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Are graduates the equivalent of oil in the 20th Century and coal in the 19th? I was struck by this question as I headed for an ONS conference on labour market statistics in Westminster this morning while reading my colleague Sean Coughlan’s interesting piece on the knowledge economy.

The debate about university tuition fees is in danger of overshadowing a more fundamental shift that will decide the future job prospects, economic security and well-being of the British population. There is a rapidly expanding global market of highly skilled labour for which the minimum entry ticket will be a degree. While traditional low-skilled and manufacturing jobs are disappearing, the raw material of the knowledge economy will be graduates.

I drew a simple graph for my presentation this morning which makes the point, I think.

Go back to 1984 and ONS labour market data shows that 44% of UK jobs were unskilled or low skilled jobs. Now it is about 27%. People working in the knowledge industries accounted for 31% of jobs in 1984. Now it is close to 45%.

Knowledge services have become 68% of what we sell to the world. Yes, that’s right. More than two-thirds of our exports are know-how.

Unemployment figures in the depths of the downturn in 2009 showed that among graduates working in the knowledge economy - financial consultants, business managers, lawyers - the proportion claiming job-seekers allowance was 1%. Among those who usually worked in unskilled admin jobs, the figure was 37%. Media claims that we were in the midst of a β€œwhite-collar recession” proved to be wide of the mark.

I would like to offer some unsophisticated, but, I think, broadly accurate historical perspective to this. It goes like this:

Economic success in the 19th Century was built upon a mixture of invention and largely unskilled labour. Britain was really good at this – moving millions of people with little or no education from fields to factories and driving the industrial revolution. It was a formula upon which an empire was created.

Economic success in the 20th Century was built upon a mixture of invention and technically skilled labour. Britain found it hard to adapt to the new rules clinging to a belief that its traditional approach had won it an empire and if only we could be true to those principles we would be great again. One consequence of this conviction was that, at the end of the 20th Century the UK found itself with a higher proportion of low-skilled and unskilled workers than most other developed countries.

In 2006, that β€œas a result of low skills, the UK risks increasing inequality, deprivation and child poverty, and risks a generation cut off permanently from labour market opportunity”. More than a third (35%) of adults were found to have low or no skills, double the proportion in competitors such as the US, Canada, Germany and Sweden.

An example of this anti-technocratic mentality, I think, is evident in the contrast between the ambition and the reality of the Education Act of 1944. The legislation introduced three types of state secondaries: grammar schools for the intellectual and academic, technical schools for engineers and scientists and modern schools to give less-gifted children practical skills for manual labour and home management. It was recognition that 20th Century development required specific investment in technical and vocational skills.

Such was the lack of priority and money given to technical schools that very few were ever opened. Instead, state education reinforced the divide between the educated elite and the rest, helping create a schools system in Britain that still produces greater levels of educational inequality than almost any other in the developed world.

Other industrialised nations, meanwhile, were spending heavily in the technical skills of their young people. By 1975, only 0.5% of British secondary school pupils were in technical schools compared to 66% of German youngsters.

However, we do have a chance to redeem ourselves in the 21st Century: the rules are changing again. The successful formula for developed nations like Britain will be a combination of innovation and highly skilled workers in the knowledge economy.

The United Kingdom has in-built advantages as the global knowledge economy takes shape: an historic tradition of academic excellence with some genuinely world-class universities; the language of international trade still tends to be English; Britain has an unrivalled financial and business services sector.

But the concern must be that we are still hampered by dewy-eyed nostalgia for the days of empire and a bi-polar view of society shaped by the adversarial structures which define our politics, justice and commerce.

Sean’s article quotes the Universities Minister David Willetts saying: "Developed economies are already highly dependent on universities and if anything that reliance will increase."

It is a view that is prevalent around the world. For each Briton who graduates there are at least 20 Chinese and Indian graduates jostling for work in the global marketplace. Not every Indian degree is equivalent to a degree from Oxford or Cambridge. But then not every British degree is either.

Here is a table from the OECD’s which makes sobering reading. I would ask you to focus on column 3 and column 8.

If we look at the UK, we can see that in 2000, the proportion of the population in their early 20s with a degree was 37%. By 2005 the figure had risen to 39%.

Now have a look what happened in some of our major competitors during the same period. Norway went from 37% to 41%; Italy 19% to 41%; Netherlands 35% to 42%; Denmark 37% to 46%; Poland 34% to 45%; Iceland 33% to 56%.

Just processing lots of people through what may be meaningless degrees is not enough, of course. But if the UK is going to do well in the 21st Century, it needs to produce the right kind of knowledge workers, to recognise the skills and abilities that will be most sought after by the global economy.

Having enough of the right kind of graduates may well be as important to Britain’s future prosperity as oil or coal or gold or iron was in the past.

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