The study of undergraduate Economics in Mexico: recent trends

According to international studies[1], undergraduate degrees awarded in Economics have declined significantly in diverse countries from 1990 to 1999. Siegfried and Round (2001) documented such declines in Australia, Canada, United States and Germany in the last decade. The authors tested various hypotheses, for instance, trends in GDP grow, the salience of economic crises, labor market expectations, academic rigor and mathematical requirements, and the increasing popularity of “substitute disciplines” (Finance, Business Administration, and International Affairs, among others). Apparently, the variables that better predict such declines in the aforementioned countries are the increasing salience of “substitute disciplines”, as well as the increased academic rigor and mathematics requirements in the study of Economics.

Based on official data, the declining trend in the study of Economics is also present in Mexico. Even though statistics show that first year enrollment in Economics has increased 17% -from 22,644 students in 2000 to 26,475 students in 2010-, total higher education enrollment has increased 54% in the same period; hence, enrollment in Economics has grown only a third relative to the growth of total enrollment in Mexican universities. As a consequence, the percentage of Economic students relative to total enrollment in higher education has diminished significantly in the last nine years. In 2000, around 1.3% of all undergraduate students in Mexican higher education were pursuing Economic degrees; by 2009 the share is 1 per cent. Moreover, in terms of degrees awarded, in 2000 the share was 1.4% of total undergraduate degrees; by 2009 the share was reduced to 0.8 per cent.

To put the above data in perspective, available data shows that in the decade from 1990 to 2000, in average, in the United States 2.2% of all undergraduate degrees awarded were in Economics. Meanwhile, in the decade from 1999 to 2009 in Mexico only 0.95% of all degrees awarded were in the field of Economics. In my view, the same hypotheses proposed by Siegfried and Round could be explored in Mexico in order to explain the decline. In Mexico -as in Australia, Canada, United States and Germany-, there has been a growing popularity of “substitute disciplines”, and the academic requirements and mathematical rigor of Economics has been also increasing. Nevertheless, specific studies are needed in order to see how the data fit the hypotheses.

[1] Siegfried, J. J. & Round, D. K. (2001) International Trends in Economic Degrees during the 1990´s. The Journal of Economic Education, Vol. 32, N0. 3, The Scholarship of Teaching Economics (Summer, 2001), pp. 203-218.

Budget Reform in Mexican Higher Education: Peril and Promise

A dominant theme of Mexican higher education in the 90´s and in the 21st century has been financial distress. Higher education faces problems throughout the world: universities are underfunded, rising worries about quality; student support is inadequate; the proportion of students from disadvantaged backgrounds is lamentably small (Barr, 2005). Also, the financing of universities in many countries is regressive since the money comes from general taxation but the major beneficiaries come from better-off backgrounds (Barr, 2005). Higher education finance is therefore salient to an extent that it is timidly addressed in many developing countries, because of its politically sensitive nature.

Around the world, a cause of higher education´s austerity is the increasing scarcity of public revenue (Johnstone, 1998), a function, in turn, of competition from several other societal needs. In political terms, tax funding leads to under-resourcing because higher education will always lose out to competing and politically more popular claims (Barr, 2003).

Within this context, a number of developed and developing countries have undertaken significant transformations of the financing of their tertiary educational systems. In most nations, the goals of such reforms have been: (1) to implement budgeting process based on performance indicators, and (2) to generate additional sources of revenue.

In the past eight years, the Mexican federal government has made important efforts to increase the national spending for public higher education institutions. In 2000, Congress enacted a law that requires the State to invest at least one per cent of the GDP in public higher education -currently federal investment reaches the 0.68 per cent of the GDP. Particularly, in the past three years Mexican Congress has increased the funding for higher education institutions by almost 15 per cent, amounting 4.5 billion dollars more, in comparison to 2006.

