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Making the most of educational investment

* Link : http://www.koreaherald.com/opinion/Detail.jsp?newsMLId=20110303000592 Korean college system needs market forces The following was contributed by Daniel E. Suh, professor of economics and finance, Graduate Program for Technology and Innovation Management, Pohang University of Science and Technology (POSTECH). ― Ed. In the first class of my investment course, I always toss out a question to my students: Have they ever made any investments? For a moment, the class usually remains silent. I tell them I know that they have all, in fact made an investment. Then a student or two understands where I am coming from and provides the answer ― education. A new school year began this month in Korea, and higher education has been rocked by tuition fee controversies both here in other countries. In England, college students took to the streets for violent protests against a whopping threefold increase to the 2012 tuition fee caps. Italian students also staged violent protests to vent their anger over the government’s slashing of higher education funding. In the United States, hit by the worst economic downturn since the Great Depression, college tuition fees became an additional sore spot. Korea is no exception. In early January, the Korean government urged tuition fee freezes in a meeting with 22 notable universities. In 2009, the leaders of university student associations shaved their heads in protest. As a Korean-American who has lived in America for 35 years, I have observed an interesting contrast between Korea and the U.S. on this issue, with profound social and economic implications in the context of their historical backgrounds. Who pays and who reaps? In Korea, college tuition is primarily the responsibility of the parent, not of the student. Take a Feb. 16 Korea Herald article. It begins with the story of a worried housewife whose twins were to start university this month. The mother is quoted saying that her sons’ education would cost her a fortune, which was out of her range. She goes on to say that the couple’s savings and other financial investments for their retirement would not be enough for the enrollment fees. The article also reports that the mother is “not the only parent having to shoulder ever-soaring university tuition fees.” A Korea Times article (April 15, 2009) reports that the surging costs even threaten “the lives of parents and students,” and suicides of some students and parents are “annual rituals early every year.” In the U.S., we never read such reports. The primary financial responsibility usually rests with students, not with parents. Most students are expected and are willing to manage college education costs for themselves, their parents standing by if need be. We can find a long list of successful Americans who earned their way up from a tender age, regardless of the wealth of their parents. Among them are Warren Buffett ― widely known for his integrity and wealth ― and John C. Bogle, founder of value-investing in mutual funds, to name a couple. My search for articles in the New York Times and the Wall Street Journal over the past three months retrieved almost two dozen articles on tuition fee issues. In contrast with Korean newspapers, a Jan. 24 New York Times article reports the burden as being on students, and introduces a sophomore who struggles to make ends meet while worrying about her student loans. She, in deep education debt at the age of 20, juggles her study and a campus job to pay for tuition. A Jan. 6 New York Times article quotes a mother, who expressed her concern, but in a matter-of-fact way: “I don’t have peace about kids just starting out at 22 with $200,000 in debt for their education.” The article introduces two college students, both of whom work while in college to pay for tuition, as do many American college students. Social and economic implications Investment requires a decision on today’s known sacrifice for tomorrow’s unguaranteed reward. College education is a major investment in life. Someone makes sacrifices over four years for unguaranteed rewards for the rest of their life. Among investments one makes in his or her life, however, education probably is the best, because its risks are less uncertain and its rewards are more sure. The investor who sacrifices should also be the beneficiary of the rewards, as an economic decision is about cost and benefit. Then rational decisions are made for an optimal value of investment or for the maximum difference between benefit and cost. Of course, investment in education is not fully comparable to a profit-oriented investment, and the benefit of investment in education is notoriously difficult to measure. In America, the student primarily takes financial responsibility for his or her future rewards. An American student generally carries both risk and reward. Being financially responsible for his or her college education, one naturally becomes more serious or motivated to get the appropriate value from it, running the gamut of career decision-making and long-term choices for maximum value: Get a college education or an industry job? If college education, go to a four-year or two-year college? Study in an area in which one is most talented or most interested? The articles I retrieved from the two American newspapers are colorful in illustrating the alternative choices in the face of the increasing tuition fees. The articles report the search by American students for valuable education choices: whether an elite college is worth the cost; alternative schools in Europe for lower tuition but not lower quality; two-year colleges that burst at the seams due largely to tuition increases; and an unsavory story of students getting married to save on tuition. If displayed on a flyer, the articles look like classified advertisements in a competitive market. On the other hand, in Korea, parents primarily make financial sacrifices for higher education, while students are the beneficiaries of future rewards. Korean students carry practically no personal financial risk or sacrifice. Naturally, we hear little discussion on alternatives to “ever-increasing” tuition fees. Furthermore, with more than 80 percent of high school graduates heading to colleges in Korea, the demand for college education is not so elastic with regard to tuition fees. When demand for a commodity or service is insensitive to price changes, the consumer bears the brunt of price increases. A main issue of the debate should be how to introduce market forces so that tuition fees are kept at a minimum while the quality of education is improved, as is often experienced in a competitive commodity market. That is a core issue for a public good which carries externalities. That is also a basic issue on how to make government or monopolistic industry more efficient through a competitive market mechanism. Options add value. Being more financially responsible, the Korean student would consider more options for optimal value for the most important and best investment in life. With more options under their belts, Korean students would further enhance the value of their time, energy, and financial sacrifices. By Daniel E. Suh

