Education funding in times of constraint: Why education should be a priority for Governments

It is common in times of restraint for governments to look for areas to reduce expenditure and balance budgets. Policymaking in most Western countries over the past two decades has been strongly influenced by expenditure reduction strategies as a means of rendering the public sector more efficient as well as reducing its size. In addition, “small” government has become a mantra in contexts where free market economics has been adopted as the guiding economic ideology. Such an approach to policymaking views expenditure as a cost, a balanced budget as evidence of prudent financial management, and the reduced size of government as a public good. It has not been uncommon in many countries for educational expenditure to be reduced in recent times or for private sources of funding to replace previously public funded education. This paper will argue that recent developments in theories of economic growth suggest that such a strategy is likely to be counterproductive. What is more, the identification of the role education can play in economic policy is not inconsistent with broader social policy objectives. To achieve both sets of objectives, education needs to be seen as an investment rather than a cost. It not only adds value to human capital, as suggested in traditional human capital theory, but it also contributes directly to economic growth by producing new knowledge and innovation that fuels technological change. Without such change, “new economies” will neither develop nor grow. The conditions under which education can contribute to economic growth in the “new economy” will also be explored in this paper since education needs to be accompanied by appropriate external conditions. There is no a consensus concerning these conditions among economists, but from an educational perspective, teachers, the school curriculum and the structure of the education system itself are important areas to consider. Each of these will be reviewed in light of the potential role they can play in both social and economic policy for Hong Kong.