However, these fiscal efforts have not yet been accompanied by a deep financing reform in higher education. Still, year to year, the presidents and directors of higher education institutions go to Congress to lobby for extra resources. Every year, they argue, the very existence of their universities is in jeopardy if budget resources do not increase. In some cases this is true, but in some others such claim is just a political maneuver. At the end of the day, we cannot blame university leaders for this behavior; they are just reacting to the incentives in place.

The perverse incentive system is as follows: the Mexican Department of Finance prepares and presents a budget that is underestimated, knowing that public universities are going to ask for more. Aware of this, universities prepare their lobbying strategy well in advance during the year, distracting themselves from other central academic issues. The end result is usually a budget very close to the one originally planned by the Department of Finance, but after a fierce political battle, where many people get hurt -politically speaking of course.

Unfortunately, this perverse system of incentives only delays the deep reform that our higher education budget process urgently needs. There have been many interesting proposals on the table in the past few years, in order to correct the situation. Perhaps the most relevant is the implementation of multi-year budgets, designed for some special academic and research projects. This mechanism is already in use in some OECD countries, as well as in Brazil.

Negotiations will be hard in order to implement such a policy, however, it is worth it. Multi-year budgets can provide public higher education institutions with a very scarce resource in Mexico: financial certainty for long term planning.

The bad news is that any attempt to reform the higher education budget process that does not include a series of reforms within the higher education institutions is incomplete. The federal budget process needs to change, yes; but we also need to improve the way public universities generate their own sources of revenue. So far, only roughly 15% of resources for public higher education come from private sources, compared to countries such as Chile (84%), Korea (75%), and the United States (65%).

In short, if we really want to develop a world-class higher education system in Mexico, we cannot solely rely on fiscal revenue. As observed by Barr (2003), around the world higher education will always lose to other more pressing social needs in the competition for fiscal revenues. Hence, attempting to develop a system of great universities solely based on public revenue is building on shaky grounds.

References

Barr, N. (2005). Financing higher education. Finance and Development, 42(2). Retrieved from http://www.imf.org/external/pubs/ft/fandd/2005/06/barr.htm

Barr, N. (2003). Financing higher education: Comparing the options. United Kingdom: London School of Economics and Political Science.

Johstone, B. (1998). The financing and management of higher education: A status report on worldwide reforms. Washington D.C.: The World Bank.

  

GDP fetishism in education

An economist´s simplest answer to questions about the well-being of people is the gross domestic product, or GDP, per person of each country. However, as we might suspect, GDP-based statistics do not reveal the whole story about how satisfied people really are with their living standards. According to the Report by the Commission on the Measurement of Economic Performance and Social Progress, in recent years economists and statisticians have been looking at alternative measures of well-being, even "happiness", a notion that it was seemed absurd to quantify. Thus, the tendency is to pursue new techniques that produce more qualitative data on the issue at hand, being this national well-being, education, or health.

Higher education policy in Mexico, especially at the Legislative level, is still fixated with traditional GDP-based statistics. The debate usually revolves around the issue of how far -or how close- are we from the goal of investing one percent of GDP in higher education (currently we invest 0.67 percent). I argue that if we want to rapidly advance on the improvement of quality, relevance and equity in tertiary education, we must pay much more attention to other, more qualitative, policy measures.

Instead of solely focusing on measures such as the percentage of GDP invested and/or the expenditure per student in higher education, we must rely on "soft" measures as well, such as student learning outcomes, teacher-student interactions, and even student satisfaction at a given institution. This would give a clearer picture of how different universities compare to one another, and will reveal the extent of the impact of public money invested on the desired educational goals. The Commission´s Report gives interesting insights of the implications of such soft measures.

The myth of the 8 per cent revisited

On a recent trip to Paris, for the UNESCO´s World Conference on Higher Education 2009, I talked to diverse UNESCO´s higher education experts on the topic of the mythical 8 per cent. To my surprise, I learned that the organization has in fact recommended a fixed percentage of the GDP as educational investment, however, it is not the 8 per cent. During the World Forum on Education that took place in Dakar in 2000, UNESCO recommended developing countries to gradually reach 6% of GDP as investment in education, in order to universalize basic education. Mexico has already universalized basic education, therefore, this recommendation should not apply to our country. Plus, Mexico already invests in education more than 6% of GDP -including private investment. Hence, I insist that our education policy priorities should move away from reaching mythical investment percentages.

