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The Democratization of Knowledge

(May 14, 2009)

Dear Subscribers and Readers,

The Enlightenment movement – which ushered in an age of reason and finally sweeping aside the thoughts and principles of the Middle Ages – could trace its roots back to the invention of paper and the subsequent invention of the printing press by Johannes Gutenberg in the 15th century.  During this period, the literacy rate in France allegedly doubled (literacy rates in other parts of the world were not recorded at that time), while the ease of dissipation of knowledge brought about by the printing press helped usher in the Scientific Revolution.  As the Industrial Revolution accelerated in the early 19th century, printing technology improved exponentially.  The enactment of the Public Libraries Act of 1850 in the UK empowered all cities with populations exceeding 10,000 to levy taxes for the support of public libraries.  By 1877, over 75 cities in the UK had established libraries, and by 1900, this had reached 300.  Similar laws would usher in the rise of the modern public library system in the US.  With the proliferation of public libraries during the early 20th century, the goal of “democratizing knowledge” has finally become a reachable goal.

As the costs of printing continue to decline and as household discretionary increased, encyclopedias such as World Book became very popular in US households during the 1950s and 1960s.  Of course, the prices of encyclopedias were still off limits to the vast majority of households, but parents that were serious about providing readily available knowledge to their kids would buy these through installment plans.  The rise of the CD-Rom encyclopedia – most notably Microsoft's Encarta in 1993 – would finally bring an affordable encyclopedia to the masses.  While initial focus groups of potential customers noted that they were prepared to pay $1,000 to $2,000 for such a product, the rapid entry into this market by other competitors quickly brought Encarta's price to $395 by the time it was ready.  A year later, Microsoft decided to drop the price to a mere $99 in order to increase its market share relative to Compton's – which were retailing its product for $129.  The age of affordable and readily available knowledge is now upon us.

Almost immediately, the rise of the internet would turn our way of accessing knowledge on its head.  While the quality of information (along with the ease or finding such information) on the World Wide Web was questionable during those early days, there was no denying that the internet would ultimately change the way on how information and knowledge is delivered.  Microsoft would quickly put Encarta on the web.  In 2005, it introduced a feature where users could suggest changes to articles – but then, it was too late – in that same year, the number of articles on Wikipedia had already reached over 100,000, surpassing Encarta's number by a factor of two.  With Google's aid, and combined with the rise of YouTube and other sites with free access to educational materials such as MIT Open Courseware and the SSRN, it was obvious that the cost of accessing information and knowledge was rapidly declining to zero.  Just as Encarta had crushed Encyclopedia Britannica in the mid 1990s, Encarta was itself crushed by the modern internet.  As disclosed by Microsoft recently, the Encarta product would be discontinued later this year.

The rise of the internet as a modern knowledge delivery vehicle and knowledge hub is unique was unique in several ways.  Firstly, the wide selection and availability of knowledge on the internet is truly unprecedented.  Not only was access bounded by economics as recently as 15 years ago, it was also bounded by censure rules.  Secondly, the internet created a truly interactive experience where those who were eager to learn could readily learn from other like-minded people.  The proliferation of social networks such as Facebook, blogs, and the old-fashioned message board certainly helped.  Today, schools such as MIT, Yale, and Princeton are making available part of their university lecture archives available – in order to help guide ordinary folks on the learning process.  While the US public elementary and high school educational system is truly broken, its university system remains top-notched and the envy of the world.  Going forward, I expect the “democratization of knowledge” to accelerate within the US and global population – and that in the recent future, there will be better tools available for accessing and organizing knowledge on the internet.  For example, Google, no doubt still the “king of search,” has proved to be an improvement over the first generation of search engines.  However, it is still a very poor search engine when it comes to finding relevant or high-quality information for the true knowledge worker or learner.  A new “search” site, Wolfram Alpha (to be launched next week) should help solve one aspect of this problem – and by providing easy access to various financial tools, should go a long way in making the financial markets more efficient.

Of course, every one of us would need a teacher or mentor at some stage of our educational career.  The MIT Open Courseware is a good start, but it is not complete.  It also does not enforce the discipline to learn as much as a regular commitment to attend classes, hand in assignments, and take exams.  To that end, fulfilling one's formal educational requirements is still the paramount goal.  Without that as a “base” for your future educational attainment, the goal of democratizing knowledge (and consequently, social and economic progress) would still be an elusive goal.  To that end, the trend for the United States is still favorable.  For example, 84% of adults aged 25 and over had attained at least a high school diploma, while 27% reported a bachelor's degree or higher.  According to the U.S. Census Bureau, this reflects more than a three-fold increase in high school attainment and more than a five-fold increase in college attainment since data was first collected in 1940.  Moreover, 10.1% of today's adults have attained some kind of advanced degree.  The following three charts show the progression of higher educational attainment in the US since 1960, based on the number of students rolled, degrees conferred, and annual expenditures by universities:

Figure 11. Enrollment, degrees conferred, and expenditures in degree-granting institutions: 1960–61 through 2006–07

While the number of overall degrees conferred remained steady during the late 1970s to mid 1980s, its growth again accelerated in the early 1990s and has not looked back since.  Moreover, spending on higher education has continued to increase at a rate higher than inflation, as colleges provided more need-based funding for students, better research facilities and amenities.  Last year's financial crisis has decimated many college endowments – but the cost of a decent education (by today's standards) is still increasing.  To stay globally competitive, the both US public policy makers and private individuals need to make sure college budgets are maintained.

Given the importance of the “knowledge worker” in the 21st century (note that manufacturing and construction workers are disproportionally suffering from the current economic recession), the best way for the US to compete is through a better and higher-educated labor force.  While it is difficult to measure the value of our human capital, one measure we could potentially use is median earnings for our workers by educational attainment.  The following table shows this (and by gender, race, and type of workers) as of 2007:

Median Earnings for Workers Aged 25 and Over by Educational Attainment, Work Status, Sex and Race and Hispanic Origin: 2007

There is no doubt that higher educational attainment is generally associated with higher earnings.  Median earnings range from $19,000 for those with less than a high school education to over $61,000 for those with an advanced degree.  Meanwhile, high school graduates earned about $27,000, or 40% more than those with no high school diploma, while those with a bachelor's degree earned about $47,000.  Median earnings for a worker with a bachelor's degree were in turn 74% higher than median earnings for a worker with just a high school diploma, and median earnings for an advanced degree were 31% higher than earnings for a bachelor's degree (this makes sense, as some folks with advanced degrees may just end up spending an extra year or two in college, versus spending four years to obtain a bachelor's degree).

There are two implications for this study.  First of all, the trend of ever-higher formal educational attainment, along with the increasing availability of information and knowledge on the internet, should no doubt continue to drive the information revolution and economic innovation as we head further into the 21st century.  The countries that will win this innovation and productivity race will be those with the greatest emphasis on higher education and private R&D – and today, there is still no credible challenger to the US.  The two major risks to this scenario are the recent budget cuts and the de-emphasization of science during the last administration (and which are still going on in many states, such as Louisiana and Texas.  Secondly – and from a personal perspective – it is not only important to continue to increase your 21st century knowledge base and skill sets, but your formal educational attainment as well.  These include the various professional degrees, the master's and doctoral degrees, as well as the various professional designations, such as the CFA and the CPA.  A “plan vanilla” Bachelor's degree would no longer suffice, especially if one is applying for highly technical roles or aspiring for a management position (the few that could do this without an advanced degree or a professional designation is relatively rare).

Signing off,

Henry To, CFA

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