Summary:As share prices of post-secondary education companies rise, more than doubling since 1998, discriminating investors are considering investments in those companies that themselves specialize in the single greatest capital wealth in existence today: human capital.
As the number of industrializing economies roared forward throughout the twentieth century, so did the importance of higher education. "Human capital is by far the most important form of capital in the global economy," asserts Nobel Laureate Professor Gary Becker of the University of Chicago. Seventy percent of the nation′s capital is human capital, as 17-25 percent of the United States GDP is spent on schooling, on-the-job training, health services and adult education.
The advantages to a higher education experience have grown enormously as well: in 1950 the additional benefit to higher education was 40 percent throughout the life of the student, compared to 70-80 percent today. This is illustrated most tangibly by the doubling of average income and 2/3 less unemployment that comes with a master′s degree over a high-school diploma today.
Becker further emphasized the growing need for higher education by discussing what he sees as the three industrial revolutions of the modern world: the first in 1840 — the traditional industrial revolution, the second in the 50 years following the invention of the electric motor in the early 1880s, and the third being that of the last 30 years, sparked by computers and technology. This revolution has greatly accelerated productivity growth, particularly in I.T. and healthcare, an acceleration that, unlike previous productivity growth periods, has continued through an economic downturn. This shift in productivity, the general workplace environment and the need for updated skills, has intensified the incentive for higher and continued education throughout one′s life. Becker proposes that this need for education demands a greater number and variety of educational facilities and even a change in the educational structure to which we are accustomed today.
Other panelists underscored Becker′s comments by relating their own experiences in the post-secondary education field. Rene Champagne of ITT Educational Services, Inc., discussed opportunities in Asia for education companies, particularly in China where the attrition rate is zero in post-secondary education facilities. He notes that there are 320 million students in China today though China spends one fifth of the percent of GDP that the United States spends. He further observes that there has been a 40 percent increase in college enrollment since 1990 and that the rapidly growing Chinese middle class will fuel the continuing demand for post-secondary education in China.
J. Jorge Klor de Alva of Apollo International Inc., a global education company with particular focus in Latin America, finds that the greatest success comes through the utilization of local partners and joint ventures with local accredited institutions. Localization creates particular branding and recognition, as well as a greater connection with the students themselves. This proves invaluable to the longer-term success of its program. Klor de Alva spoke of the great demand for such higher education, illustrating that in Brazil alone there were 80,000 applications annually for 4,000 post-secondary education seats.
Robert Silberman of Strayer Education Inc. revisited the income effect of education, observing that from the early 1970s to today the lifetime annual yield of a male′s high-school diploma fell from $37,000 to $32,000 as the United States economy shifted its focus from manufacturing to services. As for getting adults into the classrooms, Silberman emphasized the need for convenience in the programs, in addition to commonly discussed points of academic quality and rigor. Strayer found greater success with a broader global market as he moved from synchronous online classes, with live professors online, to those that are asynchronous and as such available at the convenience of all students globally.
The need to "fill the skills gap" of the 90 million Americans without a higher education was addressed by David Moore of Corinthian Colleges, Inc. He noted that only 6 percent of the money spent on post-secondary education represents 51 percent of the country′s workforce, signifying a terrific growth opportunity in the years to come.
As to the question of whether a post-secondary program such as those discussed by the panel stack up to the traditional college experience, Moore asserted that 2 percent of students of so-called research universities actually have access to those resources, to which Becker added that only 100 of the roughly 3,000 universities in the U.S. are actually research institutions, contrary to popular perception. Moore asserts that for the remaining 98 percent there would be virtually no disparity in quality of education between the programs he represents a traditional college. There is a difference only in the demographics of the student populations, as these post-secondary education companies typically welcome students later in life.
Said Klor de Alva: "Education is the most effective tool to mine human capital throughout the world."