The myth of the 8 percent

In Mexico, most policy and political debates on the topic of education financing refers to the mythical figure of 8 % of GDP, as the optimal government investment in this sector. Discussions in the House of Representatives, the Ministry of Education, the National Association of Universities (ANUIES), and even in the academia, all refer to the "UNESCO´s recommendation" to achieve this level of investment.

This "optimal percentage" even became part of the Federal Law of Education in 2000, when a reform to the article 25 stated that "the amount that the State invests in education can not be less than eight percent of GDP". Having permeated the national policy debate, I started an inquiry on the actual origins of this supposedly recommendation from an international organization. I started reviewing the justification of the bill that introduced this reform back in 2000; the Report of the Committee on Education argued that the notion came from a Conference of Latin American education ministers, which took place in Mexico City back in 1979, and was hosted by UNESCO. At the end of that Conference, a document called the Declaration of Mexico was presented and signed by all the present ministers. This document states, among other policy proposals, that member countries should gradually increase the level of public investment until "reaching the 7 or 8 percent of the GDP, with the goal of overcoming the educational problems of the region".

Theoretically, there is no rational for proposing the investment of 7 or 8 % of GDP in education, instead of 6 or 9 %, for instance. The Declaration does not explain nor justify this notion with hard data or a model. Giving that this recommendation -not advocated by UNESCO itself but by the education ministers present at that Conference- lacks policy rigor and was given 30 years ago with a different educational, political and economic context, I argue that it is completely outdated and arbitrary. This notion has distorted the policy debate because we should not be focusing on achieving an arbitrary investment goal, but on pursuing structural reforms to increase the quality of educational institutions -whatever investment it takes.

According to the OECD report, Education at a Glance 2008, Mexico has shown rises in its investment in education, not just in absolute terms, where increases were observed in most countries over recent years, but also relative to national income: over the period 1995-2005, spending on educational institutions in Mexico increased from 5.6% to 6.5% of GDP (including private investment), a level that is above the OECD average of 5.8%. Mexico is one of the three countries with the largest increases in educational expenditure as a percentage of GDP over this 10-year period.

The OECD, in this same document estimates that at the current levels of investment , if used more efficiently, countries could improve their academic performance by 22 percent, measured by the PISA exam. This implies that Mexico would obtain 500 points on the exam (Level 3), instead of the current 410 points (Level 2).

In conclusion, diverse studies on educational policy have demonstrated that it is not enough to just pour more money in education. Therefore, our main goal should not be the achievement of a magic investment percentage, but to improve our results on academic performance evaluations; if this goal can be achieved by investing 8 % of the GDP, or more, then we should do it; however, the empirical evidence does not support such a claim.

The end of capitalism and other intellectual confusions

Are we witnessing the end of "capitalism"? The current global crisis has brought together the ancient and traditional coalition of anti-capitalists around the world, they all keep calling for the "end of free markets", and the preeminence of government intervention. Interestingly, in his recent article for the New York Review of Books, Amartya Sen gives some worth-reading insights about the invisible hand and the welfare state, and their main advocates of course.

Adam Smith was wrong and Keynes was right! Discussions on the current crisis and the future of capitalism are usually full of conceptual confusions; for instance, some economists and political scientists are all of a sudden disciples of John Maynard Keynes, calling for government intervention in order to promote growth. Some of them even cite Keynes when advocating for policies to fight poverty and to promote equality. However, if we read Keynes carefully, he actually never advocated nor wrote about government policies to help the poor; surprisingly for some, it was Adam Smith who wrote about the "welfare state", his overwhelming concern about the fate of the poor and the disadvantaged are strikingly prominent. Smith recognized that "the most immediate failure of the market mechanism lies in the things that the market leaves undone". Smith's economic analysis went well beyond leaving everything to the invisible hand of the market mechanism. He was a defender of the role of the state in providing public services, such as education, and in poverty relief.

