Universities are failing to boost economic growth

Universities have boomed in recent decades. Higher-education institutions across the world now employ in the order of 15 million researchers, up from four million in 1980. These workers produce five times the number of papers each year. Governments have ramped up spending on the sector. The justification for this rapid expansion has, in part, followed sound economic principles. Universities are supposed to produce intellectual and scientific breakthroughs that can be employed by businesses, the government and regular folk. Such ideas are placed in the public domain, available to all. In theory, therefore, universities should be an excellent source of productivity growth.

In practice, however, the great expansion of higher education has coincided with a productivity slowdown. Whereas in the 1950s and 1960s workers’ output per hour across the rich world rose by 4 per cent a year, in the decade before the Covid-19 pandemic 1 per cent a year was the norm. Even with the wave of innovation in artificial intelligence (AI), productivity growth remains weak – less than 1 per cent a year, on a rough estimate – which is bad news for economic growth.