2011.03.04 3074

POSTECH Featured on The Chronicle of Higher Education

POSTECH Featured on The Chronicle of Higher Education On Jan. 6, POSTECH was featured on The Chronicle of Higher Education, an American newspaper specializing in higher education. The article covers POSTECH's developmental strategies through the reinforcement of research competitiveness and globalization of the university campus. http://chronicle.com/article/To-Raise-Its-Global-Profile-a/125806/ To Raise Its Global Profile, a Korean U. Shakes Up Its Campus By David McNeill Pohang, South Korea The most important number at the Pohang University of Science and Technology is 28. In case there is any doubt, it is emblazoned on two giant balloons tethered over the center of its main campus. That's the private institution's standing in the latest Times Higher Education World University Rankings—proof, says the university's president, Sunggi Baik, that it is set to be one of the planet's 20 top-ranked universities by 2020. "We're ahead of schedule," he says with a smile, adding that his own timetable put the university, better known as Postech, in the top 50 by 2015. "The ranking gives us more visibility—it's a phenomenal boost." Mr. Baik is proud of the university's new global ranking, which pushes it well ahead—in this survey, anyway—of the Korea Advanced Institute of Science and Technology, its archrival, in the race to put South Korea on the higher-education map. This is an institution, after all, that was founded only about a quarter century ago by the then-state-owned iron-and-steel giant Posco. About 500 of its 10,000 graduates have gone on to work for the company. Today, Postech sits on a $2-billion endowment fund, over twice the size of Carnegie Mellon University, which was also built on the largess of a steel dynasty. It boasts 2,700 of the country's brightest students and a growing reputation for science and engineering, says Gerard A. Postiglione, head of the division of education policy at the University of Hong Kong. "Their admission standards are higher than Yonsei University or Seoul National University," he adds, referring to two of South Korea's best universities. Part of the draw for students is Postech's hefty investment in scientific research. It is one of just four universities worldwide to build a fourth-generation accelerator laboratory, with a $500-million giant X-ray machine that is expected to expand the frontiers of cancer treatment and nanotechnology. Earlier this year, it became the first Asian university to open an overseas office in Vietnam (it also has branches in India and China) as part of a bid to recruit the best science students from abroad. Postech's steep rise up the ranks is the payoff, says its president, for a strategy that he readily accepts is elitist. Annual freshman enrollment is limited to 300 (about a third of Kaist's intake), and the university maintains a student-professor ratio of about 6 to 1. Research is Postech's cash cow: Over half of its roughly $300-million in annual income comes from research grants; the endowment provides most of the rest. The model, says Kwan Yong Choi, head of planning and international affairs, is the California Institute of Technology: "small but reputable, and competitive." Fighting Insularity But to rank with the Ivy League best, Postech must buck a national trend by cultivating a truly open campus that attracts faculty members from all over the world to this corner of the Korean peninsula, a two-hour train ride from the capital, Seoul. Even South Korea's best-located colleges are still relatively closed. A South Korean government survey this fall found that on average, two thirds of all professors at the nation's top universities are recruited from the ranks of their own doctoral students. A tiny number of foreign professors work in the country, which is still mostly monolingual and homogenous. Tenure has traditionally been automatic, and evaluation and compensation systems are weak. "The question for us is how to globalize the campus in practical terms, because there are a lot of barriers," accepts Mr. Baik. "It will be tough to break the top 20. That means the best in Asia. We have to beat the University of Hong Kong and the University of Tokyo, which have a long history and government support." In a bid to jump the queue, Postech this year became only the second Korean university to begin the transition to an all-English system. Undergraduate