Carefully re-reading the classics may be a good way to avoid the conceptual confusion of our times -and to engage in more informed and relevant policy discussions; it is also necessary in order to give true credit -or criticism- to the works of Adam Smith, John M. Keynes, Arthur Cecil Pigou, and others.

The rationality of not voting in Mexico

According to the document The Electoral Process 2009, published by the Center of Social and Public Opinion Studies of the Mexican House of Representatives, 7 out of 10 voters will not go to the polls on July 5th. The practical explanations for such behavior are diverse. For instance, some potential voters argue that the next elections are not trustworthy; some believe that after the election a political conflict will arise; others argue that the economic crisis has disenfranchised so many people that going to the polls is a waste of time; still others believe that there is deep crisis of representation in Mexico. Surely the true answer lies somewhere in a combination of the above factors.

Economists have long argued that voter ignorance is a predictable response to the fact that one vote does not matter to the ultimate election outcome. Why spend time getting information about the issues if my vote cannot alter the outcome? A vote has so small a probability of changing the electoral outcome that a realistic egoist pays no attention to politics, he chooses to be rationally ignorant. This type of ignorance means voters going to the polls without valuable information about the different choices they have, thus voting for the choices they naively believe to be better. In the face of this rational ignorance, the issue is then to explain the decision- making process of a non voter.

As in the specific case of Mexican politics, international pundits often blame citizens´apathy on the elections´exceptionally insipid candidates. According to economist Bryan Caplan, "deeper thinkers, who notice that apathy persists year after year, blame voters´ ignorance on lack of democracy itself". Robert Kuttner spells out one version of the story: "The essence of political democracy has eroded, as voting and face to face politics give way to campaign-finance plutocracy... there is a direct connection between the domination of politics by special interest money, paid attack ads, strategies driven by polling and focus groups -and the desertion of citizens."

Such aspects outlined above may well be the cause of the anticipated apathy of Mexican voters this year. There is a general perception in the population that parties and candidates have failed in fulfilling campaign promises in the past; there is also a bitter war between the ruling party (PAN) and the main opposition party (PRI), the former accusing the later of having negotiated with drug cartels in the past, and the later accusing the former of not having experience and wisdom to govern; plus, the leftist party (PRD) is engaged in an internal war over the control of the party and the public funding. To these ingredients we have to add a deep economic crisis -a contraction of 7 percent of the GDP in the first three months of 2009, plus the effects of the epidemic emergency due to the Influenza virus that caused a further .5 percent contraction of the GDP. Within this context, unfortunately not a single party or candidate seem to have clear and straightforward proposals to solve the most pressing problems.

Using the theoretical framework developed by George Akerlof and Robert Shiller in their Animal Spirits book, one can argue that the reason people go to the polls at all is not policy or economic rationality but rather the irrational impulse of confidence. According to the authors, confidence -implying behavior that goes beyond a rational approach to decision-making- plays a mayor role in macroeconomics. I argue that the very same impacts of confidence can be applied in voting behavior. At the level of the macroeconomy, in the aggregate, confidence comes and goes. Sometimes it is justified, sometimes it is not.

In terms of confidence and voting behavior Mexico is in a political recession. The lack of trust in the political system is creating a lack-of-confidence multiplier. I mean, people will not vote because they know so many people that have decided not to do so. The difference between an economic and a political recession is that in the former we have developed many policy tools to overcome the problem, such as Keynesian counter-cyclical measures based on public expending. However, in the later case it is not clear how our country will restore the confidence in the political institutions, or more important, how long will it take to rebuild the lost trust. A general notion in social psychology is that when trust is lost, it is highly difficult to restore. The historically high percentage of voting apathy projected for this election is perhaps sending the message that the political system is on the verge of collapse; perhaps our country needs shock therapy in the redesign of our political institutions.