Missing link between university education and economic growth

W. A. Upananda

EDUCATION: Until 1960s, universities in Sri Lanka had earned the reputation of centres of excellence in arts, culture, and sciences. Now these universities are still centers, but certainly not of excellence.

According to development economists, investments on knowledge and human capital stimulate the economic growth. But they did not explain how and why knowledge spillover takes place. This article attempts to draw attention of the academia, policy makers, and general public on how universities can be made centers of economic growth and development citing example from other countries.

In the year 2004 Sri Lankan Government has spent around 2.7 percent of its GDP for education out of which around 0.42 is for university education.

According to the University Grant Commission's Statistics the amount spent for university education, as a percentage of government expenditure, is around 1.6 percent (9.82 percent is for education including tertiary education).

Considering economic growth rates in Sri Lanka during last several decades, the new theory of growth seems to be inappropriate for Sri Lanka. Why that intended growth has not reached is worthwhile to examine since education has been rooted deeply in our culture and the main thrust of successive governments were for education.

Probably entrepreneurship may be the conversion factor which we failed to identify in time and nurture it. According to scholars, mechanism by which knowledge converts into economic goods and service is entrepreneurship.

Carlson (2005) argues that entrepreneur is the person who does this transformation but under receptive economic environment.

Academic entrepreneurship is defined as 'the involvement of university Faculty and researchers in commercial development of their inventions' (Moweary, 2004). Another important entity which emanates from academic entrepreneurship is the university spin-off.

University spin-off is defined as 'a new company founded to exploit a piece of intellectual property created in an academic institution' (Shane, 2005). Both of these entities, academic entrepreneurship and spin-offs, are complementary and pave the way to infuse capital into the system, create jobs for the passing out graduate, disseminate knowledge and skills to general public, in particular to the Industry.

Why academic entrepreneurship is needed and how it could be financed and implemented are the basic questions that this article attempts to address.

Why Academic Entrepreneurship is needed

Graduate unemployment has become a national problem due to mismatch of demand of the private sector and supply by the state sector in terms of quality and skills. Dividends from tertiary education are also not direct and take time for returns and in various forms.

Remittance from Sri Lankans working abroad is an example for late return. However, Lion share of investment in education accumulated in the form of social capital which remains dormant due to failures in identifying entrepreneurial opportunity and conducing environment.

Even though goal of the university research is not to create inventions, there are instances where inventions occur.

In such situation, inventor as well as the university concern faces basic problems in protecting it and making use of it for the betterment of the inventor and for the society in general. Since inventions are made primarily in science and technology disciplines, social sciences and management sciences are also create new or alternative methods of management and organizing in their respective disciplines.

Apart from the skills and knowledge acquired by academic exercises, such as dissertations and thesis, no strategies have been developed to utilize these research efforts. Academic entrepreneurship is needed to use some significant pieces of research for development.

Currently universities are not having an effective mechanism to make use of researches conducted by hundreds of postgraduate and graduate students. According to the research conducted in other countries, particularly in USA and Europe, on academic entrepreneurship and university spin-offs results in:

* Enhancing regional economic development

* Commercialization of technology developed by the university

* Support university research and teaching, and

* Generates income for the University

Economic decline similar to that of Sri Lanka was experienced by the United States in 1980s due to competition of the non-US firms. Among causes identified by a commission (MIT Commission) was: poor university-industry collaboration and technology transfer.

Also it revealed the tedious procedure for getting exclusive rights of university researches and inventions which resulted in huge investments in basic researches. Bayh-Dole Act of 1980 was introduced and unlocked all the inventions and discoveries that had made in laboratories throughout the US with public funds.

Moweary (2004) quotes' this single piece of policy measure helped reverse America's precipitous slide into industrial irrelevance. Today under Bayh-Dole Act more than 200 universities are engaged in technology transfer, aiding more than US$ 21 billion each year to the economy'.

Between 1980 and 1999 American university spin-offs have generated over $33.5 billion (Shane, 2005). Also the same author stated that 72 percent of the high technology companies in Boston area in 1980s are based on the technologies developed at the Massachusetts Institute of Technology (MIT).

Commercialisation of technology is important to develop mechanisms to ensure inventor's involvement in subsequent development particularly when the knowledge is tacit.

Private sector usually do not embark into new venture unless they have prior experience in such technology and university spin-offs are useful in such ventures since inventors knowledge could be used in the process of making the new product or service commercially viable.

Creation of jobs for passing out graduates and the retention of entrepreneurial academics are two other important benefits that academic entrepreneurship would yield.

