Introducing the new globalised regime
The continued fallout from the 2007-08 global financial crisis has shown clearly how economic power is shifting from west to east. While most advanced economies experienced a recession of some kind, many developing countries continued to grow – buoyed in many cases by significant stimulus packages. In its latest report, the IMF projects that advanced economies will grow by 2.2% in 2011 and 2.6% in 2012 compared with 6.6% for emerging and developing economies this year and 6.4% next.
China, in particular, stands out as an economic behemoth outperforming all others. It has grown at around 10% year for 32 years and now boasts the world's second largest economy. Measured in terms of purchasing power parities, China may overtake the United States in economic size within five years. The country is now the world's largest exporter of goods and the second largest importer. It contributed a staggering 18% of global growth in 2009 – more even than the US.
The good position of the UK
These extraordinary figures are viewed by many in the west as a threat to the current levels of prosperity. But globalisation is not a zero-sum game and the rise of China (and the rest) presents a huge opportunity for the UK. McKinsey predicts that annual spending by the global middle class will rise from $6.9tn today to $20tn over the next decade. Much of this will come in the form of increased demand for consumer goods such as cars, household appliances and electronics, where Britain is poorly placed. But some of this increased demand will be met by services too.
The UK currently runs a trade deficit, with imports outpacing exports by around £50bn per year – just over 3% of GDP. But this masks a markedly different performance between goods and services. While Britain runs a huge deficit in relation to goods, it runs a modest surplus on services. Indeed, the value of services exports grew twice as fast goods exports from 1998 to 2008 and the UK is the second biggest exporter of services after the US.
A globalised service asset: UK HE in demand
An important part of this growth has been due to higher education. Higher education institutions are worth £59bn to the UK economy annually and are a major export earner. Last year they brought in £5.3bn or around 3% of all services exports. Through their international activities, these universities are one of the UK's fastest growing sources of export earnings with the number of students coming to the UK growing fast. In 2008-09, there were just under 370,000 foreign students enrolled in undergraduate or graduate level degrees at UK universities – up 16% over five years.
Reflecting wider shifts in the global economy, the top two countries of origin for these students are China and India. In 2008-09, more than 47,000 came from China while 34,000 came from India. In 2007, the UK was the second top destination for international students after the US. And while the US had slipped back from providing a quarter of all international places in 2000 to 19.7% in 2007, the UK had held firm with 11.6%. Meanwhile, Universities UK is quite rightly encouraging Britain's universities to export our HE provision to these countries and others by setting up campuses overseas. The reason for this strong performance is clear. The UK is home to three of the world's top 10 higher education institutions and 29 of the top 200 as judged by the Times Higher Education Supplement. Only the US, which dominates the list, does better.
Attracting international students: risks and challenges
Nonetheless Britain's status as a leading destination for international students is under threat and faces four key risks. First, Britain's HE performance against international standards is slipping. As recently as 2008, the UK had four universities in the top 10 while in 2007, Cambridge and Oxford were tied for second place with Yale. Those ancient institutions have slipped back to joint 6th while University College London has fallen from 7th to 22nd. Meanwhile, despite large increases in higher education enrolments, average increases elsewhere mean that the UK has slipped to mid-table in the OECD's rankings and is now below the average.
Second, the government's tighter visa regime is likely to reduce the number of students coming to the UK to study. The UK government proposes reducing net migration from its current level of around 240,000 to "tens of thousands". The burden of this reduction is likely to take place through restrictions on non-EU work, family and student migration. The Migration Advisory Committee has suggested that to achieve their target, net migration via student routes will have to fall by almost 88,000 a year by 2015.
Analysis from the Institute for Public Policy Research shows that even halving the number of student visas from outside the European Economic Area will only reduce net migration by about 40,000. This is because seven in 10 students return to their country of origin after completing their degrees (and so don't show up in the net migration figures). Much of this anticipated squeeze will undoubtedly fall on countries where growth is expanding most rapidly. The only hope is that the government abandons its unachievable target when it realises the damage it is placing on our HE sector.
Third, Britain's total spending on higher education lags many other countries in the rich world. While spending rose from 1% of GDP in 2000 to 1.3% in 2007, it is still below the OECD average of 1.5%. Indeed, the US, which unsurprisingly tops the list, spent 3.1% of GDP. And while overall expenditure has risen, public spending has fallen. According to the OECD, the UK government spent 0.7% of GDP on higher education in 2000 but just 0.5% in 2007. This represented a fall in the share of HE funding contributed by the state from 68% in 2000 to 36% in 2007. This trend is set to continue with all of the additional tuition fee income following the Browne review being used to replace cuts to the government's overall higher education budget. The 2010 spending review, for example, outlined cuts to teaching budgets of 40% with public support for arts and humanities cut to virtually zero. It will be unclear until the new fees regime has had time to bed down whether the increased fees are enough to cover the government cuts.
Fourth, and related, there is a danger that the lived experience of international students in the UK goes backwards. Even before the government's recent reforms, the student visa regime placed huge strain on the experience of students looking to earn a degree in the UK. Those coming from outside the EU are expected to prove independent means by showing that they have over £7,000 in a bank account and to pay an administrative fee of at least £255 for the privilege of gaining a visa. Making this system more onerous is likely to harm further the impression that international students have of the UK as a place to study.
International students may also find that their facilities are squeezed as universities respond to increasingly assertive domestic students who have to pay fees of £9,000 per year. In many universities, international students are already treated like second-class citizens in relation to student accommodation and facilities. There is a grave risk that this will become the norm. If allowed to flourish, higher education can continue to become an important part of the UK's economic response to globalisation. The UK's universities are second only to the US and attract thousands of students every year from China, India and many other countries around the world. These trends will continue so long as the UK remains a welcoming place for students from around the world. The great concern is that the government's new student visa regime and its funding reforms, in particular, place this opportunity under severe threat.
Will Straw is associate director of The Institute for Public Policy Research. This is an excerpt from the Higher Education Careers Services Unit's autumn edition of Graduate Market Trends. The full article can be viewed at hecsu.ac.uk.