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November 24, 2010 / Lukasz Cerazy

How a Government is Undermining Its Own Future Growth

Angry students protesting against big rises to tuition fees have flooded White Hall, the main artery of London. Today’s demonstration is the second large protest following an earlier manifestation of dissent, where the headquarters of the conservative party was under siege and got vandalised. The coalition government have transferred much of the cost of undertaking studies at university level onto students and have set fees at £6,000 with an upper tier of £9,000. This is almost a triple increase, which inevitable will means that fewer individuals will opt for a university degree. In another senseless move, the coalition government has introduced a cap on non-EU immigrants that will mainly hit the trained and highly skilled workers by restricting their entry into the UK. This cap is being introduced because of election pledges and a growing sentiment among politicians, mainly conservative, that something must be done about the unemployment amongst native workers. Politically it may take some courage to say that these policies are not suited to stimulate a fragile recovery, but from an economic perspective they are clearly very ill-advised.

Student Portests

The magnitudes of various factors in economic growth theory are difficult to establish because it is very difficult to construct a counter factual. However, many agree that one of the most important factors for economic growth is education or put in another way: human capital. This factor is proving to play an increasingly important role as the demand for unskilled workers is dropping fast in the developed economies such as the UK. The production of cheap manufactured goods has been outsourced to transition economies such as China, which has experienced an astonishing export lead growth. The strong forces of globalisation have meant that education and life-long-learning has become more important than ever.

Image: jscreationzs /

In this context it seems absurd that the government introduces a strict cap on migrant workers, as the previous Labour government has long overcome the problems of unskilled workers coming in to the UK. This move is being opposed by businesses and Vince Cable, Business secretary, has also lauded his fear of undermining future growth. Likewise, the move towards American conditions in education has damaging effects on future growth too because individuals will struggle to get the qualifications needed in a highly competitive global environment, especially with the rise of many new economies that have huge populations with skilled labour. So the proportion of unskilled native workers is likely to increase with no foreign workers able to step into these roles. There does not seem to be any consistency with the policies at Westminster, which seriously threaten the fragile economic situation and future growth.

Image: vegadsl /

The government should be a provider of education for the reasons above, but also because schooling is the best way to create equal opportunities. This does not only mean providing free universities but also short courses that will give workers better qualifications on all levels. This strategy has successfully been implemented in the Scandinavian countries where the labour participation rate is one of the highest in the world and unemployment is kept down with active labour market policies. The cap on immigration should equally be revised because in its current form it is likely to cut off a supply of skilled labour.


One Comment

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  1. Lukasz Cerazy / Dec 10 2010 10:48

    The rise in tuition fees went through parliament on the 9th December 2010 with a majority of 21 votes.

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