23 Things They Don't Tell You About Capitalism

Now, it may be argued that, even though economic development may not necessarily require the average worker to be more educated, it needs more educated people at the higher end. After all, as I have pointed out above, the ability to generate more productive knowledge than others is what makes a country richer than others. Thus seen, it may be argued, it is the quality of universities, rather than that of primary schools, that determines a nation’s prosperity.

However, even in this supposedly knowledge-driven era, the relationship between higher education and prosperity is not straightforward. Let us take the striking example of Switzerland. The country is one of the top few richest and most industrialized countries in the world (see Things 9 and 10), but it has, surprisingly, the lowest – actually by far the lowest – university enrolment rate in the rich world; until the early 1990s, only around one-third of the average for other rich countries. Until as late as 1996, the Swiss university enrolment rate was still less than half the OECD average (16 per cent vs. 34 per cent).[8] Since then, Switzerland increased its rate considerably, bringing it up to 47 per cent by 2007, according to UNESCO data. However, the Swiss rate still remains the lowest in the rich world and is way below what we find in the most university-heavy countries, such as Finland (94 per cent), the US (82 per cent) and Denmark (80 per cent). It is, interestingly, also far lower than that of many considerably poorer economies, such as Korea (96 per cent), Greece (91 per cent), Lithuania (76 per cent) and Argentina (68 per cent).

How is it possible that Switzerland has stayed at the very top of the international productivity league despite providing much less higher education than not just its main competitors but also many economies that are much poorer?

One possible explanation is that universities in different countries have different qualities. So, if Korean or Lithuanian universities are not as good as Swiss universities, it may be possible for Switzerland to be richer than Korea or Lithuania, even if a much lower proportion of the Swiss have university education than do the Koreans or the Lithuanians. However, this argument loses much of its force when we compare Switzerland with Finland or the US. We cannot in all seriousness suggest that Swiss universities are so much better than Finnish or American ones that Switzerland can get away with university enrolment rates half theirs.

The main explanation for the ‘Swiss paradox’ should be found, once again, in the low productivity content of education. However, in the case of higher education, the non-productivity component is not so much about teaching people subjects that will help them with things such as personal fulfilment, good citizenship and national identity, as in the case of primary and secondary education. It is about what economists call the ‘sorting’ function.

Higher education, of course, imparts certain productivity-related knowledge to its recipients, but another important function of it is to establish each individual’s ranking in the hierarchy of employability.[9] In many lines of work, what counts is general intelligence, discipline and the ability to organize oneself, rather than specialist knowledge, much of which you can, and have to, actually pick up on-the-job. So, even if what you learn in a university as a history major or a chemist may not be relevant to your work as a prospective manager in an insurance company or as a government official in the Department of Transport, the fact that you have graduated from a university tells your potential employers that you are likely to be smarter, more self-disciplined and better organized than those who have not. By hiring you as a university graduate, your employer is then hiring you for those general qualities, not for your specialist knowledge, which is often irrelevant to the job you will be performing.