Prof. Reuven Brenner | On March 22, 2013

If students could complete their education a year faster, the many benefits would include increased personal wealth, decreased government spending, and more sustainable entitlement programs.

Political discussion today is dominated by a pessimistic tone about government deficits, taxes, and our aging population. But, surprising as it may seem, a drastic overhaul of the nation’s education system could fix many of our problems. Such changes would create a variety of benefits: decreased government spending; more sustainable entitlement programs; greater equality; and a better-disciplined younger generation; not to mention an end to the mumbo jumbo that dominates academia and policy debates today.

Some much-debated solutions to our country’s problems include increasing the retirement age, raising taxes, diminishing Social Security benefits and other entitlements, and attracting qualified immigrants. But what if students could complete their education, including undergraduate study, in less time by a year or even two? Or, in the case of community colleges, three or four fewer years? Consider first a “Fermi” calculation about the monetary consequences of such a change:

There are at least 16 million youngsters enrolled in post-secondary education, with approximately 4 million graduating every year. Assume that from now on, each year, 4 million students join the labor force a year earlier. Each generation would stay one year longer in the labor force. How much annual income and how much wealth would this generate?

Assume that after graduation the average salary would be just $20,000 and remain there. With 4 million students finishing one year earlier, this would add $80 billion to the national income during that year. Or at an average annual income of $40,000, it would add $160 billion. Assume now that the additional $80 billion in national income would be compounding at 7 percent over the next 40 years. This would then amount to an additional $1.2 trillion of wealth – for just one generation of 4 million students joining the labor force a year earlier at a $20,000 salary. At $40,000, this would amount to $2.4 trillion by the fortieth year – again, for just one generation of 4 million people joining the labor force a year earlier. The added wealth depends on how rosy one makes the assumptions about salaries or compounding rates. Add 10, 20, or 30 generations, each starting to work a year earlier, and the numbers run into the tens of trillions of dollars.

The indirect impacts may be as significant. One or two years of additional, compounding earnings could do a lot to shore up entitlement programs, with a more positive impact than requiring people 65 and older to stay in the labor force much longer: the magic of resulting compounding would start earlier.

Also, having to finish one’s studies in fewer years will make it clearer to young Americans that they are in competition with hundreds of millions of young Chinese, Indian, and Latin American peers, previously held behind by the Iron and other dictatorial curtains. These foreign students do not have, and will not have for decades to come, the luxury of combining their education with too much fun and leisure over too many years, financed by either parents or taxpayers, as U.S. students got accustomed to during the last few decades. A new awareness will bring about greater discipline, less boredom, and fewer vices in American students.

Israeli undergraduates’ stellar performance suggests that completing undergrad studies in three years does not mean less education. It is true that Israeli youngsters arrive at the university two to three years older and are more mature than Western counterparts because of two years service in the army for women and three years for men. But this implies that young Americans should gain discipline and experience, not that they should stay longer in schools. The fact that such experience counts more than formal studies in preparing youngsters to solve problems is also reflected in Israel’s having become the “start-up nation” — Israel has the biggest concentration of high-tech companies outside of Silicon Valley. The country, with a population of about 8 million, has the third-largest number of companies listed on the Nasdaq, after the United States and China.

This brings us to execution: How should the educational sector encourage accelerated schooling and better prepare students to create start-ups in the United States? After all, the best way to pay down debt is to build up equity more quickly.

The Swiss and Israeli school systems provide insights. After primary education (grade eight), students are sorted according to their abilities, and some go to high schools (with streams in science, math, and the humanities), while others go to trade or vocational schools that collaborate with related businesses. This dual system does not close the doors for late bloomers: If some youngsters change their minds and want to become engineers and go to universities, they can pass a few exams later and apply. Adolescents whose talents and interests are not in general studies are not forced to prolong their schooling – that has been a recipe for decline in educational standards the last few decades, and has created larger, more expensive school administrations.

Various studies have shown that increased spending on educational institutions in recent years has not led to measurable improvements in learning. Using data from the 2010 Digest of Education Statistics, Eric Hanushek of Stanford University analyzed student enrollment and teacher and staffing levels at K-12 U.S. public schools between 1980 and 2008. He found that staff and teachers grew roughly twice as fast as students over this period. Yet while school staff increased 52 percent and student enrollment by 21 percent, students showed no additional learning in Hanushek’s achievement tests.

Universities show similar trends of increased administration personnel and costs without greater learning, as documented in Richard Arum and Josipa Roksa’s recent book Academically Adrift: Limited Learning on College Campuses. So can the education budget be drastically cut by slashing bureaucracy in government or the education system and not impact students’ education at all? It would seem so.

It’s well-documented that American kids are bored and spend hours watching TV and playing video games, and that their skills in mathematics, reading, and writing have been declining. However, the most important implications of these observations have not been drawn, particularly that accelerated learning and a redesigned student selection process would greatly improve our education system.

This article originally appeared in The American magazine, a publication of the American Enterprise Institute, Washington, D.C.

Prof. Reuven Brenner

Reuven Brenner holds the Repap Chair at McGill’s Desautels Faculty of Management, serves on the Board of the McGill Pension Fund and is member of its investment committee.

He worked with Bank of America, Knowledge Universe, EEN, Bell Canada, Repap Enterprises and with investors in Canada, Mexico, the US and Europe. He has been involved in the private equity markets as partner in Match Strategic Partners, has been investing in start-ups across Canada, as part of an “angel group,” and also created his own start-up, “e-mortal.com.” He has also been serving on boards of companies and institutions.

He was expert witness in cases covering anti-trust, bankruptcy and financial matters. In other spheres, Quebec’s government asked him in 1995 to be member of a commission whose mandate was to examine all aspects of Quebec’s possible separation. He was also asked to testify before US Congressional Commissions and Canada’s Senate’s Banking and Finance Committee, and worked with Poland’s central bank during the recent crisis.

His recent books are A World of Chance (2008) and Force of Finance (2002). His regular columns appeared in Forbes, The Wall Street Journal, Asia Times and other financial press around of the world. Forbes’ journalists put two of his earlier books in their all time recommended list, and Forbes Global dedicated a cover story, titled “Leapfrogging,” to his works and endeavors. Brenner also received the Killam Award (1992), the Royal Society elected him as “Fellow”(1999), and he received a Fulbright Fellowship Grant (1976).

Brenner was born in Rumania and immigrated to Israel in 1962. He served in the Israeli army between 1966-69, during the Six-Day War, and again during the 1973 Yom Kippur War. The Fulbright fellowship brought him in 1977 to Chicago, after completing his PhD at the Hebrew University and working at the Bank of Israel, where he received the First Prize from Israeli banks (for work with Saul Bronfeld, designing indexed securities). He lives in Canada since 1980. He is fluent in English, French, Hebrew and Hungarian.