The Half-Life of Knowledge and Structural Reform of the Education Sector for the Global Knowledge-Based EconomyRevised, Expanded Draft 20/07/97 Paper prepared for the Forum on Education in the Information Age Organized by the Inter-American Development Bank and the Global Information Infrastructure Commission and Hosted by the Universidad de los Andes Cartagena, Colombia, 9-11 July 1997. Peter T. Knight This is a revised draft of the very preliminary one submitted for discussion during the Forum, and comments are most welcome. The ideas presented in this paper grew out of discussions in Moscow, Russia; Seoul, Korea; and Cartagena, Colombia in 1997. I am especially indebted to Vladimir Serdiuk for first bringing to my attention the concept of the half-life of knowledge, developed in his research with Russian educational psychologists for the firm Factor. Thanks also to officials of the Korean Institute for Educational Development and members of the study tour of Brazilian State Secretaries of Education which visited Korea 1-5 July 1997 supported by the World Bank. Stimulating discussions with them further helped in the development of the ideas presented here. Finally, I thank Linda Harasim and Beatrice Rangel for comments on the draft circulated in Cartagena. The responsibility for this paper remains mine and should not be attributed to any of the persons or institutions mentioned above Summary Educational systems everywhere are in organizational and financial crisis. Knowledge is exploding. Productivity in the educational sector is diminishing, stagnant, or at best increases at only a glacial pace. As a consequence, the relative price of educational services tends to rise. At the same time, knowledge is being recognized as the single most important economic resource. The supply of economically relevant knowledge in the heads of the labor force is not keeping up with demand. Public, enterprise, and family budgets are under severe pressure. Public officials, businesspeople, families, and workers are having difficulty restructuring expenditures to finance needed increases in the coverage, quality, and duration of education. But, to gain or maintain competitiveness, achieving these increases is a strategic priority. The information and communications (telematics) revolution is sharply reducing the cost of processing, storing, and transmitting data, information, knowledge, and even wisdom. There is no end in sight to this dramatic fall in costs, on the order of 50 percent every 18 months. The key to increasing productivity in the educational system is to apply information and communications technologies, both in the classroom and at a distance. Technology-enhanced learning will require substantial re-invention and re-engineering of the education sector. Competition among providers of education and training services is crucial to bring about a fall in the prices of these services, and a consequent increase in productivity. The private sector has a comparative advantage in introducing telematics technology to train existing members of the labor force who require what I call “short half-life knowledge”, which is a key concept elucidated in this paper. The private sector has the flexibility, agility, competitive environment, and market responsiveness necessary to provide “just-in-time” training. It will also lead in the provision of “education on demand”, and help spur productivity increases in the provision of long half-life knowledge as well, including in the public sector. The private sector can also be in important source of the needed capital, thus reducing pressures on strained public budgets. National qualifications frameworks and educational credit banks can provide an enabling environment to encourage the needed increase in competition in the educational sector, both public and private. This in turn should lead to falling prices and increasing productivity. Public policy can also promote competition in the telecommunications sector, which is crucial cheaper transmission of knowledge using telematics, which makes possible further productivity gains in the strategic education and training sector. 1. Challenges Facing Educational Policy and Finance Today’s dynamic globalizing economy, where the most important resource is the knowledge in the heads of the labor force, places increasing demands on educational systems already straining under the severe budgetary pressures faced by governments, enterprises, and families. The call everywhere is for increased coverage, better quality, and lifelong rather than terminal education. There is simply no way that these goals can be achieved without fundamentally re-inventing and re-engineering educational systems to reduce costs, increase efficiency, and lower prices. Knowledge is exploding. In many countries the relative cost of education is rising. Even when citizens, business groups, and political leaders succeed in raising the social value placed on education--and hence the relative share of education in family, enterprise, municipal, state, and national budgets--resources are insufficient. A fundamental restructuring of educational systems is required to achieve what has been so elusive to date--a major increase in productivity. The key is to mobilize more private sector finance and managerial skills and encourage the use of modern information and communications (telematics) technologies in education, both public and private. These technologies are reducing the cost of processing, storing, and transmitting knowledge at roughly 50 percent every 18 months. There is no end in sight to this dramatic fall in costs. The telematics revolution--fueled by digital, satellite, and fiber optic technologies and by the convergence of telecommunications, computers, and television--offers tremendous potential to reduce costs and increase productivity in education and training. But simply piling new technologies on top of old ones at every level of the system will not do. What is needed is a thorough re-invention or re-engineering of the strategic education sector. The challenges are more organizational and political than technical. Competitive forces must be unleashed to push down prices to reflect the fall in costs. A wave of technological change is upon us, and the key to public policy is to manage the process of what Joseph Schumpeter called “creative destruction” to achieve clear national goals [Schumpeter, 1942]. Countries, regions, cities, and companies which are able to create consensus around a vision of a strategically reformed education and training sector will be able to surf the wave of change and move ahead, those which do not are likely to be crushed by it. Families of future workers and individual workers already in the labor force also need to develop strategies to stay competitive in rapidly changing labor markets. In the following sections I outline the key elements of educational and telecommunications policy reform, the concept of the “half-life of knowledge” (which I believe is helpful in deciding on how to organize and finance different parts of the educational system), key public policies which can encourage this reform, and the role of competition in driving technological change in the education and telecommunications sectors. 