Date created: 28 November 1996

Last modified: 18 November 1997

Maintained by: John Quiggin

John Quiggin

The clever country: not so smart then even less so now

10 March, 1995,

Sydney Morning Herald

It is just over five years since Mr. Hawke coined the phrase 'the clever country' while launching his campaign for the 1990 election.

It is easy to make fun of the rhetoric of cleverness, and, indeed, to make serious criticisms of some of its manifestations. For example, the boom in certification of 'competencies' seems based on a static view of the world, a hangover from the good old days when possession of a trade certificate was a guaranteed meal-ticket for life. More generally, the clever country approach involved an element of naive 'credentialism'. It seemed to be assumed that merely by renaming colleges of advanced education as universities, and technical colleges as institutes of technology, the value of the qualifications produced by those institutions would be automatically enhanced.

But despite all these objections, Mr. Hawke was right in saying that we must stop relying on being the lucky country and instead become the clever country. The endowments of agricultural land and mineral resources on which Australia relied for nearly two centuries are not a sufficient basis for our future prosperity. Particularly in a world where investment capital flows freely across national borders, a nation's prosperity depends primarily on the skills and abilities of its people and upon their capacity to develop and adopt new technology. Economists have demonstrated this result, giving it the unlovely name of 'human capital theory'. In particular they have demonstrated that investment in education is one of the most profitable investments that can be made, both for the individual student and for society as a whole.

What is true for the nation is also true for individual people. The demand for skilled and educated workers is constantly rising and the demand for unskilled workers constantly falling. In the US, where educational attainments have remained roughly constant for the past twenty-five years, the wages of workers with high-school education or less have dropped sharply in real terms, while those for university graduates have risen. In Australia we have avoided, or at least mitigated, this increase in inequality only because of a steady expansion in the supply of educated workers. If we are to avoid an increase in social polarisation, we must continue to raise the average level of education.

The basic fact with which governments have been unwilling to come to terms is that improving education costs money. The expansion of educational attainment in the eighties was ultimately underwritten by the massive expansion in education spending that took place under the Whitlam government. The students completing school in record numbers when Mr. Hawke gave his speech were those who had benefited throughout their school careers from that increase in the provision of resources to the education system.

Since the middle seventies, however, education spending has actually declined as a proportion of GDP. At the tertiary level, the expansion in participation has been financed primarily be stretching the education dollar further. This process has already reached its limits, and it seems likely that some States will soon face cuts in the number of university places available.

At the primary and secondary level, a decline in the birth rate meant that constant real levels of education spending translated into higher spending per student for some years. However, the consistent cutting of Commonwealth grants to the States (they have fallen by half as a percentage of GDP over the last ten years) has eventually led to cuts in spending per student. The cuts have been worst where they have been combined with Budget-cutting fervour at the State level, as in Victoria and South Australia.

The consequences of this are already being felt. The decade-long increase in the proportion of students completing high school has come to a halt, and in some states, most notably Victoria, has been reversed. The architects of the spending cuts have claimed that this can be attributed to the end of the recession, and the opening up of job opportunities, but the rise in completion rates was unaffected by the end of the last recession in 1983. In Victoria, the number of students completing school in 1993 was less than the number in 1988, long before the recession began.

All of this reflects the fact that the policy debate in Australia today is dominated by an outmoded set of categories more appropriate to the lucky country than to the clever country. For example, the debate about national savings and investment is based on investment measures that take no account of investment in education. When measures are adjusted to take educational investment into account, the much-touted decline in public savings virtually disappears. Yet the outcome of the current debate is likely to be a push for more cuts in education and similar services, a push further away from the clever country.

To justify cuts in educational spending, governments have resorted to some very doubtful claims. For example, after decades of complaints that young people are too lazy and unambitious, we have the spectacle of government spokesmen telling us that students are aiming too high, that we do not really need such a highly educated workforce. The reason for this campaign is easy to detect. After neglecting the TAFE sector for most of the eighties. governments have realised the consequences in terms of an inadequate supply of skilled technical workers. They are unwilling to meet this problem by increasing total expenditure, so instead they have chosen to divert resources from the universities. To avoid more bad publicity about students unable to find places, the Federal government ran a campaign to discouraging school-leavers from attending university, while simultaneously ordering the universities to give school-leavers preference over other applicants, who were judged less likely to make a fuss.

An even less credible claim is that education, unlike any other form of economic activity, can be undertaken just as well with reduced resources. Dubious summaries of even more dubious American econometric research are used to back up a claim that class sizes can be increased, and school resources cut, without doing any harm. (Few of those implementing these theories care to subject their own children to the experiment. In most cases, they are sent to Independent schools with class sizes well below those in the State system).

The logic of the clever country is basically inconsistent with the narrow economic fundamentalism that drives policy in Australia today. It is no wonder that the phrase is almost always used derisively - the gap between rhetoric and reality could scarcely be more marked.

John Quiggin is Professor of Economics at James Cook University and author of Great Expectations: Microeconomic reform and Australia, published by Allen & Unwin.

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