Taipei Times (TT): You’ve said that too many students are going to college. In Taiwan, even though tuition is a fraction of the cost in the US, the situation is quite similar. Students with lower and lower college entrance scores are now able to go to college. Do you think it would be more beneficial for the economy if low-scoring students joined the workforce rather than going to college?
Richard Vedder: In Taiwan and in the US, you get the same result. In Taiwan, a large percentage of unemployed have a junior college education or more. Increasingly you’re getting less educated, less bright, less motivated students going to college than before. Not everyone can be brilliant. We know every society has people who are more accomplished than others. So you’re getting the less accomplished parts of society going to college. It’s true we have more high-tech jobs, it’s true that we’re not just making shoes.
In Taiwan, the low-wage factory jobs are migrating to Bangladesh, mainland China, India, etc. They’re leaving Taiwan — that’s the historical pattern. So you’re going to have more and more people going to college because all the new jobs are high-tech or scientific and so forth, and you do need people with good mathematic or science skills, or accounting or engineering skills. But you still need people to work at McDonald’s or retail stores. You need people to drive trucks and trains, or construction jobs. You don’t need advanced education to do these jobs.
I’m not against those people going to college. That’s a matter of individual choice. But when a government subsidizes resources for people to go on and get an education that makes it more and more expensive to society as a whole, and then they end up going to work as an assistant manager at McDonald’s, we’re not accomplishing the best use of our resources. Particularly since populations are aging worldwide. I suspect they are here.
The aging population is an enormous burden, and we’ve got to be careful of how we use our resources. The government uses collective resources and I think there’s a possibility that even in Asia you will have over-educated people. India puts great emphasis on education; everyone wants to get degrees. The growth in the Indian economy is great — but it’s not so great. There are a lot of them working in call centers, or handling your Visa bills, or handling your airline reservations.
Education is important, but like everything else, it has to be done in moderation. There are diminishing returns.
TT: Do you agree that in tough economic conditions, many people stay in school because they are actually afraid they won’t be able to get a job? What do you think of this phenomenon?
Vedder: In the US and maybe in Taiwan there’s a credential effect. You’ve got to have a little piece of paper that says, “I am educated” — meaning, I have a college education. Whether that piece of paper, in fact, really means anything is another question. But from the practical point of view, for the young person who’s going to school, it is meaningful. If my kids told me they weren’t going to college, I would kill them, because I said if you want to be successful in the world, you have to go to college. But that’s what most American parents tell their children. I suspect that is increasingly true here in Taiwan.
I had a fellow come and cut a tree down at my house. He seemed very intelligent, so I asked him: “What education do you have?” He said: “I have a master’s degree in history.” Well, history is a lovely field, but what do you do with a master’s degree in history? You teach, that’s what you do. He couldn’t get a teaching job, so he starts cutting trees down because he could make more money doing that. And the fellow that was helping him only had a fourth-grade education. He was illiterate, but he was smart enough to cut down trees.
TT: The Taiwanese government has recently been pushing for an economic cooperation framework agreement (ECFA) with China to increase economic cooperation across the Taiwan Strait. One of the controversial issues surrounding the pact is that Taiwanese businesses might be encouraged to move to China, where there is cheaper labor. What are your thoughts on such free-trade pacts and their impact on a country’s employment?
Vedder: I’m in favor of free-trade pacts. We had an analogous situation in the US with respect to Mexico, our NAFTA [North American Free Trade Agreement]. In the 1990s, [former US president] Bill Clinton signed a free-trade pact with the US, Canada and Mexico. There was a presidential candidate named Ross Perot who talked about a “giant sucking sound” of jobs going to Mexico and all capital moving to Mexico because of lower wages — very similar to Taiwan and mainland China. Taiwan is worried about capital moving to mainland China. If it were truly a total free-trade agreement, maybe mainland China capital would be moving in huge numbers to Taiwan, too.
TT: Are there negative effects of such agreements?
Vedder: I think there can be some short-run negative effects on people in Taiwan. Economic agreements always have winners and losers, and the losers sometimes remain losers for 10, 20 years. There are hardships. But the question is, are there greater gains or losses? What will happen to the price and availability of goods to consumers? Will they improve under this agreement?
Goods in mainland China are mostly produced cheaper, and I have a feeling that will help consumers. Consumers will have more real money to spend, so they will spend more, and that will create some jobs in Taiwan that are “stealth” jobs, or jobs you can’t really see. You can’t see them because they’re indirectly created as a result of this policy. But there will be a few jobs that will be lost, which is very visible in a city. This company will be in business, but now it’s moving to South China, and you’ll say, “oh we lost 200 jobs,” and that’s visible loss.
The problem with trade agreements is that the losses are often visible — easy to see and easy to write about. So that’s the negative side. But the positive side is that a lot of new jobs are created. Since this NAFTA agreement was signed in the US, we created, in the first 10 years, 20 million jobs. Our unemployment rate was lower 10 years after signing the agreement. So unemployment rates did not go up. If anything, they went down. There was a stock market boom. People bought houses. It was a period of prosperity. It helped Mexico as well.
Now, I don’t know the details about ECFA, so maybe I’m wrong. I’m speaking in principle about the agreement, but there may be special provisions that are in their favor, or Chinese and Taiwanese businesses that I don’t know about, in which case, maybe I would have a somewhat different perspective. For example, mainland China is much more polluted. As nations get wealthier, they want to clean up the air. But mainland Chinese are saying, we can’t afford to do that right now, we have other things to do, then we can clean up the air. They don’t say this out loud, but that’s essentially the meaning of it. So some of these agreements, like the ECFA, may have some of these provisions. They may have impacts that I don’t know about.
TT: Are you optimistic about the global economy in the next few years?
Vedder: We’re hit with a global shock to the economy. The 2007 downturn was not predicted, so we had a rough couple of years, but I think we’re coming up just fine. I’m moderately optimistic about the next three, four years. I think things [will] be better in 2010 than in 2009.
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