How colleges can grow the economy - Neale Gardiner

A cost-of-living crisis and a return to levels of inflation not seen for forty years, coupled with severe labour market disruptions mean that “the economy” has very much returned to the forefront of the public conscience. While questions related to the problems at hand (“How do we effectively offset rising fuel bills?”, “What should be done with interest rates in response to rising inflation?”, “How do we tackle labour shortages in key industries?”) are presumably those of immediate concern to economic policymakers, these are all linked, in one way or another, to one overarching, perennial, question: How can we steer the economy on a path to long-term, sustainable economic growth? For colleges, the question that follows, is “what role do colleges have to play in supporting a healthier economy?”

To begin to answer this, we must first revisit the concept of economic growth itself to understand what it is and how it can be achieved. Since economic growth is simply a growth in the total output of the economy, there are, in effect, only three ways economic growth can occur: the size of the workforce can grow, the same workforce can work more hours, or the same workforce, working the same hours, can, through some means, produce more output.

The first of these – the size of the workforce – is something which can fluctuate in the short term in response to policy or prevailing economic circumstance but, in the long-term, is usually driven by large scale demographic trends. We can think of examples where considerable economic progress has been made off the back of a substantial growth in the size of the workforce. The most obvious example is China’s remarkable economic growth of the second part of the 20^th century, which was fuelled by rapid population expansion and an enormous demographic dividend. While it may be a stretch to say that this rapid population growth directly caused China’s meteoric economic growth of the preceding decades (population growth without concomitant rises in productivity can, in fact, cause GDP per capita to stagnate), it certainly facilitated it by reducing the dependency ratio (the number of people under 16 and over 65 for every 100 people of working age) from 80 in 1975 to 36 in 2010 (Kroeber, 2016).

In the UK, the prospects of any immediate rise in the size of the workforce, and decrease in the dependency ratio, appear bleak. Indeed, the IFS reckons that since the start of the pandemic the UK workforce has shrunk by around 500,000, driven primarily by older workers leaving the workforce (Boileau and Cribb, 2022). The long-term prognosis is little better: the UK – like most developed nations – has an ageing population and a falling birth rate. Though a notional future rise in inward migration could, theoretically, help offset this trend, it is clear that the UK does not have a demographic dividend appearing anywhere on the horizon.

Thereafter, it does not take long to dismiss the second theoretical route to economic growth (people working longer hours) as a realistic policy proposal for the long-term sustainable growth of the economy: there is a limit to the number of hours in a day, and – long before that – a limit to how much work can be undertaken without damaging wellbeing.

The heavy lifting in terms of driving economic growth will therefore have to fall on improving UK productivity (the amount of output each worker produces per hour). Of course, significant advances in productivity have driven the UK’s economic growth in the past (we can think of the technological advances of the industrial revolution), but, in the here and now, we run into more problems when we begin to consider the prospects of a significant improvement in productivity driving UK economic growth. Indeed, UK productivity is in something of a rut. A rut that predates – and looks set to outlive – the economic challenges of the pandemic. Between 2009 and 2019, the UK’s productivity growth was the second slowest in the G7 (ONS, 2022). While productivity did rise during the pandemic, this was something of a statistical illusion, brought about by the closure of certain sectors of the economy, and distorted further by the furloughing of large parts of the workforce and the effects of homeworking.

Now, as the economy re-opens, the problem re-emerges and, in some ways, the challenge may be even greater. The aforementioned labour shortages are hampering the performance of many companies, while acute skill shortages hold back the development of entire industries, in many cases industries with huge potential for future growth. COVID itself also impacts on productivity. Most obviously, through COVID-related absence but, perhaps more worryingly, there is also a nascent evidence-base to suggest that COVID infection could have a sustained impact on working performance. One particularly interesting recent study from researchers at the University of Reading tracked the performance of elite footballers in Italy’s Serie A and the German Bundesliga post COVID infection, and (using a difference-in-differences approach) compared this to their performance pre-infection, and to players who were had not been infected by COVID. They found that, more than six months post-infection, players who had been infected with COVID made 5 per cent fewer passes per game than they otherwise would have done (Fischer at al, 2021). If covid-infection can cause the elite athlete at the centre of a Bundesliga midfield to make 5 per cent fewer passes in a game, what impact might it have on the output of the labourer on a UK building site? Ergo, what impact might it have on UK productivity? The answer to those questions may take some time for economists to fully understand. What is clear, however, is that the causes of the UK’s weak productivity growth are complex, often structural and clearly multi-faceted.

