Malaysia, Mauritius, Mexico, Mozambique, Pakistan, Peru, Philippines, Poland, Romania, Russia, Senegal, South Africa, Thailand, Trinidad & Tobago, Turkey, Uganda, Uruguay, and Vietnam Note: All amounts are in constant 1995 US$ Values

15. OECD$13,343 in 2002 $$ Developing Asia’s Global Peers* OECD $7,712 2001 OECD $5,737 1990 34% increase $1,067 $899 16% decrease $405 46% increase $278 Sources: World Bank Development Indicators; World Bank Edstats; UNESCO Global Education Digest; OECD Education at a Glance, 2004; IFC calculations **Developing Asia includes: Bangladesh, China, India, Indonesia, Malaysia, Philippines, Thailand, and Vietnam Spending Per Student – Tertiary Sector *Developing Asia’s Global Peers include: Angola, Argentina, Bolivia, Brazil, Bulgaria,Chile,Colombia, Dominican Republic, Ecuador, Egypt, Ghana, Guatemala, Hungary, Jamaica, Jordan, Kenya, Madagascar, Mauritius, Mexico, Mozambique, Pakistan, Peru,Poland, Romania, Russia, Senegal, South Africa, Trinidad & Tobago, Turkey, Uganda, and Uruguay

16. Improving the Performance of Education and Training • Improve productivity of education • Increase efficiency through less regulation, more accountability, greater flexibility to respond to needs of productive sector • Improve incentive regime for teachers and faculty • Improve the content of education • Improve critical thinking and problem solving skills, • Improve communication skills and ability to work in groups • Teach learning to learn • Develop more effective system of lifelong learning • More flexibility in terms of multiple pathways to different competencies • Develop better system of just in time training

17. Increasing Competition • Domestic competition • Traditional universities • New domestic entrants • Firms setting up their own in-house universities • Publishing houses • Media companies • Foreign competition • Students studying abroad • Foreign providers tapping local market • 100% foreign owned investment • joint ventures • Franchises • Distance education

18. Responding to Increasing International Competition • Higher levels and better quality of education increasingly critical for intl. competitiveness • Education sector itself facing greater international competition • Developing countries are going to have to make major investments in increasing quantity and quality of education and training • In addition,their education and training sectors are going to have to become much more efficient and competitive • This is going to require major reform and innovation, as well as better realignment of public and private roles as well as domestic and foreign

19. Future Outlook • Financingof education will tighten • Demographics will outweigh fiscal realities • New systems and curriculum for lifelong learners – education and training will become more market-led / relevant • Knowledge societies – important for economic development – fostering innovation, competitiveness, more educated and skilled workforce • Globalization and Internationalization – changing the future landscape of higher education, national and cross-border – transferability of credits & qualifications, national & foreign • ICT’s and the Internet – optimizing use of new technologies – models advancing quality-based mass education delivery

20. Implications for Government • Critical to have greater coordination among the key stakeholders including different parts of government as well as domestic and foreign providers, and the users including children, parents, and firms. Address issues of • New role of government –from main provider to orchestrator • Accreditation, certification, recognition • Information about markets and providers • Finance (increasing role of private financing) and equity • Improve productivity of education and training • Improve efficiency through better management accountability etc • Change the “production function” of education and training • Use ICT technologies • Improve incentive regime • Improve the content of education and training • Basic skills • Teaching learning to learn • Just in time knowledge

21. Implications for the Bank • Bank is not responding effectively to increasing demands • Challenge is not doing more of the same, but also doing things differently, and more effectively • Not just public, but public private cooperation in context of lifelong learning, and the massive financial costs • Not just just traditional four year universities but more diversified range of institutions • From traditional face to face education to anywhere at any time at any pace • There are tremendous opportunities to expanding this line of business which is critical for the competitiveness and growth of developing countries

22. Category - Fiscal Year By Education Level Percent 63 - 69 70 - 79 80 - 89 90 - 99 00 - 02 Primary Education 2 13 19 38 50 Secondary Education 52 19 8 15 15 Vocational post-secondary education 24 33 27 9 7 Tertiary education including teacher training 20 30 43 25 15 Other education * 2 5 3 13 13 World Bank Group 4 decades of education lending 65% 44% 22% * = Projects supporting more than one level of education or projects such as those supporting lifelong learning that do not fit well into one of the other categories

23. Average 12% ’03 to ‘05 Between 2003 to 2005 – the % of lending for higher education declines further

24. Moving Forward • Because of the magnitude of challenge, developing countries can’t just replicate what traditionally has been done • Need to learn about cost effective new approaches, tools and techniques • Need to take advantage of these to leapfrog to catch up • Reforming higher education is very challenging because of old traditions and vested interest. • Need to develop effective strategies to get stakeholder awareness • Need real buy-in to get effective reform • Conferences such as these are part of the process of re-thinking what has to be done, but then need to move to how-- implementation of new policies and more public and private partnerships and investment