Let's not confuse college with knowledge

The cost-benefit analysis of a college education in the US

I was fascinated by this interview in the New York Times with Laszlo Block, Senior VP of People Operations at Google. They seem to be doing instrumentation and analytics in the HR function, giving new insights into how things work (as opposed to preconceptions or conventional wisdom). In this, he says:

One of the things we’ve seen from all our data crunching is that G.P.A.’s are worthless as a criteria for hiring, and test scores are worthless — no correlation at all except for brand-new college grads, where there’s a slight correlation. Google famously used to ask everyone for a transcript and G.P.A.’s and test scores, but we don’t anymore, unless you’re just a few years out of school. We found that they don’t predict anything.



What’s interesting is the proportion of people without any college education at Google has increased over time as well. So we have teams where you have 14 percent of the team made up of people who’ve never gone to college.

If this is true of Stanford -- happy hunting ground for Google -- it is triply true about every other university in the world. I believe neither students nor recruiters should leave much to universities. I was particularly fascinated with the tidbit about Google staff that have never gone to college, and that this number has gone up over time. Some BPOs and KPOs in India are also recruiting high school graduates; the marginal value of college is not as obvious as it used to be.



Universities in the US have built up an imposing cost structure, where a child spends between $150k and $250k for a college education. It is going to be harder to justify these price points in the future, given the twin problems of skeptical employers (e.g. a Google that does not demand a college degree as a pre-requisite) and the new phenomenon of Internet-based learning. I have also encountered similar things in the UK, where many young people are not confident that the years and expense in college will be worth the trouble.



I suspect there will be less fat in higher education in the days to come. Perhaps we could go closer to the MIT and Caltech of old: lean structures with great scientists and less money spent on cafeterias, gyms, and administrative staff.

India's experience with GDP growth despite the lack of education

India got explosive GDP growth, once socialist policies started getting reversed, from $0.22 trillion in 1993 to $1.73 trillion in 2013. GDP per working person went up at a compound rate of 9.4% per year over these 20 years, from $374 in 1993 to $2637 in 2013. This is nominal GDP expressed in US dollars, without adjustment for US inflation, and without adjustment for PPP. On average inflation in the US is 2% so 9.4% growth in output per worker expressed in nominal dollars is roughly 7.4% in real terms.



Some of this output growth per worker came from capital deepening, the remainder came from productivity growth. The universities were bad and did not contribute much to this growth. We should reflect on how India managed to get such remarkable growth despite the lack of universities. It tells us something about the potency of learning by doing (along with substantial capital accumulation) over these two decades.



We have finished an important generation change in this period. The persons who were age 20 in 1993, who are now 40 years old, have experienced a full 20 years in the workforce while being connected to a competitive market economy, to globalisation, and to the Internet. This environment is one that is conducive to knowledge building. It is this learning by doing that gave the remarkable 9.4% per year compound growth in GDP per worker expressed in nominal US dollars, over the last 20 years.



While we have awful universities, I feel the outlook for the future is good for three reasons:

1. Having a brand name college is not that important. How a person builds herself is far more important than a brand-name that she carries. If individuals and recruiters shift away from looking at the brand-name, and focus more on the person, that will help.


2. The forces of competition, globalisation and the Internet are hitting India on a bigger scale today than they ever were. Twenty years ago, there was no choice of attending online courses.


3. The children of liberalisation are now coming into leadership roles [example]. When we recruit a 40 year old CEO today, we are getting someone who grew up with 20 years of the new world. This often implies better knowledge and instincts when compared with people who suffered from Indian socialism and deprivation in their formative years. The application of this human capital into important decisions will exert a positive impact. More than in other places, we need to propel this generation into leadership roles as soon as possible.