Don't just throw more money at education to boost productivity

AUSTRALIA is one of the world's most affluent societies, and this position is not just due to the export of our natural resources - mining represents just 6 per cent of our national economy.

Rather it is ultimately due to how productive our workers are. To quote my fellow Nobel laureate (in economics, not physics) Paul Krugman, productivity isn't everything, but in the long run it is almost everything.

Important factors in the productivity of our workers are the level of their education and training, and the quality of equipment (capital) that they use in their jobs.

That being said, our resource industry is key to our present favourable economic conditions. The Australian mining industry is incredibly productive by world standards not just because we have resources but largely because we are so efficient at digging up those resources. This is because we have the technology and skilled labour to extract the resources efficiently and safely; we have a very high level of productivity in mining.

The mining industry is one of our largest investors in technological development, contributing $4.2 billion on research and development, R&D - that is 20 per cent of all R&D expenditure in the country (including government).

And Australian mining's services, equipment and technology exports amount to more than $2bn a year, work that has a 50-year heritage. So even the success of our mining industry ultimately flows from the training of people working in the sector and the quality of the home-grown technology they are using.

Right now, in the states and federal governments, we see tightening budgets and decisions and contemplations to strip money out of education, science and technology. For example, the Gillard government's razor gang is reportedly looking at putting federal research investment on hold in an effort to return to a budget surplus, and the NSW government has announced a cut to its education budget of $1.7bn.

These cuts are in contrast to the significant additional spending called for in the Gonski review of how education is funded, and to a relatively painless outcome for science and education in this year's federal budget.

Because life is so good in Australia right now for so many people, it is easy to become complacent. Life is good, why should we be investing in education and R&D in these times of need?

The answer boils down to the fact that future prosperity, just like our present prosperity, will be determined by the productivity of our workers, and that in turn is set by the quality of education they receive and the quality of technology they can use in their jobs.

But, the education we provide now to our children has a 13-year gestation period, and 50 years of benefits. The R&D we do now will not be translated into higher productivity for our workers for another decade or more.

So the money spent now will not return tangible benefits for this government, or the next one, or even the next one - a steady hand is required by government, because a failure to invest properly will surely damn us all to a less bright future.

I have always advocated that investing in science, education and technology does not just mean spending more money than at present - rather it can mean spending the money more strategically. For education, the Organisation for Economic Co-operation and Development reports it is strategic to ensure that quality education goes to the entire country, across the entirety of the country - not just to selected schools. That outcomes are better when school administrations have autonomy, and when available resources are concentrated on teacher quality rather than, for example, class size.

So investments in education need to ensure all these issues are addressed, and this can be expensive when politics of the day mean "no school will get less money".

In the same way, science capability is built up through the long term investment in programs and people, and short-term fluctuations are wasteful and counter-productive. Australian expenditure in basic R&D and associated infrastructure has been marred by continually changing programs that provide high levels of investment for periods followed by lulls.

Capacity is built up and then quickly eroded away, leading to an overall diminished R&D capacity per dollar spent compared with a long term stable investment.

I was in China this month, and saw research and education in this remarkable country up close for the first time.

China has a desperate enthusiasm to invest in education, science and technology - reminiscent of my birth country, the US, during the 1950s-60s.

The Chinese see their future prosperity fundamentally linked to their performance in these areas and they want to have a standard of living like our own.

As the Chinese rapidly move forward, we are stalled - our educational outcomes and our productivity have flatlined, and our investment in R&D as a country still remains below the OECD average. My worry is that we will be caught out 20 years hence, and rather than continue to rise along with China and the rest of Asia, we will be left behind finding ourselves wishing we hadn't become complacent in the decades before.

Brian Schmidt was awarded the 2011 Nobel Prize in Physics for his contribution to "the discovery of the accelerating expansion of the universe through observations of distant supernovae". He is an ARC laureate, and distinguished professor at the Australian National University's Mount Stromlo Observatory.