Over the past 15 years, global investors have experienced a series of bubbles: the Internet bubble in 2001, the real estate and credit bubbles in 2008, and then gold this year. The expansions and adjustments of these bursting bubbles seem to have already become commonplace.
Though many governments with troubled economies have tried to face the problems in a comprehensive way, many are still struggling. The global wealth disparity continues to deepen, as the super-rich compete for luxury real estate in cities like New York, Paris, London and Hong Kong, which may indeed be distorting the market again.
But there is another, relatively modest but far-reaching global investment bubble: education.
Different from financial and real estate assets, education belongs to the category of “soft” investments because it brings no immediate assets to the investor. The merchandise is instead knowledge, skills and, finally, a diploma. All these can be regarded as money-making tools. Nevertheless, the education bubble now taking shape shares many similarities with other busted asset markets in history.
First to be clear on how an investment bubble is formed: It is when a rapid, unsustainable value appreciation creates a herd mentality and fear from investors that they will miss the boat by not acquiring within a certain category of assets. Numerous are those who will even borrow money to “get on board,” expecting to use this leverage to make profits. At the peak, people can’t imagine that the rising values will come to an end. “This time it’s going to be different…” It is the proverbial unsinkable Titanic.
And so, the current fever of investing in education appears to be heating up in such a manner. In particular, major cities worldwide can see this taking place. In London and New York, parents send their children to learn Chinese from a young age. In Beijing and Shanghai, parents scramble to send their kids to summer schools in America and England.
While Western parents admire the Asian image of "tiger mom," Asian parents look to send their children abroad to obtain a more comprehensive education in a less stressful environment. Whatever their nationality, all parents are willing to save or even borrow money in order to propel their offspring into elite schools and, hopefully, guarantee that they will be rewarded with a high income in the future.
The fact that many parents are trying to learn from other countries reflects the serious reservations many people have about the education system in their own countries, and also their concerns about the requirements of a global economy and shifting employment market. Middle-level jobs are being replaced by technology, which forces more people to pursue high-end jobs simply to avoid the low-end jobs on the other extreme. At the macro level, many governments echo such doubts, aiming to cash in an “educational return” where better-trained labor will attract investment and create job opportunities.
For instance, Britain is readapting its national education curriculum to ensure its students’ international competitiveness. British Education Secretary Michael Gove is paying close attention to global trends, making repeated references to "the world's most successful education systems", such as those in Hong Kong, Massachusetts, Singapore and Finland.
Meanwhile, the education focus in Hong Kong is extending from classrooms to extracurricular activities, attaching new importance to giving children multiple skills (although this does not prevent certain crazy parents from sending their toddlers to two separate nursery schools every day). In Germany it is not obligatory for children to go to school until they are seven years old. Lots of people believe that this is beneficial to their offspring’s health and Germany’s economic strength. However, even Germany is reconsidering the prospects for fear it could undercut the next generation’s competitiveness. It seems that everybody feels the educational grass is always greener somewhere else.
The higher the standard the more stable the investment
References to successful education systems are increasingly based on an international test such as the Program for International Student Assessment (PISA), run by the OECD (Organization for Economic Cooperation and Development). This evaluation compares 15-year-old pupils worldwide for their reading, mathematic and scientific abilities. In 2009, students from Shanghai, Hong Kong, South Korea, Singapore and Finland led the pack. The latest result will be released later this year.
Interestingly, in Britain, though students’ test scores haven’t changed much, their ranking on the PISA list is sliding because other countries are advancing. Indeed, around the world — and in particular in Asian countries such as China — an increase in education investment has raised the global standard.
Such intensity of investment and improvement in standards coincides with the global economy entering an extended period of low growth. This means demand exceeds supply. More people are competing for fewer high-paying jobs — and governments and parents alike are fighting for more education investment, particularly in early years.
