Education expenditure in the EU not hurt much by crisis

José Manuel Barroso, President of the European Commission (second from left), Viviane Reding, Vice-President of the EC in charge of Justice, Fundamental Rights and Citizenship (first from left), Androulla Vassiliou, Member of the EC in charge of Education, Culture, Multilingualism and Youth (holding the microphone), participated in the launch of the "New Narrative for Europe" project. The project aimed to encourage greater involvement of European intellectuals in the creation of a genuine European public space. (EC Audiovisual services).

José Manuel Barroso, President of the European Commission (second from left), Viviane Reding, Vice-President of the EC in charge of Justice, Fundamental Rights and Citizenship (first from left), Androulla Vassiliou, Member of the EC in charge of Education, Culture, Multilingualism and Youth (holding the microphone), participated in the launch of the “New Narrative for Europe” project. The project aimed to encourage greater involvement of European intellectuals in the creation of a genuine European public space. (EC Audiovisual services).

Early research even from the 1970s has proved that investments in education give the highest returns compared to placements in physical capital. This is true for public and private education expenditure alike. The problem is that those returns are for one thing cashed in during a very long period of time and politically their positive effects cannot be transformed into votes during the next election. Another drawback of this kind of placements is that on a private level a large part of those returns cannot be recuperated by the interested individuals but are diluted all over the entire economy.

Those general remarks are more valid for investments in the primary and the secondary level, while coming to the post-secondary/university level, investments tend to be more individualised and the same is true for their returns. It is also true that individual and social returns on education diminish with investment volumes and in certain levels become negative as for example in the case of an investment in a second Ph.D. degree.

EU values education

In the European Union the largest part of investments in primary and secondary education is realized by governments. Until the late 1980s it was the same for the post-secondary/university level but the growing demand and the diminishing social returns on those investments have led to a growing privatisation of expenditure and returns. By the same token post-graduate education has progressively lost its general character and is increasingly becoming specialized  producing individualised returns to persons and companies. As a result there is no scope for taxpayers and society as a whole to continue financing in full this kind if investments.

Coming to today’s developments the question was if the ongoing economic crisis has affected those activities. Eurostat, the EU statistical service, undertook the task to report on that. Understandably the general reduction of government spending is expected to have also affected expenditure on education. In any case the study has turned out concrete results.

According to Eurostat, “Government expenditure on education decreases from 2009 to 2011. As a ratio to GDP, government expenditure on education followed a declining trend from 2002 until 2007 and then increased sharply from 2008 to 2009, mainly due to decreases in GDP at current prices. Active measures to consolidate government expenditure, such as pay cuts in a number of Member States and decreasing public investment contributed to a decrease of 0.2 percentage points of government education expenditure in terms of GDP from 2009 to 2011. An absolute decrease in general government gross capital formation (GCF) is noted for education from 2010 to 2011, in line with a total general decrease in government GCF. In absolute terms, education expenditure continued to grow, although the year-on-year growth was lower from 2010 to 2011 than in previous years. In ten Member States, a decrease in absolute expenditure on education (in local currency terms) is observed between 2010 and 2011: Denmark, Ireland, Greece, Spain, Italy, Cyprus, Hungary, Portugal, Slovakia and the United Kingdom”.

Luckily enough Eurostat’s findings are not discouraging as far as the crisis repercussions on education are concerned. Unfortunately before the crisis, during the period 2002-2007, broke out a tendency to reduce government expenditure on education as a percentage of the GDP was already present. Overall, though, the findings of Eurostat are not at all negative. “In absolute terms, education expenditure continued to grow”, albeit at a slower pace even after the crisis broke out. If this tendency continues, education expenditure will probably start growing again with the first signs of economic recovery.

Unquestionably it was education that kept Europe in the forefront of sociopolitical and economic developments during the past decades, and hopefully this will continue in the future. Physical capital can be destroyed, while human capital will be safeguarded in the heads of people.

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