If you are planning for a year, sow rice. If you are planning for a decade, plant trees.
If you are planning for a lifetime, educate people.
- Chinese proverb

Chinese tiger moms and American eagle dads agree on the paramount importance of education. So we apologize to them that over the past few months we have recited the following litany of challenges facing American higher education:

• Unsustainable cost structure driven by expenditures outside the classroom
• Unaffordable tuition and fees, and uncertain return on investment given employment market for graduates
• Contributing to generational wealth gap – now wider than ever
• Locking in social inequality rather than breaking it down
• Arbitrary approach to rationing state subsidies
• Poor job at providing students with basic numeracy and quantitative problem solving skills
• Poor job at providing graduates with career direction and sense of how their education relates to future employment
• Lack of consistent and meaningful metrics for student outcomes
• General resistance to innovation

That said, you might be surprised to learn that we think the prospects for American higher education are excellent. As Churchill famously stated: “Democracy is the worst form of government except for all those others that have been tried.” The same is true of American higher education.

If Asia as a whole had the same tertiary participation rates as America, universities would need to make room for an additional 50-100 million students. Meanwhile, the challenges facing Asia’s universities – while varied by country – relate to fundamental issues of quality and learning rather than cost and funding, and therefore are much more difficult to solve:

• Irrelevant Curricula: Many Asian universities employ outdated and irrelevant curricula, often from as far back as the 1960s, which fail to promote practical skills and critical thinking, let alone engage students.
• Spoon feeding: Examinations are often an exercise in regurgitation. India’s system is so rote memorization-oriented that even the most talented students have difficulty passing global examinations that focus on application of concepts (e.g., CPA exam). A McKinsey study found that just 10% of Chinese graduates of engineering programs are considered employable in global firms because they lack critical thinking skills.
• Underfunding: Salaries of faculty are far too low, classes are overcrowded and there are not enough teaching assistants dedicated to student questions and discussions.
• Cheating: Because classes are so large and teaching relatively dull, students are disengaged. Cheating is rampant on written assignments and in exams. In India, two students recently mowed down their teacher in a car (twice!) after he refused to allow their friend to cheat on a matriculation exam. Five Indian judges were caught cheating using smuggled notes while completing a Master of Law examination. A 2006 study showed that 89% of Vietnamese students admitted to having cheated at some point in their studies. And as faculty are underpaid, it is commonplace for cash to exchange hands from students to faculty – for example, on national holidays when it is appropriate to give gifts.
• What about the 99%? Extraordinarily difficult entrance exams for the best public universities – highly prestigious, but very few in number – provide top students with the best faculty and facilities. Unlike the U.S., where students who fall short of the Ivy League can get a comparable education at hundreds of institutions, students of slightly less ability are directed to universities that simply can’t measure up.

These problems are as common in Latin American and Africa as in Asia. (One Egyptian faculty member made so much money selling examination questions in exchange for phone cards that he was able to buy a sports car. He is now in prison.) So while 49% U.S. companies complain about difficulty in filling positions due to lack of qualified candidates, the complaints are as loud or louder in countries like India (48%), Brazil (71%) and Japan (81%).

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“The bad news is that time flies. The good news is that you’re the pilot.”
- Chinese proverb

It is for good reason that, according to the Academic Ranking of World Universities, 54 of the top 100 universities in the world are from the U.S. and 11 are from the UK. Only six are from Asia – five Japanese and one Israeli. No Chinese universities make the list.

One might argue this is to be expected – a natural result of the west’s head start in tertiary education. But last week, in a bid to identify the elite institutions of the next century, Times Higher Education announced its list of the world’s 50 top universities that are less than 50 years old. Only 10 are Asian universities, and only one is in Latin America. There are none in Africa. 13 are in the U.S. or UK. So, if anything, despite what we hear about America losing its edge in research, America actually may be extending its lead in higher education.

More important, online education has progressed much more quickly in America than any other market, including the UK. Today, 15% of U.S. students are studying without ever setting foot on campus. Innovative online applications such as synchronous classes (where students communicate with faculty and each other as in a classroom), and adaptive learning systems are being pioneered by U.S. institutions, typically in partnership with the private sector. So while universities like Yale, NYU and Duke are right to expend time and energy creating new campus-based programs in Asia, these programs are designed as corollaries to their U.S. operations to serve the local elite. Meanwhile, online will be where the rubber hits the higher education road for millions and it won’t be long before U.S. universities begin launching online programs for export to emerging markets.

What might this mean to American higher education and the country as a whole? Consider the following: Education is Australia’s second largest services “export” sector behind tourism, contributing A$18.6 billion to the Australian economy, or roughly 1.5% of GDP. Australia leads the world in higher education exports not because its universities are world-renowned, but because it is closest to Asian markets.

Fast forward to a world of synchronous and adaptive online learning where recognized U.S. universities (if not the Ivy League) offer online degrees for export, where online programs are accepted in China and India as equivalent in quality, and where geographic proximity is meaningless. If the U.S. were able to generate 1.5% of GDP from export of online programs, that would be $220 billion – or 10 times the current U.S. “export” market (i.e., international students studying in the U.S.). In theory, in an online world, the potential could be much larger than Australia’s 1.5%, as American universities could compete with every Asian university for every Asian student – not simply for those willing to travel abroad. In practice, as average tuition per online student will be much lower than what Chinese students are paying today in Australia, 1.5% is a reasonable target and still dwarves the export potential of America’s current top export industries: agriculture and entertainment. And in human terms, we know of no other innovation likely to impact the lives of so many people so fundamentally over the next generation.

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“It’s 106 miles to Chicago, we got a full tank of gas, half a pack of cigarettes, it’s dark and we’re wearing sunglasses.”
- American proverb

Whether you’re trying to save an orphanage or create a new industry that has the potential to provide a material boost to the American economy, the key elements need to be in place.

In the next few letters, we will focus on the key elements for this emerging industry. They are ensuring that online programs are:

• Rigorous
• Immersive
• Affordable
• And maintaining a national market within the U.S. for online programs

As a result of funding and cost pressures, many American universities will overcome their general resistance to innovation and launch online programs that will give birth to this industry. So while we may gripe about the challenges facing American higher education, like the Chinese parable of the boy who broke his leg falling off his horse, but as a result avoided being sent off to war, we may well look back at the current change-creating troubles as a very good thing indeed.

University Ventures (UV) is the premier investment firm focused exclusively on the global higher education sector. UV pursues a differentiated strategy of ‘innovation from within’. By partnering with top-tier universities and colleges, and then strategically directing private capital to develop programs of exceptional quality that address major economic and social needs, UV expects to set new standards for student outcomes and advance the development of the next generation of colleges and universities on a global scale.

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