Chancellor's Speeches

USM Chancellor William E. Kirwan
The Challenges Facing Maryland and the USM in the Knowledge Economy
Rotary Club of Frederick
Wednesday, September 21, 2005

Thank you, David. David and I go way back. In fact, he served on the search committee that ultimately selected me for the presidency of the University of Maryland, College Park. If you like the work I've done as President of College Park and Chancellor of the University System of Maryland, please let me know. If you don't, it's all David fault!

Today I am going to talk about where we are as a nation and a state in the new global economy our world has entered. I'll be talking about the good, the bad and the ugly, if you will, of our present and future economic life.

My starting point is a new book by Tom Friedman, entitled "The World Is Flat."

I'm sure some of you have read it.

I'd say it is either a "wake up call" for our nation or it describes "our worst nightmare," for the decades ahead. It all depends on how our nation responds to the issues raised in this book.

The premise of the book is that that technology and the internet are changing the world of work - and where work is done - at an extraordinary rate.

We've probably all had the experience of calling to check on a credit card bill or a malfunction with our computer and found ourselves talking with an Indian in Bangalore.

It turns out, of course, that India has an excellent education system, English is the most commonly spoken language and their wage scale is a fraction of ours.

American firms have figured out that, with the speed of telecommunications and the Internet, they can tap into this workforce at considerable savings.

Indeed, the Internet is essentially free and huge data sets can be transmitted around the globe by it in nano-seconds.

One example in Friedman's book that captures well this changing economic reality is the preparation of tax returns.

In 2003, about 25,000 U.S tax returns were done by accountants in India. U.S. tax firms packaged up individuals' financial data, shipped it via the Internet to India were accountants -- working at a fraction of the U.S. rate -- did the computations -- probably using a Microsoft product -- and shipped the completed returns back to the U.S. I said there were about 25,000 such returns in 2003. In 2004 it was 100,000. In 2005, it was 500,000. And it is estimated that by the end of the decade essentially all returns done by a second party will be worked on by an accountant living in India or some other developing nation.

And on it goes. At one point in the evolution of the global economy, the U.S. lost a vast majority of its production line manufacturing jobs in textiles, the automobile industry, electronics, etc. With the Internet, we are starting to lose skilled labor jobs.

Perhaps some of you are thinking, yes but remember, the Internet was invented in the U.S. Microsoft, Intel and Google all were created right here in America. We are the world leader in innovation and entrepreneurship. The "next big idea" almost always comes from the U.S. Sure others will use our technology and raise their standards of living, but we'll always be at the leading edge of science and technology. We have the greatest universities, the vast majority of the Nobel Prize winners, etc., etc., etc.

I wish I could be so confident!

There are all sorts of warning signals that, if not addressed, could lead to the demise of the U.S as the world's leader in science and technology and, in this era of the knowledge economy, our status as the world's economic super power.

Let me give you some examples to explain my concern.

First, we simply are not producing the number of scientists and engineers at a rate to keep pace with the demands of our economy or with the rest of the world.

In 2003, Asian universities produced 1.2 million graduates in science and engineering. European universities graduated 850,000. The U.S. produced 400,000.

South Korea, a nation of about 80 million people graduated as many engineers as we did last year and China produced four times as many.

The National Science Board estimates that the number of jobs requiring science and engineering in the U.S. is growing almost 5% a year but our degree production in these fields is actually declining.

To take just one example, let's look at the impact of these trends on NASA. Forty percent of NASA employees are 50 or older and approaching retirement. Less than 4% are under thirty. Similar demographics would apply to other enterprises based on science and technology. We simply are not replacing are aging scientists and engineers with anything like the numbers of highly trained young people that an increasingly technologically dependent economy demands.

The sad truth is that for the first time in our nation's history we are developing an "education deficit" with other industrialized nations. A few decades ago we were the leader in high school completion rates and in the college participation rates of our high school graduates. Today we rank fifth among industrialized nations in high school completion rates and seventh in college participation rates. And we're the only industrialized nation with a declining college participation rate. Our middle and high school students rank near the bottom among all industrialized nations in math and science achievement.

I suspect you find these data as depressing as I do. Clearly in an economy that puts a premium on a skilled workforce, creativity and innovation these trends - if unchecked - do not bode well for our global competitiveness in the decades ahead.

But our educational deficit does not stop at the K-12 level. Equally alarming are the early signs that our great universities are starting to lose their dominance in scientific research. First, the investment in research, as a fraction of GDP, is on the decline. It has dropped 40% over the past several decades. In part because of this decline, research productivity is down. One indication of this fact is that, for example, American publications in the world's leading physics journal have gone from over 60% of all papers to less than 30% today. And, for the first time ever, the U.S fraction of patents issued has dropped below 50%.

In my opinion, our nation faces a crisis in education -- at all levels -- just as threatening to our long term well being as the crisis brought on by terrorism. If we are to turn this situation around, it will require an investment and priority comparable to the war on terrorism.