Successive governments also had limited alternatives to find economically viable employment opportunities for graduates.

However, new invention is not necessarily a condition for university spin-offs. It could be a new service, new geographical market, new process or a new organization (Shumpeter, 1934).

For example student following history and archaeology study programmes could be employed to promote tourism industry in ancient cities by providing them with specific training in relevant foreign languages. This is vital for tourist industry since Sri Lanka is having the second longest written history in the world.

It is well known face that most abundantly available resource in Sri Lanka is human resources. According to UGC statistics, there are 15 universities and six postgraduate institutes comprising over 68 faculties and 375 departments.

In these universities nearly 3,600 teachers are teaching to around 65,000 students in divers disciplines. These students and teachers are the cream of country's human resource and what policy measures government has introduce to get returns to the investment while developing their entrepreneurial capacity?

How Academic Entrepreneurship can be utilized

In universities in developed countries, technology-licensing office is there to seek intellectual property rights considering the nature of resource utilized. If the licensing office decides that invention is worthwhile protecting it, it would protect under the laws of intellectual property rights and then seek to market the invention.

In the United States around 14 percent of the inventions were protected and licensed for commercial production. This low percentage is may be due to two reasons: how university invention commercially valuable and do others see the invention as valuable as the inventor does.

Prior knowledge is essential for discovery of entrepreneurial opportunity according to scholars in entrepreneurship. The entrepreneur who decides to exploit opportunity may have more information than others and it is unlikely that others see an opportunity as the inventor does himself.

Very often this is due to the tacit knowledge (the knowledge that cannot be expressed explicitly). Such situation university spin-offs prove to be the best alternative since inventor himself actively involved in the process.

Considering the locations of universities such as Rajarata, Sabaragamuwa, Uva-Wellassa, and Ruhuna, these institutes have to take leading role in regional development efforts.

According to studies on regional development, to-date universities have not played a significant role in regional development while it is the only institute in the province which has potential to do so. On the other hand provincial governments have not shown tendency for collaborative effort to develop the region. However, in developed countries, this scenario is different.

Financing university spin-offs

Uncertainty and inadequacy of information are the main obstacles for university spin-offs. When the invention is new, commercializability is also uncertain. The essence of entrepreneurship is making good judgmental decision on future goods and services.

Research on spin-off financing suggest that private sector inclines to finance at latter stages of a university spin-off after ascertaining technological and market potential. Investors need information to make investment and university itself is the place where the most information embedded.

In Universities in developed countries provisions are available for transformation of inventions into products and services, commercialising of newly developed technologies and inventions, and serving as a catalysts for private investments. Hence university intervention is important for taking university venture off the ground and it is imperative that such ventures are to be financed by the University at the initial stages.

Other important factor in formation of spin-offs is complementary team building. That is, to get private sector involvement for management and marketing. Research on university spin-offs has shown that ventures formed by both academics and industrialists perform better than those of businessmen alone or academic alone.

Because new technological company needs the knowledge on; managing, product and process development, and marketing. Since majority of universities is having faculties of management, the required knowledge can be shared to a certain extent. But prior experience in the industry cannot be substitute by knowledge of any depth or width.

Therefore, private sector partnership is a must at any stage of university spin-off.

Problems and prospects

There are two basic problems with the university spin-offs; mission of the university and the governance of the faculty. The mission of the university is to create and to disseminate knowledge through scholarly research and teaching. Faculties are governed by the Faculty Boards which make collective decisions on directions of the Faculty.

Therefore without the support of the Faculty, and the legislation for the Faculty to do so, academic entrepreneurship would not come into light.

Another basic problem with the firm formation is the university model. This model developed to run the university autonomously minimising third party involvement. University Act of 1978 has provided no provision for commercial intervention and collaborative research efforts.

However, there are instances where academic entrepreneurship emerged under this limited legislative (Moratuwa and PGIA, Peradeniya). But so far genuine attempts have not been made, except cost cutting, welfare, and subsidizing strategies, as an alternative to make the tertiary education sustainable.

Funds invested under various projects would may achieve intended targets but achieving target does not mean the having the intended effect or impact either to the University or to the country's economy.

Conflict of interest also can occur when such ventures take place. Teachers may deviate from their main objective, teaching and scholarly research, when business venture needs their attention. Commercial gains also another factor which may draw academics away from their intended mission.

Considering all these pros and cons, it is imperative to think differently to make use of public funds for economic development. As explained in this article making legislation to stimulate academic entrepreneurship seems to be a plausible solution to stimulate regional and national economic growth of the country.