2. Elements of Education, Training, and Telecommunications Policy Reform This restructuring and reform of educational systems is likely to involve increased provision of educational and training services by private sector training businesses and by enterprises providing training to their workers. Such private sector entities have strong incentives to provide knowledge which has immediate economic returns to the individuals and firms involved. These private sector enterprises are responsive to market forces, have strong incentives to increase efficiency and lower costs, and cannot survive providing training for outmoded skills or using obsolete equipment as often occurs in formal vocational training institutions. A recent World Bank study found, for example, that vocational education in Egypt has negative value added--it costs to unlearn the inappropriate skills being taught in such institutions. Public education and training policy and appropriate economic incentives, including tax deductions and credits for the expenditures made, can stimulate private sector provision of education and training services. But students and families often assess practical, vocational education as leading to a dead end. As a consequence, it is mostly students not qualifying for more academic training who tend to enroll in formal vocational training institutions. A key policy and regulatory reform is to establish what New Zealand (1990), Australia (1995), the United Kingdom, and now South Africa are calling a “National Qualifications Framework” (NQF). Under an NQF, knowledge is broken down into modules, and objective assessments of knowledge acquisition are made by certified testing authorities (this can be done in many cases over the Internet using world wide web servers. What is assessed is what the student knows, independently of how he or she acquired the knowledge. This opens the way to alternative providers of training, providers who compete on the basis of cost and quality objectively assessed through results [New Zealand Qualifications Authority, n.d.; Australian Qualifications Framework Advisory Board Secretariat, n.d.] . Independent study, study within formal educational institutions, on-the-job training provided by business enterprises, learning through specialized training firms, distance learning or classroom learning--in short, the learner will have multiple options to fit his or her budget, learning style, and opportunity cost of time used for study. A complementary reform is the establishment, now being proposed in Korea, of an “educational credit bank,” where students can accumulate credits from different educational service providers, and apply them toward various degrees or certificates. Students can “mix and match” credits obtained from public and private providers, theoretical/academic and practical/vocational knowledge. This innovation may allow flexibility, changes in direction over a lifetime rather than locking students into a single (often dead-end, terminal) educational path. Finally, telecommunications policy reform is critical for accelerating productivity increase in education through lowering the costs of transmitting knowledge. Again the key is introducing competition and mobilizing private sector resources to lower prices in line with falling costs and mobilize needed investment capital, available from both domestic and international private sources. In many African countries, for example, waiting lists for even outrageously high-priced conventional telephone service from underfinanced public sector monopoly providers is from five to ten years. Providing broadly available Internet service in these conditions is a pipe dream. This obvious mismatch between demand and supply can only be broken by regulatory reform. This requires mobilizing the education, health, business and other constituencies being harmed by the inefficient state monopolies. To paraphrase Clauswitz, telecommunications policy is too important to be left solely in the hands of the existing monopoly providers [UNECA, 1997; Knight, 1995]. A possible use for public subsidies is to encourage development of the physical infrastructure necessary for distance learning throught a national territory (e.g. Internet backbone development, as has been done in the United States and Brazil). This does not mean the state itself must build and operate such infrastructure--in fact a good case to the contrary can be made for competitive provision by private sector enterprises. 3. The Half-Life of Knowledge, the Rate of Knowledge Acquisition, and Alternative Delivery Modes What kinds of knowledge lend themselves best to different types of educational service provision and finance? I propose that short half-life knowledge (SHK) be distinguished from long half-life knowledge (LHK). Their respective characteristics are summarized in the table on the next page. The figure on the following page emphasizes the speed of acquisition and deterioration of long as opposed to short half-life knowledge Of course these are the polar extremes, much knowledge may lie somewhere between them on a continuum. LHK tends to take years, or at best months to acquire, and it has a much slower rate of depreciation than SHK. LHK lends itself to systematic acquisition over a number of years in formal educational institutions. Since LHK also tends to have what economists call “positive externalities” (economic or social benefits accruing to society and not just to the individual receiving it--consider the examples of basic language, acculturation, socialization, and citizenship skills), LHK also is a good candidate for public sector finance and provision as well. Since the economic returns are not immediate, LHK is most often financed by families and by the state rather than by active members of the labor force or companies in which they are working.
