Why education should be at the heart of EU2020

At their summit in March, EU heads of state and government must decide what should succeed the Lisbon agenda – the ambitious programme of supply-side reforms that was launched in 2000. The broad thrust of the agenda remains as valid today as it was back then. A decade on, many EU countries still suffer from low employment and low productivity. So residual barriers to intra- European trade need to be dismantled, and more must be done to encourage entrepreneurship and innovation. One area, however, needs to be given greater salience in the new 'EU2020' agenda: improving Europe's educational performance.

Why the urgency? The short answer is that modern economies are placing a growing premium on highly skilled labour. The fall in demand for low-skilled labouracross the developed world is usually ascribed to globalisation, and particularly to the integration of China and India into the world economy. But globalisation is not the full story, because the trend is also discernible in sectors that are not exposed to international trade. Technological change would push up demand for skilled workers relative to unskilled ones even if the EU did not trade with China and India.

Several consequences flow from the above. One is that increasing the population's level of educational attainment may be an even better way of raising the employment rate than relaxing labour laws. (It is striking that the employment rate among European graduates is almos tidentical to that of US graduates, despite transatlantic differences in labour laws.) A second is that countries with high drop out rates from school will struggle to raise their employment rates or contain rising income inequality, regardless of their labour laws or levels of social transfers. A third is that protectionism will not resolve these difficulties.

Over the past decade, EU countries have unquestionably succeeded in raising the educational attainment levels of their populations. Across the EU as a whole, 78 per cent of 25-34 year olds have completed upper secondary education, up from about 70per cent in 2000. Likewise, nearly 30 percent of the same age cohort has graduated from university, up from 24per cent in 2000. But scratch beneath the surface, and a less rosy picture emerges. The aggregate numbers conceal a chasm between the best and the worst performing countries, with large national variations in both the quantity and the quality of education provided.

The EU's stars are mostly in northern Europe. In the Nordic counties, 90 percent of children complete upper secondary education, and some 40 per cent go on to graduate from university. (Note, however, that even the Nordics lag behind South Korea and Japan.) In parts of Southern and Central Europe, by contrast, not even 40 per cent complete upper secondary education, and fewer than 20 per cent go on to graduate from university. The OECD's PISA tests for literacy, numeracy and other skills among15 year olds suggest that the countries that provide the longest education provide the best quality education too.

All EU countries therefore have scopto increase skill levels. But the scale of the task facing certain countries, particularly in Central and Southern Europe, is urgent and daunting. What, then, should the EU do? Since education is a matter of national competence, the EU has few instruments at its disposal, beyond a tiny budget to fund student exchanges under the Erasmus programme. Excellent peer group reviews are already being done inthe OECD, which includes all EU countries. Nevertheless, EU heads of state and government could show that they take the issue seriously by discussing it annually at one of their summits.

Given the precariousness of most EU countries' public finances, a priority over the next decade must be to ensure that education escapes the worst of the forth-coming reductions in public expenditure. Cutting spending on education is usually a false economy because short-run savings prove costly in the long run. Society gets a far better return on its investment if it educates people earlier, rather than later, in their lives. Educating the young is not only cheaper and easier. It also reduces the future burden to society of costly and often ineffective palliatives such as adult training programmes and social transfers to the unemployed.

Most EU countries spend less on education than the US, with the gap being especially pronounced at university level. Spending does not, of course, guarantee successful outcomes. Portugal, for example, spends quite a large share of its GDP on education, with mediocre results. But it is hard to believe that the superiority of US universities over European ones has nothing to do with the fact that spending per student in the US is twice the EU average. EU countries should aspire to narrow this gap over the next decade by either spending more public money, or accepting that private investment is necessary.

What is more, EU countries will generally get a 'bigger bang for their buck' if their schools and universities enjoy some autonomy from the state. There is strong evidence to suggest that countries where educational institutions enjoy such autonomy – particularly with regard to budgets, and hiring and paying staff – produce better outcomes than those where such decisions are subject to extensive and detailed control by the state. This is a key reason why Finnish secondary schools and Britain's leading universities are ranked as Europe's best. Schools and universities usually spend taxpayers' money more wisely than governments.

All EU countries aspire to raise productivity and employment without sacrificing their social cohesion. As EU leaders ponder the content of theEU2020 agenda, they would do well to recognise that education is the closest thing that exists to a magic bullet: better educated societies are more productive, have higher employment rates and are more socially cohesive. Investing in education almost always pays off, for society as much as the individual.