John FitzGerald: Ireland must plan to invest in people

The recently published National Development Plan (NDP) represents a welcome return to more orderly planning of investment. This latest NDP generally concentrates on physical investment in buildings and machinery rather than on investment in human capital.

The plan sets out funding for new buildings that will be required across all levels of education, but the ongoing costs of teaching students in those new buildings is to be provided for each year in the budget.

Previous NDPs, which had covered joint Irish/EU investment, had included current spending on human capital, such as training and third-level education, which had benefited from EU co-funding. However, as the EU did not fund either primary or second-level education, only the capital investment in primary and post-primary buildings had been included in these earlier NDPs.

It might be timely to supplement the NDP for physical investment with a plan covering future investment in education and training over the next decade.

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Long-term returns

Over the last quarter of a century, it has been a consistent research finding that investment in education and training, improving our stock of “human capital”, is very worthwhile. Indeed, research in the 1990s showed that investing in human capital brought bigger long-term economic returns to the State than investing in physical capital.

There is a significant long-term direct return to the State from investment in education

On top of the economic gain, there were also the much less-easily quantified social and cultural benefits of education. Based on this evidence, Ireland spent a much bigger share of its 1990s EU structural funds on education and training than did Spain, Portugal and Greece. The wisdom of this decision has been reflected in the much higher growth rates Ireland has enjoyed.

A long-term human capital plan should prioritise new investment in areas which are likely to produce the biggest expected social and economic benefits. There is extensive research available on what would make a difference in both training and in education.

Over the last 20 years, some training schemes proved to be ineffective or a failure. However, policy learned from the experience and research findings. Poorly-performing schemes were dropped and new ideas were tried.

This “learning” experience of policy is particularly important. To work well, it requires continuing evaluation of the effectiveness of policy, a willingness to change when some schemes don’t work and an appetite for policy innovation.

The economic benefits of investment in education come through a number of different channels. Generally, the more highly educated someone is, the higher their productivity. In turn, this benefit is generally captured by the individuals themselves through higher earnings.

Education

A significant additional benefit for the State is that those with a good education are much more likely to participate in the labour force and much less likely to be unemployed when they do so. Thus there is a significant long-term direct return to the State from investment in education in the form of higher tax revenues and lower expenditure on welfare payments.

Past investment in education made a very big difference to Ireland in the recent great recession. Employment for those with a third-level education continued to rise, even in the most difficult years. Thus many graduates did find employment, albeit less well paid than they would have been before the crash.

While some graduates did lose their jobs, most of them went on to find alternative employment, some of them abroad. In the recovery phase, unemployment has fallen much more rapidly than after the 1980s recession because so many of the unemployed had the kind of skills or education that employers were seeking. In the early 1990s, few of the unemployed had a Leaving Cert.

A plan for investment in human capital should look at a range of issues where we could do better. First, while early school-leaving has fallen significantly, the education system continues to fail a significant number of children, particularly from more deprived communities. Reducing this failure rate would be highly beneficial.

Secondly, we should focus on enhancing the quality of education. This is not necessarily about lowering pupil/teacher ratios. It’s about strengthening how well the education system prepares children and young adults for the society they will live in, and how well it builds their capacity to learn and discover independently. Improving quality will require some additional resources, but it’s also about how effectively existing resources are deployed to deliver quality.

Finally, the Cassells report on third-level funding remains unaddressed. Investing in third level is not just about new buildings, it’s about funding adequately the teaching and learning that takes place there.