The ability to think and generate new ideas

By Cate Long
February 17, 2012

The research department of the Federal Reserve Bank of New York released an interesting paper this week entitled “How Colleges and Universities Can Help Their Local Economies” (the video above is a good summary). The work centers on two ideas: 1) graduates can join the region’s educated workforce and contribute to economic growth; and 2) “human capital” is expanded when institutions team up with local business, or attract new businesses, to commercialize technology developed at the school.

I think these are good observations and help justify public support of higher education, but the analysis overlooks some big ways for institutions to drive economic growth more broadly. For example, Stanford University’s Engineering School is offering some of its most popular classes free of charge to students and educators around the world.

Here’s the best thinking from the New York Fed paper (page 2):

Higher levels of human capital in a region can contribute to higher levels of economic activity for several reasons. Human capital increases individual-level productivity and the generation of ideas. By extension, a region having more people with higher levels of human capital should have greater economic activity overall.

However, the total effect of higher levels of human capital on economic activity is larger than the sum of its parts. The geographic concentration of human capital facilitates what economists refer to as “knowledge spillovers”—the transfer of knowledge and skills from one individual to another. One person may, through observation and communication, learn skills from another; alternatively, the sharing of ideas among individuals may generate new insights that increase the knowledge of the group. When people increase their knowledge in these ways, they create a secondary pathway that increases human capital, which can further enhance regional productivity, encourage innovation, and promote growth.

The overall tone of this is right, but when the researchers say that the “geographic concentration of human capital facilitates what economists refer to as ‘knowledge spillovers’,” they miss a very important paradigm shift in American culture and economic activity. It’s as likely that we are facilitating knowledge spillovers with others who may not even live in our state or nation. If you search a little you can see the prevalence of this type of mission expansion by our great universities. Here’s a list of 400 free online university classes, and here are 10 university collections on YouTube. This is just the vanguard of progressive, first-class universities, and it mirrors how white-collar work is increasingly becoming virtual for many.

The challenge for the economists at the New York Fed and elsewhere is how to capture the value to economic growth this type of activity brings. There are no known quantifiables. But imagine the gain to human capital if workers were able to learn new skills virtually. There are actually few limits to virtual knowledge transfer. It’s happening, and we should nurture and measure it. America needs every possible tool to help it grow.

Further: broke down President Obama’s proposed budget and found that it includes $8 billion to support job training through state and community college partnerships with businesses. This is a joint initiative between the U.S. Education and Labor departments.

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