Steel versus Gold: Higher Education Mis-Match
By Lykke E. Andersen*, La Paz, 23 October 2006.

“Everything has its limits – iron ore cannot be educated into gold”
Mark Twain, 1835-1910

Even if you could educate iron ore into gold, it would not necessarily be a good idea to do it. Steel is incredibly versatile and useful and we need a lot of it, whereas gold is mainly a luxury item, which gets its value from scarcity and has little practical use, except for keeping track of who is married and who is not.

The higher education system in Bolivia seems to try to turn a lot of iron ore into gold: 90% of public spending on higher education goes into universities (supposedly producing “gold”), whereas 7% goes to the formation of teachers and only 3% goes to technological institutes (producing “steel”) (1).

There are several problems with this approach. First of all, it creates an imbalance between supply and demand of both gold and steel. In 2001, the demand for university graduates was around 8.000 (due to retirement and new job-creation), whereas the supply consisted of 5.000 new graduates plus 48.000 unemployed professionals (1). This means a 6 to 1 ratio of supply to demand.

Second, the public universities are not very good at turning iron ore into gold. Only about 5% of the students graduate when they are expected to (usually after 5 or 6 years of studying), and the average apparent graduation rate is only a little over 30% (1). This suggests that large amounts of public money are being wasted on this alchemy experiment.

Third, the market is pretty good at differentiating between “real gold” and “fake gold”, which implies significant wage differentials and/or substantial unemployment among fake gold. This means that both individuals and society often would be better off with high-grade steel instead of fake gold.

I think it is time to abandon the unrestricted access to free university education (which mainly benefits the upper middle class, since the poorer students rarely make it through high school) and start thinking about what the country needs instead of automatically funding what students think is most fashionable. Public education spending should provide social benefits, not just private benefits for the upper middle-class. 

(*) Director, Institute for Advanced Development Studies, La Paz, Bolivia. The author happily receives comments at the following e-mail: landersen@inesad.edu.bo.

(1) Santa Cruz, José G. (2006) “La Educación Superior en el Marco de la Descentralización: Contexto y Perspectivas”. Documento de Trabajo 02/2006, Red de Análisis Fiscal, Ministerio de Hacienda, La Paz, Enero.

Ó Institute for Advanced Development Studies 2006. The opinions expressed in this newsletter are those of the author and do not necessarily coincide with those of the Institute.

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