And so, in the meantime, what has all this got to do with colleges? Colleges can’t reverse the physical effects of a covid infection, nor can they be held responsible for a declining birth rate or be tasked with reversing the UK’s long term demographic trend.

What, I believe, it has to do with colleges is that colleges find themselves located at the precise point where effective policy and innovative practice can, potentially, have a profound effect in tackling the issue at hand. Remember that improving productivity is the most realistic route to stimulating economic growth. It so happens that almost all of the most promising routes to improving productivity in some way pass through the classrooms, workshops, labs and lecture theatres of the UK’s colleges. Developing human capital, addressing acute skills shortages, aligning skills demand and supply in local and national labour markets, embedding effective use of new technologies; colleges, perhaps better than any other institution, can support these productivity-enhancing endeavours. The only caveat is that their ability to do so depends on well-designed policy, adequate funding and effective collaborative working with other actors in the system. In some ways, the discussion about how we might make sure these things are in place can seem like a well-worn path but there is scope to revisit and reframe the discussion in light of the pandemic and as part of the ongoing conversations around the future role of colleges.

Around me, I see many examples of good practice (and innovative approaches) in this area. At Edinburgh College, where I work, a range of short “Skills boost” courses were launched during the pandemic, in collaboration with other colleges in the region. The college also recently opened a new renewables and energy efficiency training centre. The former initiative looks to tackle short term skills gaps, with the aim of upskilling students in key growth industries, while the latter has an eye to the future, and equipping the students and apprentices with the skills needed to use new technologies effectively. At a policy level, Scotland’s Flexible Workforce Development Fund has an eye on productivity growth when it provides funding for companies to upskill their workforce and plug skills gaps at the company level. At a strategic level too, colleges are well represented on the Scottish Government’s advisory board for economic transformation and, across the UK, are key players in most discussions around regional economic growth.

For those of us in the sector, the point therefore becomes quantifying and demonstrating the impact of this activity, in a way that is framed by an understanding of the major challenges the UK economy faces. In short, we must never tire of making the case that where the policy goal is economic growth through improved productivity, colleges are very much part of the answer and, with the right funding, policy framework and political support, could contribute even more towards this goal in the future.

For those in charge of policy, accepting the multi-faceted and structural nature of the problem and supporting colleges to do even more to be part of the solution would, at least to my mind, be a good starting point in terms of beginning to reverse the UK’s recent productivity trend.

References

Boileau, B and Cribb, J (2022), The rise in economic inactivity among people in their 50s and 60s, London: Institute for Fiscal Studies (IFS). Available at: https://ifs.org.uk/uploads/BN345-the-rise-of-economic-inactivity-in-people-50s-60s.pdf

Fischer, K, Reade, J, and Shcmal, B (2021), The Long Shadow of an Infection: COVID-19 and Performance at Work, Discussion Paper No. 2021-17, University of Reading. Available at: https://www.reading.ac.uk/web/files/economics/emdp202117.pdf

Kroeber, A (2016), China’s Economy: What Everyone Needs to Know, Oxford: Oxford university press

ONS (2022), International comparisons of UK productivity (ICP), final estimates: 2020. Available at: https://www.ons.gov.uk/economy/economicoutputandproductivity/productivitymeasures/bulletins/internationalcomparisonsofproductivityfinalestimates/2020

The views expressed in Think Further publications do not necessarily reflect those of AoC or NCFE.