SHK, on the other hand, can often be acquired in a matter of days, weeks, or at most months. It tends to be practical, vocational knowledge, and as such has a quick economic return. Often it depreciates rapidly--its useful life is short. Consider, for example, learning to perform a specific industrial process, use a new piece of software, or perform a new surgical technique. If not practiced quickly, the knowledge is easily forgotten. In any case, since technological progress is rapid in many fields (even if practiced), the knowledge is likely to become obsolete quickly--again consider the examples of industrial processes, software, or surgical techniques. What is “state-of-the-art” cutting- edge knowledge providing the holder a competitive edge today, is likely to become economically outmoded (depreciated or rendered obsolete) by technological progress tomorrow. This kind of knowledge is an excellent candidate for private sector provision and finance by individual members of the labor force or companies. Public finance (say through tax credits or other fiscal stimuli, or through the distribution of “training vouchers” to be used by individuals choosing among competing providers of education and training services) may be relevant if there are also social benefits beyond those accruing to individuals and/or the firms in which they work.
A good case for public finance, perhaps from employment taxes, may be made for acquisition of new skills by workers rendered unemployed through technological change or international trade which makes their skills and the products of the enterprises where they have been employed obsolete or non-competitive. While technological change produces overall social benefits, the process of “creative destruction” tends to render obsolete older technologies and the skills specific to them. The task for both public policy, for families, for enterprises, and for individual workers is to move “upstream” into skills appropriate for “sunrise” rather than “sunset” industries. A working hypothesis is that SHK lends itself to private sector provision and finance, whereas LHK, which is necessary for the acquisition of many kinds of short half-life knowledge, is better adapted to public sector finance and provision. Rapid technological change to take advantage of the information and communication technology revolution is most likely to occur fastest in the provision of SHK in the competitive private sector. But the fall in the prices of educational services which competition makes possible can put competitive pressure on traditional formal educational sector institutions providing LHK, in both the public and private sector. A more radical view is that the public sector should not directly provide vocational training in public institutions, but leave it to enterprises and individuals to finance the acquisition of such knowledge, since it is in their interest to do so. This will save scarce public funding for LHK with high social externalities, which is less likely to be financed by private sector firms or individuals in the socially desirable quantities. Public sector provision of vocational education often leads to inferior students acquiring outdated technical skills using obsolescent or obsolete machinery and software. Public funding may be appropriate to encourage provision of needed skills, as in the case of workers rendered unemployed by technological change or international trade in “sunset” industries. But it is better to allow workers and enterprises to choose their own providers of such training, whether private or public institutions, perhaps by distributing “retraining vouchers” to the affected workers. The state can encourage high-quality provision by certifying providers and establishing more generally a regulatory framework which encourages competition in the provision of such services, including by setting standards and mechanisms for assessing whether the knowledge has been obtained. Today the quality assurance function is mostly performed by certifying the quality of training institutions, which themselves administer the formal assessments (examinations, tests) subject to various quality checks. But a promising route for the future is to encourage the establishment of independent assessment centers, which may function over the Internet or via physical centers. The Educational Testing Service in the US performs this function for some academic skills (e.g. the Scholastic Aptitude Test, the Graduate Record Examination, and the Test of English as a Foreign Language), and the European Union is planning to establish such assessment centers for a variety of academic disciplines. 4. Costs, Prices, Competition, and Technological Change in Education The key to achieving needed productivity increase in the education sector is to harness the information and communications (telematics) technology revolution. But introducing revolutionary new technologies in rigid, conservative, unionized, and bureaucratized structures is difficult to say the least. Such structures are all too common in the formal education sector providing LHK, especially the public parts. It is much easier in the competitive, private sector providing SHK. Enterprises in this sector must either meet market tests of value, efficiency, and timeliness, or die. It is thus no surprise that it is in the competitive, private subsector that the adoption of telematics in education is proceeding most rapidly. In industry, “just-in-time” production has drastically reduced costs by virtually eliminating inventories. Now “just-in-time” training is becoming the norm, minimizing the “stockpiling” of fast-depreciating knowledge in the labor force. Education and training on demand--anywhere, anytime--is now technically feasible, and costs are falling fast. Global and regional as well as national markets for education and training are developing rapidly. I believe it is in the competitive market for SHK that we may expect costs (including the cost of knowledge depreciation) to be most closely controlled, and prices to fall most rapidly. The forces of “creative destruction” unleashed by the telematics revolution can push down prices to reflect sharply declining costs of processing, storing, and transmitting knowledge because competitive producers cannot charge monopoly rents. If these producers do not lower prices to reflect falling costs, they will be displaced in the market by training firms which do lower prices. Establishing a competitive marketplace for training and education services should be a major objective of government policy in the education sector. Competitive pressures can also be brought to bear in the market for LHK if a proper regulatory framework and other elements of an incentive structure are put in place. We are already beginning to see this happen in university-level education, where costs have exploded along with knowledge. In the US, for example, the cost to a family of sending a child to college (including tuition, room, and board) is approaching 15 percent of median family income for a public university, up from 9% 15 years ago. For private universities, the figure has doubled to 40% of medium family income over the same 15-year period [Daniel, 1997]. Private firms such as Motorola, ATT, and IBM are establishing their own virtual universities for staff training, and other private firms, such as Jones Education, are opening global virtual universities open to the public. There are two main ways in which the cost of university education can be reduced. The first is organizational change--exemplified by the pioneering British Open University (BOU). Established in 1969, in 1995 it had over 157,000 students in degree programs, at an average cost per student 50 percent of that in other UK universities [Daniel, 1997, Table 2]. Evaluations indicate that the quality of education provided by BOU is at least as good if not better. The secret lies in the large returns to scale being reaped in course design to high quality standards and the provision of multimedia instruction (offering the student options in learning from text, video, tutors, audio cassette and now over the Internet). The high fixed costs are spread over a huge spatially dispersed student body, resulting in lower average costs per student and greater ability of students to use the learning tools which best suit individual learning styles. And all this has been achieved at a public institution where fees paid by students account for only 31% of university income. Now BOU is moving rapidly to take advantage of the second source of cost reductions--technological change. Through its new Knowledge Media Institute it is rapidly incorporating Internet and other computer-based technologies into its panoply of instructional tools. In Latin America there are a number of open universities inspired by the British model, but the it is the Virtual University of Monterey (part of the System of the Technological Institute of Monterey - ITESM) in Mexico which is the largest (over 43,000 students in 26 Mexican campuses), most international (providing instruction in 13 universities in 6 countries and planning on expanding further), and most technologically advanced (using television, Internet, and 2-way videoconferencing delivered by satellite) [Rectoria de la Universidad Virtual, n.d.]. While costs at this private institution are not yet lower than conventional universities, as the student base expands, this may become the case as high fixed costs are spread over a broader student population. Another good example of the use of technology in formal education in Latin America--this time primary and secondary school education targeted on 15-30 year-olds already in the labor force--is the Fundação Roberto Marinho’s Telecurso 2000, delivered by television and print materials to an audience in the millions every day in Brazil [Fundação Roberto Marinho, n.d.; Oliveira, 1997; Knight 1996]. Importantly, this program was developed by a private foundation and financed by the Federation of Industries of São Paulo State (FIESP), but it is increasingly being used in public primary and secondary schools. Educational programming including the Telecurso 2000 is now being delivered direct to home by satellite on a special educational channel (TV Futuro) TV Futuro should shortly have competition from a second Portuguese language direct-to-home educational channel being established by the Abril group as part of the Direct TV Latin America consortium (Galaxy Latin America, or GLA). GLA is already offering an educational channel in Spanish (Cl@se - Canal Latinoamericano de Servicios Educativos). In Brazil, Chile, Costa Rica, Jamaica, and Mexico major programs are now underway with government support to bring computers to the classroom of public as well as private schools. There is already a good deal of experience accumulated in the United States [Conte, 1997) and other countries as well. There are ample opportunities in Latin America to link up with private providers of video-based content such as Canal Futura and Cl@se in new public/private sector partnerships, as is already happening in some Brazilian states. The public sector is also active in content provision via television, e.g. Mexico’s Telesecundaria (now exporting programs to Central America), and Brazil’s TV Escola. Educational television is an area where Latin America is a world leader, and strong economic arguments can be made for giving priority to exploiting this existing comparative advantage [Castro, 1997]. But given the rapid development of wireless technologies, which permit more personalized and interactive approaches, it is important to at least experiment in the use of Internet and other computer-based training and education technologies to complement television. Interestingly, Brazil’s Telecurso 2000 is now moving to develop complementary Internet-based instruction and support [Fundação Roberto Marinho, n.d.] to its televised programs and print-based instruction. Likewise, Mexico’s Telesecundaria is integrating its offerings with the new Red Escolar, both of which are operated by the Instituto Latinoamericano de la Comunicacion Educativa (ILCE) [ILCE, 1997]. 5. References Australian Qualifications Framework Advisory Board Secretariat (n.d.). 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