Let me now turn to our state and assess how we stack up in this globally competitive knowledge based economy.

Here there is both good news and warning signs.

First, we have a very highly educated workforce. We rank in the top two or three states in the proportion of our workforce with college degrees and with advanced degrees.

Secondly, we lead the nation in R&D expenditures on a per capita basis and rank second only to California on an absolute basis. The presence of so many federal labs in our state and the great research programs at Johns Hopkins University and the several campuses of the University of Maryland, give our state a competitive edge in the knowledge economy over most, if not all other states.

For example, the Human Genome was mapped right here in Maryland. This has fueled an already robust bioscience industry in our state, which is strongly supported by top ranked programs at our universities. Indeed, the University of Maryland and Montgomery College just joined forces and created a new joint degree program that will address workforce needs in the bioscience industry. In perhaps the most exciting new field on the horizon - nanotechnology - the University of Maryland at College Park ranks number one in the nation.

The University of Maryland, Baltimore, UMBC, and the University of Maryland, College Park are developing very successful research parks to accelerate the transfer of research productivity into Maryland's economy. JHU is building a major new research park in the neighborhood around its top ranked medical center.

So, Maryland is very well positioned for success in the knowledge economy. I like to say, we have a "winning hand" but, I remind you, so did General Motors at one point in its history. As a state, we have to be sure we make good decisions to hold onto our "winning hand."

There are several challenges on the horizon. First, we have an aging workforce that will need replacement by a highly skilled new generation. In a sense our workforce has many of the characteristics of NASA that I mentioned a few moments ago... hundreds of thousands of workers in critical professions nearing retirement age. That's the bad news. The good news is that we have a so-called baby boom echo -- the children of the baby boomers -- passing through our high schools. We anticipate a surge of about 20% in high school graduates over the next half dozen years. And, the students are apparently college bound because we lead the nation with 70+% of our high school juniors taking the SAT exam. Last year we had a 12% jump in high school students taking Advanced Placement courses and this jump was comparable across all racial and ethnic groups.

So, the human resources are coming along that can continue to fuel or knowledge-based economy. We have a great system of community colleges and four year schools - public and private - with articulation agreements that support a seamless transfer from the 2-year to the 4-year sectors.

The question is will our colleges and universities have the capacity to absorb this onslaught of students?

Unfortunately, Maryland is not a state that provides generous support for higher education. We rank 41st in state investment in higher education per $100K of personal income. As a result, we are a very high tuition state, ranking in the top 5 in tuition and fees that our students pay.

This is a huge issue since the baby-boom echo I spoke of a moment ago is disproportionately low income and first generation to go to college. Cost will be a big factor for them. But it's not just cost. We need to expand the capacity of our universities so that every qualified high school graduate has access to a high quality higher education. This is not just in their interests, if we hope to keep Maryland as a leader in the knowledge economy, it is in all of our interests.

Governor Ehrlich and the General Assembly took an important step this past year to reverse the devastating budget cuts of the previous several years. The Governor recommended a 6% increase in our budget for this year and that recommendation was overwhelming endorsed by the General Assembly. As a result, the high tuition increases of the past several years were greatly moderated. Moreover, the Governor has made a very impressive commitment to increasing the availability of need-based aid.

But this is just one year and the baby boom echo has not yet arrived on our door step. We will need several years of these kinds of increases and of moderated tuition if we are to insure that every qualified high school graduate has access to a high quality higher education.

One final point. Higher education has an obligation to do its part to hold down costs and become more efficient in the use of resources. And that's precisely what we are doing. Among other initiatives, we've established two higher education centers, one in Shady Grove and the other in Hagerstown to provide cost effective degrees that meet the workforce needs of those regions. We've limited the number of credits degree programs on our campuses can require to insure students graduate in a timelier manner and we have mandated that students must earn at least 12 credits outside the classroom to provide more seats in our classrooms.

We are procuring services like energy and software as a system, not campus by campus, and this is creating significant savings for us. All told, our efficiency efforts last year took $20 million out of our costs, which directly contributed to our tuition moderation efforts.

In summary, our nation is on the verge of being challenged as never before to maintain its position as the world's dominant economic super power. Overcoming this challenge will not be easy. As an initial step, we must collectively - as a nation - recognize and agree that we have a serious challenge. If we do agree, I am convinced that we will also agree that a major part of the solution is investment in education as all levels, including most definitely higher education.

My second point is that Maryland is better off - much better off - than most other states and is, in fact, well positioned to be a national leader in the knowledge economy. Whether we realize our leadership potential depends to a large extent on whether we have the political will to make the necessary investments in the quality and capacity of our higher education institutions. If you agree with my analysis, I hope you will let our leaders in Annapolis know.

Thank you very much for your time and attention. I'll be pleased to respond to questions you may have with whatever time we have left.