US Higher Education: Is it the Best in the World and How Can We Improve it?

The United States outsources billions of dollars worth of business to China, India, and other developing countries every year (e.g. solar energy). However, China is also "outsourcing." The culprit? Higher education. China outsourced the higher education of 127,000 Chinese students to the United States alone in the past year. On the flip side of that, the US has only sent 14,000 students to study at Chinese universities in the past year. These stats and the graphic below via The Economist.

The Economist (Jan 18th, 2011)

Is the US Higher Education System the Best in the World?
China is obviously not the only country sending a lot of their university students to the US. Our country has a global comparative advantage in higher education at this point in history. I think most people would agree. Perhaps the UK is nipping at our heels, but given their relative geographic size and population, there is no way that they can ever support a University system as robust as ours.

THE World University Rankings (Sept 16th, 2010)

For more info on these rankings and the global higher education picture, click here.

How Can We Improve the System? 
Given that domestic industry and manufacturing will continue to chase cheap labor abroad, the United States must continue to invest in the University Economy to build human and intellectual capital. However, it needs to develop a more efficient, faster, and cheaper method of allocating funds. In my opinion, the federal grant system appears to be outdated. So why is this important?

Federal research dollars account for roughly 50% to 75% of our universities' total research funding each year, if not more in some cases. Aggregate federal research at the university level in 2007 was over $30 billion. It is smart to allocate a lot of money towards university research only if allocated to the right places. And let's face it, government is not always the best mechanism for allocating funds. A market based system could do much better, but designing one that would work is a significant challenge. Perhaps, we can ask the foreign students to figure it out for us...