Just like a property bubble, when demand exceeds supply, this means an even greater need for education. But this is particularly intense at the “high-end.” In the United States and Britain, leading universities and elite boarding schools are more sought after than ever. Like luxury properties in New York, London and Paris, a diploma from a prestigious school is believed to be a sound and stable investment. Generally, these diplomas do help open doors to "blue-chip" companies — although, just like Google has found, diplomas and school scores have little to do with long-term performance.
When it bursts
How will the education bubble burst? With other assets, the price tends to rapidly collapse. However, as education isn’t a typical financial asset, the adjustment will probably be different. The tuition fees at Tsinghua University and Harvard are not going to shoot up or down like real estate prices in China or America.
Nevertheless, a bubble can appear in the “target cost” — sending children to complementary courses, summer schools or overseas study tours, hiring private tutors and college application advisors. Parents are like property investors. They are afraid that their children will be left behind, so they spare no expense.
When waking up from the dream, parents will find out that their huge investment won’t be rewarded, whether because their children haven’t made it to the schools they aspired to or because they can’t find an ideal job. This all means the “return” is worse than expected and that the “value” of elite education or prized diploma has been over-estimated.
Experience tells us that predicting when a bubble bursts is a tricky exercise. Irrational investments can carry on for years. Investment in education in many countries is still hot and spreading because of a lack of other investment opportunities that will improve employment prospects. However, what is sure is that when the education bubble bursts, the monetary and psychological damage will be immense.
With loans and solar panels from China, the massive solar park has been opened a year and is already powering the surrounding areas. Now the Chinese supplier is pushing for an expansion.
CAUCHARI — Driving across the border with Chile into the northwest Argentine department of Susques, you may spot what looks like a black mass in the distance. Arriving at a 4,000-meter altitude in the municipality of Cauchari, what comes into view instead is an assembly of 960,000 solar panels. It is the world's highest photovoltaic (PV) park, which is also the second biggest solar energy facility in Latin America, after Mexico's Aguascalientes plant.
Spread over 800 hectares in an arid landscape, the Cauchari park has been operating for a year, and has so far turned sunshine into 315 megawatts of electricity, enough to power the local provincial capital of Jujuy through the national grid.
It has also generated some $50 million for the province, which Governor Gerardo Morales has allocated to building 239 schools.
Abundant sunshine, low temperatures
The physicist Martín Albornoz says Cauchari, which means "link to the sun," is exposed to the best solar radiation anywhere. The area has 260 days of sunshine, with no smog and relatively low temperatures, which helps keep the panels in optimal conditions.
Its construction began with a loan of more than $331 million from China's Eximbank, which allowed the purchase of panels made in Shanghai. They arrived in Buenos Aires in 2,500 containers and were later trucked a considerable distance to the site in Cauchari . This was a titanic project that required 1,200 builders and 10-ton cranes, but will save some 780,000 tons of CO2 emissions a year.
It is now run by 60 technicians. Its panels, with a 25-year guarantee, follow the sun's path and are cleaned twice a year. The plant is expected to have a service life of 40 years. Its choice of location was based on power lines traced in the 1990s to export power to Chile, now fed by the park.
Chinese engineers working in an office at the Cauchari park
Chinese want to expand
The plant belongs to the public-sector firm Jemse (Jujuy Energía y Minería), created in 2011 by the province's then governor Eduardo Fellner. Jemse's president, Felipe Albornoz, says that once Chinese credits are repaid in 20 years, Cauchari will earn the province $600 million.
The Argentine Energy ministry must now decide on the park's proposed expansion. The Chinese would pay in $200 million, which will help install 400,000 additional panels and generate enough power for the entire province of Jujuy.
The park's CEO, Guillermo Hoerth, observes that state policies are key to turning Jujuy into a green province. "We must change the production model. The world is rapidly cutting fossil fuel emissions. This is a great opportunity," Hoerth says.
The province's energy chief, Mario Pizarro, says in turn that Susques and three other provincial districts are already self-sufficient with clean energy, and three other districts would soon follow.
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