Chairman Alan Greenspan on the Economic Power of Investment in America's Universities

Alan Greenspan, Chairman of the Federal Reserve Board has argued:

• The continued preeminence of American research universities is key to the sustainability of the United States’ economic strength and resiliency.
• “State support, both for the university system and for small businesses, has been an important element in the vitality of…significant centers of commercial innovation and entrepreneurship where creative ideas flow freely between local academic scholars and those in industry.”
• “leadership [of State] policymakers will be a key element in promoting an environment in which [States can] join with others in business, labor, and education to realize the potential that technological change has for bringing substantial and lasting benefits to our economy.”

Alan Greenspan, Chairman of the Federal Reserve Board has argued consistently that the continued preeminence of American research universities is key to the sustainability of the United States’ economic strength and resiliency.

On October 29, 2002, Chairman Greenspan addressed the International Understanding Award Dinner of the Institute of International Education. He praised the contributions of the research institutions, and particularly research universities of the United States to America’s economic prowess: “In a global environment in which prospects for economic growth now depend importantly on a country's capacity to develop and apply new technologies, the research facilities of our universities are world class. The payoffs--in terms of the flow of expertise, new products, and start-up companies, for example--have been impressive.” And, as he noted to the National Governors’ Association, the work that takes place at universities can have great impact on regional economies with stakeholder and State support and engagement: “perhaps the most frequently cited measures of our success have been the emergence of significant centers of commercial innovation and entrepreneurship where creative ideas flow freely between local academic scholars and those in industry. Not all that long ago, it was easy to recite a relatively short list of places where these activities were clustered. But we have witnessed in recent years a great multiplicity of these centers of innovation. State support, both for the university system and for small businesses, has been an important element in the vitality of these centers.”

Greenspan argues that it is the very culture and processes of the university research system that have made such advances and continued success sustainable: “what has made our research universities so extraordinarily productive is their promotion of peer-reviewed scholarship and the value they place on creativity and risk-taking. Although some innovations move quickly from the development stage to applications, we usually cannot accurately predict which particular scientific advance, or synergy of advances, will ultimately prove valuable.” Greenspan gives the example of “our experience with the laser, which had to wait for improvements in fiber optics to yield important applications. Indeed, according to Nobel Laureate Charles Townes, in the late 1960s the attorneys for Bell Labs initially refused to patent the laser because they believed it had no applications in the field of telecommunications. Our universities have shown the patience and the flexibility to accept that uncertainty, confident that the rigorous effort to explore ideas would eventually lead to discovery.”

Our research universities are drivers of innovation and they are the nurturers of many of the most creative and productive minds of our day— the education that American universities provide is exceptional. And, as Greenspan notes, that quality education seeds the robustness of our economy: “What our colleges and universities produce is obviously highly valued in today's economy. The rise in that value over the past several decades has been reflected in a widening spread between compensation paid to college-educated workers relative to those with less schooling. This increased investment in college-trained human capital has resulted in a flow of labor input into the economy that has made an important ongoing contribution to U.S. economic growth.”

The landscape, Greenspan asserts, has clearly changed dramatically in the last century. Workers must now more than ever be proactive lifelong learners, and America’s higher education system must respond to that need as it has to the needs of workers and companies over the past century. Today’s higher education system must look beyond disciplinary silos as it is becoming increasingly clear that, “most great conceptual advances are interdisciplinary and involve synergies of different specialities.”

If we are to continue to move forward economically, according to Chairman Greenspan, the role of the States in supporting higher education, which enables continued innovation, is key: “we are in a period of rapid innovation that is bringing with it enormous opportunities to enhance living standards for a large majority of Americans. Our ability to take advantage of these opportunities is not only influenced by national policies but is also determined importantly at the state level. States with more flexible labor markets, skilled work forces, and a reputation for supporting innovation and entrepreneurship will be prime locations for firms at the cutting edge of technology. Not all new enterprises will succeed, of course. But many will, and those that do will provide the impetus for further economic progress and expanding opportunities in their communities… leadership [of State] policymakers will be a key element in promoting an environment in which [States can] join with others in business, labor, and education to realize the potential that technological change has for bringing substantial and lasting benefits to our economy.”

Higher education institutions are increasingly playing a lynchpin role in our ability to survive in the global marketplace: “in the twenty-first century, our institutions of higher learning will bear the enormous responsibility of ensuring that our society is prepared for the demands of rapid economic change. We must ensure that teaching and research continue to supply the creative intellectual energy that drives our system forward. As the conceptual inputs to the value added in our economic processes continue to grow, the ability to think abstractly will be increasingly important across a broad range of professions. Critical awareness and the abilities to hypothesize, to interpret, and to communicate are essential elements of successful innovation in a conceptual-based economy.” Our higher education system must continue to have the resources, Greenspan argues, to be “a flexible education system--one that integrates work and training and that serves the needs both of experienced workers at different stages in their careers and of students embarking on their initial course of study.” The history of America’s system of higher education shows a thoughtful and agile system that has been, and must continue to be, responsive to the needs of the population it serves. In the early twentieth century “the scale and scope of higher education in America was being shaped by the recognition that research--the creation of knowledge--complemented teaching and training--the diffusion of knowledge” work that continues to this day as we respond with research, teaching, training and broad communication to the our nation’s future success.

If we want to move forward and be economically competitive, Chairman Greenspan argues, we must maintain our preeminence in research and higher education: “if we are to remain preeminent in transforming knowledge into economic value, the U.S. system of higher education must remain the world's leader in generating scientific and technological breakthroughs and in preparing workers to meet the evolving demands for skilled labor. With two-thirds of our high school graduates now enrolling in college and an increasing proportion of adult workers seeking opportunities for retooling, our institutions of higher learning increasingly bear an important responsibility for ensuring that our society is prepared for the demands of rapid economic change.”