Although cuts to university budgets, increases in tuition fees and limited access to higher education, may generate short-term fiscal benefits, they suffocate the most important resource an economy has: human capital.
That's what Geoffrey Garrett -dean at the University of Pennsylvania Wharton School- argued when asked to analyze the cuts that the Oversight Board imposed on the University of Puerto Rico.
"If you look at what happened in the U.S. with public universities, they've all been subject to budget cuts and increases in tuition... That's short term (benefits)... the problem is that it stifles human capital growth," Garrett said during the event "Puerto Rico at the Crossroads: Investing in the Future," held yesterday at the Puerto Rico Museum of Art in San Juan.
Garrett said there are systems around the world that somehow successfully seek to address the budgetary challenges that public higher education systems face, including imposing special taxes on those who graduated from public universities with nominal tuition costs and who are already in the labor market.
Michael Useem, director of the Wharton's Center for Leadership and Change Management, said universities should draft persuasive arguments for those responsible of university financing to weigh long-term benefits against short-term benefits of budget cuts.
The current certified fiscal plan imposes cuts close to $ 275 million by 2023 to the already decimated state contributions to the University of Puerto Rico.
Similarly, Garrett said that austerity initiatives implemented in Europe in the 1980s showed that budget cuts do not solve countries' fiscal problems unless significant they implement reforms in the economic structure and even in the government.
"It only works if you do an organizational restructuring at the same time," he said.
In European countries these changes took the form of privatizations, deregulations and integrating the United Kingdom into the European market.
Garrett said that, on many occasions, these changes can be disruptive and can generate a lot of public opposition. While, Useem added that implement these changes require a good political leadership.
José B. Carrión, president of the Fiscal Oversight Board (JSF), somehow, echoed the idea by arguing that the fiscal entity he leads, as it is not an elected entity, faces a lot of resistance at the moment of demanding the structural changes that, in his opinion, the Puerto Rican economy needs.
The head of the Board insisted on the need to reform labor laws, to correct the bureaucratic permit system in Puerto Rico and to reform the tax system to promote local and foreign investment.
“Those are structural reforms we can do without U.S. participation,” said Carrión.
These changes could become more important with the technological developments that are looming and that will transform economies and the labour market in the near future.
Banker Richard Carrión added that Puerto Rico also needs stability in its regulatory and tax frameworks.
"There's nothing more cowardly than a million dollars. Capital likes stability and not such abrupt changes," said the banker.