Human Capital Policies for the Knowledge Economy

1. Human Capital Policies for the Knowledge Economy Presentation prepared for: National Governors’ Association Conference “Reaching New Heights: Advancing Workforce Policy through Innovation and Reauthorization” Washington D.C., December 9 – 11, 2002 Graham S. Toft, Ph.D. Senior Fellow Hudson Institute graham@hudson.org 317-549-4185

2. Recap: The Knowledge Economy Conditions & Trends Implications of the Knowledge Economy for: Workers Employers Educators States and Localities Key Ingredients of a Human Capital System for the Knowledge Economy Six Bold Policies What to do with WIA, TANF, Perkins Vocational and Applied Tech. Education Act, Adult Education and Family Literacy Act and Higher Education Act? Outline

3. 1. Recap: The Knowledge Economy “Knowledge is the ingredient that underlies the competitiveness of regions, nations, sectors or firms. It refers to the cumulative stock of information and skills concerned with connecting new ideas with commercial values, developing new products and, therefore, ‘doing business in a new way.’ At its most fundamental level, the knowledge-base of an economy can be defined as: The capacity and capability to create and innovate new ideas, thoughts, processes and products, and to translate these into economic value and wealth.” World Competitiveness Index

4. 1. Recap: The Knowledge Economy (cont.) Some Attributes of the Knowledge Economy • High productivity – low inflation. • Rapid technological change. • High capital-labor ratios (capital deepening). • Deregulation and market liberalization. • Global marketplace. • Sub-national regionalism. • Mobility of: • Capital • Innovations / Ideas • Business • People

5. 1. Recap: The Knowledge Economy (cont.) Some Attributes of the Knowledge Economy (cont.) • Churning • Business starts – business failures. • Business in-migration – out-migration. • Job gains – job losses. • People come – people go. • Theoretical Underpinnings: Joseph Schumpeter: “Wails of creative destruction.”

6. 1. Recap: The Knowledge Economy (cont.) • Old Economy: • Create jobs. • ’80’s any jobs – “shoot anything that flies, catch anything that falls”. • ’90’s : Quality jobs – “high skills, high pay”. • Knowledge Economy: • Create, attract, and retain talent in good and bad times. • Capitalize on sectoral and regional growth opportunities. Goals of Economic Development and Workforce Development

7. 2. Conditions and Trends • Global economic malaise; slower growth than 90’s likely. • Intense global competition impacting both domestic and international business; many businesses are losing pricing power; cost containment; growth in wages and salaries slow to moderate. • Globally, a potential surplus of skilled and knowledge workers; employers seek the best from wherever; gradual equilibration of wage rates. Conditions

8. 2. Conditions and Trends (cont.) • Significant aging of the population in developed countries —Will older citizens work? How productive will they be? • High quality and global leadership of American higher education and research institutions likely to continue. • Good global supply of quality high end knowledge workers. • Quality and supply of qualified entry and middle level workers remains questionable within the US; very variable career technical education system (public and private) – have to live with it! Trends

9. 2. Conditions and Trends (cont.) Trends • Changing ethnic and cultural composition of the American population. • Expectations of younger workers different from older generations; Generation X, Generation Y, and Nexters. • May not be enough affordable traditional college to go around for the boomlet generation; rising costs of traditional college. • Rapid expansion of e-learning – significant implications for the traditional campus. • Adults learn “on the run” – learning must be convenient, modular, affordable, credentialed and relate directly to wage and job advancement.

10. 3. Implications of Knowledge Economy Under Conditions of Slower Economic Growth • Lifelong learning; continuously learn “nibblets” of knowledge, information, skills. • Save-Spend for learning throughout life. • Hire on with employers with commitment to learning – e.g., tuition reimbursement a key fringe benefit. For Students/Workers/Learners

11. 3. Implications of Knowledge Economy Under Conditions of Slower Economic Growth (cont.) For Employers • Adopt a supply chain management approach to human capital: retention critical in good and bad times. • Market organization “as an employer of choice”. • Hire for desired attributes – target attitudes, outlook, work ethic (go for “raw talent”). • Then invest in workers and their work environment for retention; offer the good worker a compelling case to stay with the organization. • Create internal pools of “learning funds” tied directly to employee benefits.

12. 3. Implications of Knowledge Economy Under Conditions of Slower Economic Growth (cont.) For Employers (cont.) • Make sure information is available to employees about learning choices, e.g. contract with a “learning exchange”. • Business location influenced by where the quality workers are; Businesses must shape the talent pool beyond their doors. • Collaborate selectively with other businesses on issues of common need, e.g. diversity training. • Learn how to develop long range human capital asset plans. • Design the work environment for high level productivity and job satisfaction, e.g. flexible work hours, cafeteria benefit plan, ways for working at home.

13. 3. Implications of Knowledge Economy Under Conditions of Slower Economic Growth (cont.) For Educators and Trainers • Deliver “skillettes” wherever there are learners (modularize) – at home, on the way home, at work etc. • Radically reconfigure senior high school. • “Professor be nimble, Professor be quick”.

14. 3. Implications of Knowledge Economy Under Conditions of Slower Economic Growth (cont.) For State and Local Policy Makers • New mantra: • “We do learning right”. • “We do diversity right”. • “We placemaking right”. • “Yell louder and they will succeed” will not work; high stakes testing is forcing more young people out of high school – don’t define the problem away with education reform.

15. 4. Key Ingredients of a Human Capital System for the Knowledge Economy • A portable save-spend tax advantaged account for life. • Creative mixes of individual, employer, govt. dollars. • Viable learning paths for those not immediately college bound. • Highly accessible and affordable adult learning for incumbent workers and displaced workers to achieve credentials. • Subsidized labor market information, information on educational offerings, financial aid etc. • Integrated metro/regional development initiatives energizing workforce development, economic development, amenity development, national resource development.

16. 5. Six Bold Policies • The Career Learning Account (CLA) established at birth, no later than enrollment in kindergarten (Modified Coverdell Education Savings Account); funded by personal, family, civic contributions and government assistance. • Youth Tuitionships – guaranteed learning resources to the equivalent of year 12 at school, accessed from the CLA; available for all state-approved programs, matched by employers, community foundations/CDCs $ for $. • Adult Tuitionships – Financial aid to incumbent and dislocated workers, accessed from the CLA; available for all state-approved programs, matched by employers, community foundations/CDCs $ for $.

17. 5. Six Bold Policies (cont.) • ProCollege – an alternative, comparable learning path to traditional college. • A “Learn-ware” Marketplace on the Internet. • Labor market information • Education and training information (include placements, pay, etc) • Self assessment tools • Financial aid information • Job search and matching • Linkages to e-learning • Regional Investment Boards (combines WIBs, Economic development Districts, Regional Planning Authorities, Small Business Development Centers, Technology Transfer Entities).

18. What To Do With What We’ve Got? • Pool the resources from many categorical programs under education, workforce, economic development and small business development legislation. • Repackage funding for tuitionships, learn-ware site development, block grants to states/regions for locally planned and directed regional development initiatives. • Today’s categorical grant structures lack the flexibility and spontaneity required for the knowledge economy.