A country without oil needs smart people! This clearly applies to Georgia. Not endowed with substantial amounts of natural resources, Georgia totally depends on its human resources. Yet how good is the intellectual equipment of the Georgians that is so urgently required for driving the economic development of this country?

When it comes to applied knowledge that can directly be utilized for economic activities, the picture is rather disenchanting. According to UNDP data, 81% of Georgian unemployed completed secondary or higher education. Yet as we wrote previously (“Jobless Growth in Georgia”), this rather indicates that the training provided by the formal education system is not very useful in the job market.

In our opinion, more telling is Georgia’s relatively low ranking (93rd) on The Higher Education and Training Pillar of the Global Competitiveness Report of the World Economic Forum. In that report, which measures quality of education rather than the amount of degrees awarded, poor education is a key weakness in the country’s competitiveness performance. This finding is further corroborated by the most recent World Economic Forum-sponsored Executive Opinion Survey, according to which “inadequately trained labor force” is second (after “access to finance”) on the list of problems faced by Georgian businesses. Obviously, with the high percentage of people who completed secondary education, the problem of “inadequate training” is not so much about access to education per se as it is about access to the right kind of education and, most importantly, high quality vocational training.

Georgia’s high unemployment, not fully reflected in the official figures, results partly from a shortage of high productivity jobs and a skills mismatch: a surplus of workers with tertiary and secondary education, and a shortage of people with technical skills. Many of the unemployed have college diplomas but lack skills demanded by the labor market.

FAR-REACHING REFORMS

These outcomes seem to be particularly disappointing if one considers the amount of attention education reforms received since 2004. The new Georgian laws on higher and general education (2004 and 2005) aimed to clean the system from endemic corruption, improve access and quality. While quality remains a challenge, the first two aims appear to be fully achieved in a very short timeframe. For instance, the independent National Centre of Education Accreditation, created in 2005, conducted a “quick and dirty” institutional accreditation process, reducing the number of higher education institutions from more than 240 to 43. Many of the “institutions” thus shut down were in fact village-based diploma mills, “orghobis universitetebi”, as they were called in Georgian.

To eliminate corruption in the university admissions system, the government implemented a rapid admissions reform process already in 2005. The key element of the reforms was the establishment of the National Accreditation and Examination Center (NAEC) to be placed in charge of conducting a single, centralized, secure and transparent entrance examination. In 2009, NAEC was authorized to conduct a similar entrance exam for master-level studies. The highly successful accreditation and admissions reforms resulted in a reduction of tertiary education enrolment from the peak of 46.6% in 2005 to 28.2% in 2011.

QUALITY REMAINS A PROBLEM

The quality enhancing aspects of the reform included i) the ambitious institutional accreditation process to eliminate low-quality institutions mentioned above, ii) introducing competition among universities by adopting the principle of “the money follows the student”, and iii) allowing students to apply to multiple universities in a single academic year.

Despite the success of the reforms in eradicating corruption and establishing a transparent system of university admissions, the system has been much more resilient to change as far as the quality of teaching is concerned. As the World Bank pointed out last year, the new higher education accreditation rules guaranteed that institutions fulfilled minimum standards, but it did not guarantee quality. The liberal labor code allowed university management to (repeatedly) fire and rehire the entire academic staff beginning in 2006 and 2007. However, the result was staff retrenchment and public outrage. Some of the better instructors, e.g. in fields such as mathematics, decided not to go through what they considered to be a humiliating process of reapplication. Tbilisi State University tried to attract better instructors by introduced a highly differentiated faculty compensation structure in 2008, but ended up paying much more for the same quality of teaching.

SKILLS MISMATCH

The general problems of quality are compounded by a very significant lag with which signals from the labor market affect demand and supply in the education sector. To this date, universities continue to produce unreasonably large numbers of diploma holders in business, law, economics, social sciences, humanities, and medicine, resulting in high unemployment among university graduates, on the one hand, and very large efficiency losses for the economy, on the other. In 2010/11, the government reacted to the evident labor market mismatch by targeting higher education grants towards technical education, privatizing the agricultural university, and negotiating with the Millennium Challenge Corporation a major grant to upgrade the quality of technical education and the system of vocational training. These latter reforms are yet bear their fruit.

The weakness of technical education and training implies that sophisticated businesses are bearing a higher cost of training, reducing Georgia’s attractiveness as a possible destination for investment. Very telling in this regard is an interview ISET researchers had with BP’s Gia Gvaladze: BP is forced to make a massive investment in training its own staff. According to Gvaladze “Georgians are definitely capable of mastering the necessary skills, however training is expensive. It takes two years to bring a technician up to speed.”