classes are to be conducted in English, and the university's entire administration would be bilingual. The move, like a similar effort at Kaist four years ago, has met resistance, with reports of professors delivering garbled lectures to barely comprehending students. In the first matriculation ceremony under the new system this year, few parents reportedly understood the president's opening talk, which was given in English. "Some professors switch to Korean to explain things to the Korean students, but that's understandable," says Lavolé Philippe, a French master's degree student in the electronics department. Others say that the administration has yet to catch up with the presidential decree. "The housing office and some faculty don't speak English," says Lee JooYoung, a mechanical-engineering undergraduate. "We lose something, of course," Mr. Baik says. "But English is the global language. We have a responsibility to train our students in a language that will be understood anywhere in the world." He estimates that about 50 percent of all undergraduate courses are already taught in English, a figure he eventually wants to boost to 75 percent. The university has doubled the number of native English instructors on campus from five to 10 and introduced an English certificate program, designed to bring all undergraduates up to scratch. More-Competitive Promotions His team also overhauled the university's hiring system in March, shortening the time it takes associate professors to reach full tenure from 13 years to seven years. The aim is a more-competitive system modeled on the best American colleges, where "five or six out of eight professors" get tenure, he says. "As long as we hire elite professors and allow them to excel, we will succeed," says Mr. Baik. "We hire our professors regardless of nationality or origin, and give them the support they would have at Harvard or Stanford." Building a competitive market for academic hires in a country as small as South Korea will not be easy, however, so the university has begun looking further afield. The president has set a goal of raising the proportion of full-time foreign faculty members to 25 percent by next year, up from 18 percent. (Postech has also extended the retirement age for "distinguished professors"—about 15 percent of its faculty—from 65 to 70). In the fall, the university announced a roughly $44-million investment in a search for elite faculty hires; it wants 10 Nobel Prize and Fields Medal laureates. Each will reportedly be paid a package that includes relocation fees worth 5-billion won, or $4.4-million. That investment is on top of money that comes from the government-financed World Class University project, which seeks to "nurture future Nobel Prize winners" by expanding the hiring of foreign faculty at South Korean universities. The project has financed three programs at Postech and the hiring of 25 foreign professors. Both projects have been criticized in the Korean press for wasting money: An Education Ministry survey of 288 foreign academics invited last year found that their average stay was just four months—too short to have much impact on university departments. But Mr. Baik waves away that criticism. "It's better than nothing," he says. "It gives us exposure, and once the professors come, they realize we have a good system." Two out of the 25 visiting professors have been made full time, he adds. Hiring more professors from abroad will be "very important" for the university if it is to achieve the status it wants and teach in English, says Mr. Postiglione of the University of Hong Kong. "Internationalism matters to them. Their salary system is already assessed on research and public service, to promote innovation. But foreign faculty tends to have a quick turnover—some don't adjust." So even if the university recruits well, the challenge for Postech will be retaining top faculty. "As the Korean economy takes off, other universities will be trying to recruit, too, especially Kaist and Seoul National." If any of these challenges keep Mr. Baik awake at night, he doesn't show it. "We have the advantage of the latecomer," he says. "If we're going to compete on a global scale, we must hire a young, talented faculty. There are no major discoveries carried out at Korean universities in mechanics, physics, or the other sciences—none at all. We have to change that."

2011.01.10 4382

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